Analysis: How to get cash back into hands of Michigan families

Under the shroud of the pandemic, poverty has increased, as more people are experiencing economic insecurity.  This is equally true in Detroit, which, before the pandemic, already had one of the highest rates of economic insecurity in the country. 

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At 30 percent, the average poverty rate is almost three times the national rate. For Detroit children, that number is even higher: 43 percent. One might think, with such high rates of poverty, that a significant number of Detroiters would benefit from cash assistance programs — what people usually call “welfare.” Yet, that’s far from the case.

Though Detroit is one of the poorest big cities in the country, only 5 percent of Detroiters reported receiving cash assistance in October 2020 — up from 1 percent since the spring. 

Gov. Gretchen Whitmer’s administration has been making changes to improve access to public assistance programs amid the COVID-19 pandemic.

In late 2019, Whitmer convened a Michigan Poverty Task Force, whose policy recommendations were published in a Feb. 17 report. The task force found families that need the most help face barriers when accessing public benefits, and that offering lump-sum cash assistance could be an effective way to help families in poverty. In March, less than a month after the report was published, President Joe Biden signed the American Rescue Plan Act, which temporarily expands the Child Tax Credit (CTC) to families without earnings and will provide up to $3,600 per child to low- and middle-income families for one year.

Outside of the expanded federal CTC, traditional cash assistance in Michigan is called the Family Independence Program (FIP), and it’s the hallmark program of Temporary Assistance to Needy Families (TANF). To make matters more difficult, TANF funding has not increased along with inflation: Michigan’s TANF cash assistance grant has been frozen at $492 per month for a family of three since 2008. Today, this represents about 27 percent of the poverty threshold ($20,598 for a family of three). To be eligible for TANF, a family of three has to have a combined income of earnings and TANF payments of less than $814 a month — 47 percent of the poverty threshold. Scholars refer to half the poverty level as “deep poverty” — so all Michigan TANF families are experiencing deep poverty, as a rule.

In 2011, Gov. Rick Snyder’s administration enacted a policy change causing 11,000 families to be immediately dropped from the program. Caseloads continued to fall, and with fewer people receiving benefits, the state spent less money on basic assistance.

Nothing helps like cash

A large body of research points to cash as one of the best interventions for poor families, particularly children. For all the programs to reduce poverty through work supports or education, one surefire way to help is simply to give low-income families cash to make spending decisions for themselves. Study after study has shown that low-income families spend cash assistance overwhelmingly on basic necessities.  Cash has important effects for children in poverty; the first five years of a child’s life are the most important for brain development, and the toxic stress of poverty can have detrimental impacts on a growing child. That’s why many advocate for child-allowance programs, which are popular in other countries, including many in Europe, which have much lower poverty rates than the United States.

But the idea of “welfare,” as well as the term itself, is typically maligned. Political backlash, often racialized, has resulted in serious changes, increased restrictions, and cuts to cash assistance over the past decades.  

“There’s a lot put on families to ‘earn’ this,” Mia Harnos, chief strategy and innovation officer at Wayne Metropolitan Community Action Agency (Wayne Metro), said of FIP requirements. Wayne Metro is funded by the Michigan Department of Health and Human Services (DHHS), as well as the federal Department of Human Services to connect people and families with safety net programs.

For example, families generally must work or participate in “job activities” (for a state to meet federal requirements, 50 percent of  families must work at least 30 hours per week). Also, there’s the thorny issue of child support: to receive benefits, eligible recipients must make demonstrable efforts to claim unpaid child support — that is, they must initiate legal action against the father or mother of their children. Missing an appointment or not meeting your work requirement can end in a disciplinary sanction; three sanctions, and a Michigan family is banned from the program for life. (This is one policy that the Michigan Poverty Task Force is hoping to change.)

At Wayne Metro, TANF — even though it’s the program that people think of when they hear “welfare” — isn’t a primary focus. The service providers do the most work on programs that are more well-known, helpful, and easier to get, such as energy assistance.

Between 1992 and 2000, welfare caseloads fell 75 percent in the Detroit metropolitan area; most recipients continued to live in the city. Detroit women often needed to accept low-wage work — if they could find work at all — because higher-paying jobs were more often found in the suburbs, and thus, often inaccessible to city women without access to transportation. Receipt of basic assistance has continued to plummet across the country, including in Michigan. Between 2018 and 2019, about 11 percent of Michigan families living below the poverty threshold received TANF cash assistance, compared to 88 percent between 1995 and 1996.

“The way TANF is set up, people refer to it as a program, but it’s not. It’s a federal funding stream,” said Peter Ruark, senior policy analyst at the Lansing-based Michigan League for Public Policy. 

As a block grant, states have great flexibility in how they design and spend their grants, the amounts of which have been frozen since the inception of the program. The result of this state discretion is that states often opt to allocate little funding to the most important, core aspects of the TANF program: cash transfers to low-income families, as well as work supports and child care assistance.

Michigan is currently one of the worst states for basic assistance spending, using only 6 percent of its $775.3 million TANF grant (and state funds) on the cash assistance program in 2019. This was a major drop from the year before, when Michigan spent 12 percent of the grant on cash assistance. Michigan’s spending on FIP has declined 84 percent since 2010. The average state uses about one-fifth of its funds on basic assistance.

Spending that doesn’t help anybody

Instead of using TANF funding to provide basic cash assistance, Michigan, like most states, uses TANF grant funding to fill in holes in the general state budget. Sometimes, this means that TANF resources go to questionable sources. 

