The Shriver Brief : Poverty Law Commentary & Insights : Sargent Shriver National Center on Poverty Law : Affordable Housing, Healthcare Reform

Having a bank account is foundational to building financial security. Unfortunately, the lower your income, the more likely you are to be financially insecure and the less likely you are to have a bank account. According to the FDIC, about 20 percent of households earning less than $30,000 are unbanked.

This can be especially problematic for families receiving public benefits, such as Temporary Assistance for Needy Families (TANF), who can face significant fees to access their benefits in the absence of a bank account. Today, most public benefits are issued either directly into a participant's existing bank account or onto an electronic benefit transaction (EBT) card, which functions in some ways as a debit card.

Low levels of account ownership among participants, however, make the EBT card the default option. According to a new report, only 12 percent of TANF recipients have their benefits deposited into a bank account. The rest, who have their benefits placed on EBT cards, are subject to transaction fees at ATMs when they wish to withdraw funds. Assuming these transaction fees are 85 cents, and most are actually higher, this amounts to $1.2 million a year diverted from poor families to financial institutions. This is in addition to the $10 million a year that states pay to the financial institutions for administering states’ public benefit program, as well as surcharges beneficiaries must pay for use of out of network ATMs, which amounted to almost $900,000 in the first quarter of 2011. Consequently, families can be subject to a range of fees, depending on the terms of the contract between the state and the financial institution managing the public benefits program.

Several things can be done to combat these fees. First, EBT cards could be made more like debit cards so they can function as bank accounts for families who don't have them. That way, every TANF recipient who gets an EBT card will effectively also be getting a bank account. One way to do this is by transitioning from current EBT cards, which are typically closed loop, to so-called electronic payment cards (EPC) which are EBT cards branded with the Visa or MasterCard logo that are accepted almost everywhere, and by making the cards reloadable so they can store money in addition to benefits.

The shift towards EPC systems is already occurring, but it too raises challenges. While an EPC system allows beneficiaries to use their cards virtually anywhere that a MasterCard or VISA logo is displayed, and decreases the stigma associated with being recognized as a public assistance beneficiary because EPCs have the appearance of commercially recognized credit cards, there are potential negative ramifications for low-income families. Most importantly, effective consumer protection measures must be implemented because benefit recipients are more likely than general consumers to need these protections. Currently, the Electronic Funds Transfer Act and Regulations (Regulation E), which provide several consumer protections through error resolution and disclosure regulations, do not cover state-based EPC programs and privately issued prepaid cards receiving benefits through direct deposit. Public benefit recipients are already living at the margins and cannot afford to suffer out-of-pocket losses from potential consumer fraud or other problems that may arise under the EPC systems.  

Another option is to simply eliminate fees for EBT card transactions. State and federal governments shouldn't be subsidizing financial institutions with resources dedicated to helping very low-income families. Contracts with banks that administer the accounts should mandate a no-fee structure, or states could reimburse participants for fees they incur. As many states’ contracts are almost ready for renewal, this may be the appropriate time for states to take action.

A third option is for states to encourage savings by including a savings "bucket" as part of the card features and eliminating assets tests in public benefit programs that explicitly restrict the amount of savings a family can have and be eligible for the program.

Finally, there should be a broader overall effort to increase access to affordable banking options for low-income consumers. For example the FDIC’s Safe Accounts pilot, which offered basic, low-fee accounts through partnerships with several financial institutions, could be adopted more widely. At the end of the one-year pilot, retention rates for new accounts were high, 80 percent for transaction accounts and 95 percent for savings accounts, and banks reported that the cost of offering the account was comparable to that of other accounts. These outcomes suggest that there is a demand for these products and that this model could provide a sustainable way to expand availability in a way that works for consumers and financial institutions.

Senator David Frockt (D-WA) and Representative Bill Hinkle (R-WA) advocated for the need to connect TANF recipients to bank accounts to enable recipients to make safe financial transactions, build savings, and avoid EBT fees. It is clear that efforts to address the financial security of low-income families can be an area with many opportunities for bipartisan agreement. It's exciting to see that both sides of the political party recognize this important issue. 

To learn more about EBT and EPC systems in general, listen to the Shriver Center’s webinar, The Next Frontier in Public Benefits: Electronic Benefit Cards, and read the Clearinghouse Review article, The Next Frontier in Public Benefits: Electronic Benefit Cards.

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Illinois legislators have approved a $73 supplemental appropriation to fund child care subsidies in 2012. The Child Care Assistance Program (CCAP) helps low-income parents who need child care to work or go to school. Parents share in the cost of care by making a co-payment based on the family’s income and size, with the state paying the balance based on a provider reimbursement schedule. In early May, the Illinois Department of Human Services sent a notice to 35,000 homes and centers participating in the CCAP informing them that unless a supplemental appropriation was approved, they would receive no payments until July for services rendered in April, May and June.

