The Pew Charitable Trusts

Facing an October compliance deadline and the possibility of losing millions of federal dollars, governors, legislators and state welfare officials are asking the U.S. Department of Health and Human Services for more time and flexibility to meet new welfare-to-work rules.

States stand to lose $23 million in federal funding over the next five years, according to the Congressional Budget Office (CBO), if they fail to meet tougher new standards that require a larger percentage of welfare parents to participate in federally approved programs designed to help them find jobs.

The new rules, part of the Deficit Reduction Act signed in January, are the first major changes in the federal-state welfare program - Temporary Assistance for Needy Families (TANF) - since its creation in 1996.

State officials - worried the new rules will curtail the flexibility that has been the hallmark of the TANF program - are weighing a wide array of options to avoid federal penalties that many say could exceed the CBO estimates. Meanwhile, states are asking for leniency in meeting the new goals, so they don't have to dismantle what they say are highly successful welfare programs.

"Governors are concerned that the source of TANF's success - flexible, state-specific programs - will be undermined if the new regulations fail to maintain adequate flexibility for states," Arkansas Gov. Mike Huckabee (R) and Arizona Gov. Janet Napolitano (D) said in a letter to HHS Secretary Mike Leavitt last week on behalf of the National Governors Association.

The governors also asked Leavitt to make sure HHS doesn't impose onerous administrative burdens on states.

The original TANF law gave states wide latitude to use block grants of federal money to help poor families put food on the table, as long as they helped parents find jobs and move off of welfare. It required states to enroll at least 50 percent of single-parent welfare families in work preparation programs, but eased the transition by shaving points off those goals if states reduced their caseloads below 1995 levels.

Because states have successfully reduced welfare rolls since 1996, most have not had to meet the 50 percent goal.

The new law takes away the previous credit system, requiring all states to immediately meet the work participation goals or face stiff penalties. Even more troubling for states is a requirement that 90 percent of two-parent families meet those requirements.

Only five states now meet the 50 percent threshold for families engaged in work activities, and only three meet the 90 percent level for two-parent families, according to the National Conference of State Legislatures (NCSL).

Another big change in the budget bill is that state-run welfare-to-work programs will come under federal scrutiny.

Under the old law, states determined whether activities such as college classes, mental health treatments, community service and vocational training would be counted as job preparation activities. Welfare recipients were required to enroll in approved work-preparation activities or be kicked off the rolls.

The Deficit Reduction Act calls on HHS to set nationwide definitions for what qualifies as work-related activities by June 30. State officials say that's too quick to make permanent decisions that could radically change their welfare programs. They're asking the agency to take the time to collaborate with states and revise those standards later.

The states also asked HHS to impose financial penalties only as a last resort.

Washington Gov. Christine Gregoire (D) suggested that "states that make a good faith effort to move forward (should) not be penalized or sanctioned in the first year of implementation."

But even if the feds give states a little wiggle room, most will have a tough time meeting the new work participation levels.

Jack Tweedie, an NCSL analyst, said states can take three basic approaches to meeting the new federal goals.

First, they can step up efforts to push recipients into job-related activities, by imposing tougher sanctions on parents who fail to participate in programs aimed at landing jobs.

Another approach states can take is to help welfare recipients make the transition to the workforce by keeping them in the welfare program even after they land a job. This strategy would allow states to count working parents who otherwise would have left the welfare program, making it easier to reach the 50 percent goal.

A third approach is for states to remove hard-to-employ people from their TANF programs and enroll them in separate state programs, so they don't pull down the work participation rates. Those people still would receive state benefits, but the money states spend on those separate programs would not count toward the states' required contribution to the TANF program.