States are hoarding $5.2 billion in welfare funds even as the need for aid grows

When Congress passed welfare reform in 1996, states were given more autonomy over how they could use federal funding for aid to the poor. They could demand welfare recipients find work before receiving cash assistance. They could also use their federal “block grants” to fund employment and parenting courses or to subsidize childcare. Twenty-five years later, however, states are using this freedom to do nothing at all with large sums of the money. According to recently released federal data, states are sitting on $5.2 billion in unspent funds from the federal Temporary Assistance for Needy Families program, or TANF. Nearly $700 million was added to the total during the 2019 and 2020 fiscal years, with Hawaii, Tennessee and Maine hoarding the most cash per person living at or below the federal poverty line.

States have held on to more of this welfare money amid rising poverty. According to the U.S. Census Bureau, 16.1% of children under age 18 lived in poverty in 2020, up from 14.4% the year before. The poverty rate also ticked up for people aged 18 to 64, from 9.4% to 10.4%. As unused TANF dollars have accumulated, applications to the cash assistance program have waned, though it’s not for a lack of need, say experts and people who have applied to the program. The unused welfare stash tells a larger story of how the 1996 welfare reform law has failed the poor: It allows states to not distribute cash assistance even when they have the money to do so. Each year, the federal government awards states a block grant, or lump sum, of funding, with the intention that the money be spent to help poor people meet their basic needs, become employed and start two-parent families. States have discretion in how they can use, or not use, the money and have increasingly used it to fill unrelated budget gaps. Experts say it’s reasonable for states to have some TANF reserves, even as large as their annual block grant, but when they stockpile the money from year to year it’s cause for concern.