Unfortunately, a companion bill will reduce and delay the assistance provided to recipients of Temporary Assistance to Needy Families (TANF) by reinstating a 45-day application processing deadline and then paying benefits retroactively only to the thirtieth day after application. This will impose significant hardship on the most vulnerable poor families.

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The 2010 legislative session will pass without Congress reauthorizing cash assistance for poor families with children (called Temporary Assistance for Needy Families or TANF); instead, its funding was simply continued at current levels for the next year. Reauthorization will likely occur next year, and Congress has already begun hearings on how to improve TANF. When Congress gets around to reauthorizing TANF, it must mend our frayed safety net. Ultimately, the key to improving TANF will be to measure success not by caseload reductions but by the elimination and alleviation of poverty. 

The federal poverty line in the U.S. for a family of four is just $22,050. In Illinois, 15% of families with children under 18 were poor in 2009. Those who live in extreme poverty have income totaling less than half of the poverty line. It is unconscionable that the safety net in an industrial democracy such as our own still leaves nearly nineteen million people living in extreme poverty in 2009. In Illinois 8.5% of children are growing up in extreme poverty, and many are not being helped by TANF at all. The same picture is playing out around the country.

Since federal welfare reform was enacted in the 1996, the Government Accountability Office (GAO) reports that caseloads have plummeted across the country—declining 87% in just 10 years. Meanwhile, extreme poverty is 18% higher than it was in 2000. The decline in TANF caseloads is due almost entirely to a huge rise in the number of eligible families who are not receiving benefits. Even before the recession, the GAO concluded that increasing the enrollment of eligible families to 1995 levels would lift 800,000 children nationally out of extreme poverty. Welfare has declined, but the real human need for it has not.

A few months ago, the Senate Committee on Finance concluded a “Hearing on Welfare Reform: A New Conversation on Women and Poverty.” The Sargent Shriver National Center on Poverty Law submitted testimony to that hearing. Among other suggested reforms, we highlighted the need to fundamentally rededicate TANF to its purpose—to be a robust and flexible safety net to lift people out of poverty. 

Here in Illinois, we have made significant strides to improve TANF through Public Act 96-0866, (described more fully here), which went into effect on July 1, 2010. By making benefits available sooner, and to more poor individuals, our TANF program has become a more robust safety net during the recession. In fact, Illinois has experienced a relatively significant increase in TANF receipt during the recession, rising approximately 40% in two years and 15% in just the months since Public Act 96-0866 went into effect on July 1, 2010. But we are still not talking about many families; only one in nine Illinois families in poverty receives TANF.

TANF reauthorization presents the opportunity to rededicate the program to its most critical goal, the alleviation of poverty, while at the same time furthering the aims of reducing dependency on aid and strengthening families. It is time to reauthorize TANF.

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The Chicago Tribune’s story about the end of the Put Illinois to Work program (“Quinn to end temporary jobs program next month”) supports the Tribune’s editorial narrative that government programs are wasteful and ill-conceived, but only by putting the program in a false light. The Tribune incorrectly assumes that the goal of Put Illinois to Work was to place the participants in permanent jobs, and then it criticizes the failure to achieve that goal.

Put Illinois to Work has provided temporary jobs to 25,000 Illinois parents and youth who have been unable to obtain employment in an economy where there are five job-seekers for every job. Most of those temporary jobs have been in the private sector.

The premise of the Tribune’s story is that the program has failed in its “ultimate goal of workers getting full-time employment.” The Tribune cites no authority for its assertion that this is the program’s ultimate goal—it just says it was the program’s “idea.”

But permanent employment was never the program’s objective. Rather, the main goal, at which it succeeded beyond anyone’s wildest expectations, was to create temporary jobs that would provide participants with income and job skills and keep them off welfare. Another main goal was to provide economic stimulus by putting money in the pockets of people who would spend it. In this economy, where there are few permanent jobs to be had, obtaining permanent jobs was a by-product but not a main goal of the program. 

The program in part has filled a need created by limitations in the unemployment insurance program. More than one-third of unemployed workers do not qualify for unemployment benefits when they lose their jobs because they did not work long enough, they worked part-time, or for other technical reasons.

The story also failed to mention that for an investment of $10 million in Put Illinois to Work, Illinois was able to leverage $200 million in federal funding—$1 for every $19 in return. Had Illinois not availed itself of this federal funding, it would have gone to other states.

Federal funding ended September 30 not because “the money ran out” but because of pre-election maneuvering in Congress. This left Governor Quinn with a choice—pull the plug on the program or keep it going for two months in hopes that Congress would extend the program during the lame duck session in November. Governor Quinn decided to extend the program based on strong indications that Congress would extend federal funding. And Congress probably would have done so had Senate Republicans not refused to consider any other legislation until tax cuts for millionaires were extended.

This left Governor Quinn with another choice—end the program on November 30 as scheduled or have the decency to extend it through the holidays. He chose common decency.

In this time of scarce resources, when it’s necessary to have an honest debate about the merits of funding government programs vs. cutting spending, let’s have that debate based on the facts. 

A version of this article was published in the Chicago Tribune's Voice of the People on December 21, 2010.

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On November 30, the day that the Put Illinois to Work (PITW) program was scheduled to end, Governor Quinn announced that he has extended the program through January 15. PITW provides $10/hour private and public sector jobs to approximately 25,000 low-income, unemployed Illinois workers. “I am extending this program today to keep thousands of people in Illinois at work through the holiday season,” said Gov. Quinn. 

Until September 30, PITW was largely paid for by the federal government with a funding stream created by the American Recovery and Reinvestment Act of 2009. Congress, however, failed to extend that funding beyond September 30. Just before PITW was originally scheduled to end on September 30, Governor Quinn extended the program through November 30. Extending PITW for another six weeks until January 15 will cost Illinois approximately $50 million in state general funds. PITW is a partnership between the Illinois Department of Human Services and Heartland Human Care Services.

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Wondering about the level of honest discourse to expect from leaders of the new Republican majority in the U.S. House of Representatives?  Their first salvo does not bode well.  

House Republicans announced earlier this week that they are targeting the Temporary Assistance for Needy Families emergency contingency fund (TANF ECF) for elimination.  

Representative Tom Price (R-Ga.), chairman of the House Republican Study Committee, explained that the program encourages states to increase their welfare caseloads “without requiring able-bodied individuals to work, get job training, or make other efforts to move off of taxpayer assistance.”  

Price claimed that eliminating the program would save $25 billion over ten years.   

Now the facts:

1. The TANF ECF primarily funded jobs for the recently unemployed. For example, Illinois used over 90 percent of its TANF ECF allotment to provide 25,000 jobs through the Put Illinois to Work program.      
   
   
2. TANF recipients who did not participate in the Put Illinois to Work program still were subject to the TANF program’s work requirements, instituted as part of welfare reform 14 years ago. Representative Price was in office when the Bush Administration made TANF work requirements even more stringent in 2006.
   
   
3. The $25 billion in savings claimed by the Republicans assumes that the program would be funded at the level of $2.5 billion for the next ten years. But the program expired on September 30th, so “eliminating” it would produce no savings at all. 
   
   
4. Furthermore, the longest extension considered before the program expired would have been for one year, not ten.

The bottom line: make-believe cuts to a program that has been wholly mischaracterized and no longer exists.   

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The American Recovery and Reinvestment Act of 2009 (ARRA), otherwise known as President Obama’s economic stimulus plan, included a small funding stream that states can use to create a subsidized jobs program for parents in low-income families who have been displaced from employment by the recession or otherwise are in need of employment. This spring, the Illinois Department of Human Services (IDHS) produced a plan to utilize these stimulus dollars and received immediate federal approval of its plan. IDHS dubbed its new jobs program “Put Illinois to Work.”

Three months have now passed since the Put Illinois to Work program began in early April, and it’s fair to say that it has been a monumental success in helping to solve our state’s #1 problem--getting people in Illinois back to work. It has done so at little cost to the state by creatively harnessing the federal funding stream created by ARRA. Illinois has done what the anti-government chorus considers the impossible, working closely with the private sector to get a large-scale government program that produces jobs up and running quickly and efficiently. 

Put Illinois to Work provides jobs that pay $10 per hour for 30-40 hours per week of work. As of today, there are over 18,000 people in Put Illinois to Work jobs. Employers have created 35,000 work slots, more than double the state’s original goal of 15,000. The program has been so popular that with over 60,000 job applicants, IDHS has had to close intake to the program.

The state has invested $10 million to leverage a federal investment of $200 million--a $20 return on every $1. Employers’ training and supervision expenses are considered an in-kind contribution under federal law so these workers come at no cost to the employer. In addition to earning badly needed income, workers with thin employment histories are building up their job skills and resumes. IDHS anticipates that thousands of Put Illinois to Work participants will receive continuing offers of employment when the program’s funding runs out.

The Temporary Assistance for Needy Families (TANF) emergency contingency fund (ECF)--the federal fund that pays for Put Illinois to Work--expires on September 30, 2010.  State subsidized employment programs like Put Illinois to Work enjoy wide bipartisan support in the United State Congress (a rare thing these days). The U.S. House of Representatives has already passed a one-year extension of the TANF ECF. A similar measure was uncontroversial in the U.S. Senate but was included as part of the unemployment extension legislation that recently failed to get the 60 votes needed to advance in the Senate. 

The Shriver Center and many other advocates are undertaking intensive efforts to get Congress to find another way to extend the TANF ECF for one year beyond September 30, 2010. For the sake of the tens of thousands of low-income Illinoisans who need and want to keep these $10 per hour jobs, let’s hope that these efforts are successful.   

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