Mississippi made headlines last year when The (Jackson) Clarion-Ledger revealed that the Department of Human Services used TANF funds to pay former NFL quarterback Brett Favre more than $1 million for speaking engagements that he never attended. 

And this spending can also be highly racialized: A recent study shows that states with more Black families are more likely to use TANF funding, not on providing cash assistance, but on promoting marriage and preventing out-of-wedlock pregnancy. The paper also found that removing these uneven racial differences in spending would decrease the Black-white child poverty gap by at most 15 percent.

Other expenditures are less preposterous — but still dubious. Michigan has used TANF funding to support scholarships for middle- and even upper-income students, as detailed by a 2016 Bridge Magazine investigation.

“TANF is not a story of states spending money that’s supposed to be for poor families on things like roads and bridges directly,” said Donna Pavetti, vice president for family income support policy at the Center on Budget and Policy Priorities in Washington, D.C. “What TANF has allowed states to do is take money away from families that originally went directly to families so they could meet their basic needs.”

Because there are a lot fewer families who meet the criteria to receive assistance, “States have money available, and they have shifted that to pay for things [that], if TANF wasn’t available as a block grant, they would be spending state dollars on,” such as the child welfare system, Pavetti said.

When states take TANF funds that were intended to provide cash assistance to low-income families and use it instead to pay for other services, these families are deprived of funds they could have used to pay for food or utilities, or to buy their kids new clothes for school. 

“You can’t eat services,” Pavetti said, noting that anti-poverty services are indeed important, but that these families  can’t pay rent with services.

And yet, though there is widespread understanding that TANF funds are often used to patch the general state fund, fixing the problem would be a challenge. 

For instance, one source of TANF spending in Michigan is the child welfare system — a popular use of funds across the country. TANF funding is used to pay foster families, as well as family support and reunification services. 

“That’s not a bad thing to spend money on,” said H. Luke Shaefer, a professor at the University of Michigan’s Ford School of Public Policy, who also serves as special counselor to the director of DHHS. “But it’s not really what the program is intended for.” 

State budgets, many with balanced budget requirements, are often tight. Shaefer explained that “it’s extremely difficult for a (state human services) department that’s not seeing any increases in revenue anywhere to bring that money back. There’s a lot of pressure; it’s just a difficult, long-term task to right the ship, if you will, and get the expenditures back to where they were.” 

Plus, in order to do so, DHHS would need the support of the Michigan Legislature. TANF and other welfare programs are not popular among Michigan Republicans, so the possibility of doing this legislatively is small.

Numbers seeking help increase

In recent years, Michigan has approved very few families for participation in the Family Independence Program. Before TANF, more than 200,000 people received benefits through FIP.  Now, as of March 2021, that number is , comprising just 13,163 households. For all the backlash that “welfare” gets, “hardly anybody in this state is receiving cash assistance,” Ruark said.

However, during the first few months of the pandemic, FIP caseloads in Michigan briefly  increased. In March 2020, total FIP receipt was 35,547 people (15,182 households), and in May 2020, FIP served 71,903 recipients, or 27,427 households.  It’s likely that this was because more people had fallen under the poverty threshold because of the intersecting public health and economic crises. It might also be because DHHS worked to make programs like FIP more accessible in light of the pandemic. Eligible families approved for the program needed to wait only a week and a half, as opposed to three weeks, to be approved for benefits. The administration also gave families deferrals on their work requirements, considering that going to work could expose them and their families to coronavirus, and also waived the requirement that families attend in-person orientations.

As a result, during the initial wave of the pandemic, “The program was more responsive than a lot of (other) states’ programs,” said Shaefer. Indeed, because TANF funding is capped, it doesn’t typically expand as needed during times of economic upheaval. (TANF caseloads increased modestly during the beginning of the Great Recession, but were falling by 2011.) DHHS’ proactive approach in Michigan likely played a part in the increase of more than 12,000 households onto the TANF rolls between March and May.

DHHS also made changes due to COVID-19 in order to assist families with accessing the State Emergency Relief program, which is an emergency assistance program to help people pay their energy bills. For instance, a phone interview was no longer required to get help.

The Whitmer administration has also made a number of executive changes to make accessing benefits easier and less complex. Two years ago, Michigan had the longest benefit application in the country, but DHHS worked with nonprofit design company Civilla to streamline it, reducing the length of the form from 42 pages to 18. They also revamped renewal forms for ease of use last year. Long forms put another obstacle in a low-income family’s pursuit of aid, and the streamlined processes mean that more families actually complete their applications. Finally, the state altered a strict asset test that required families to have less than $3,000 in the bank to receive benefits — which may work as a disincentive to save for emergencies on the part of low-income families. Now, the asset limit is $15,000.

These sorts of administrative fixes can mean a lot for low-income families. Though the department has some discretion over what it can do, it cannot make changes that would have too great an impact — for that, the Legislature is needed.

One relatively simple fix is to increase the amount of state grants to families. Remember: a family of three in Michigan receives $492 each month — compared to $459 in 1993. Because caseloads are so low, increasing the benefit amount can be relatively inexpensive. About half of the states — but not Michigan — have increased grant amounts since 2013.

For all its faults, TANF can help serve as a realization of what direct cash transfers can do, especially in a global pandemic that has ruined household economic circumstances across the country. For Detroit, an increase in cash transfers could likely have an impact on the city’s high child poverty rate. So far, the State of Michigan has failed to devote a significant portion of its TANF funding to cash assistance — but change may be coming. 

Positive results from the rollout of CTC cash payments could provide further evidence of the benefits of cash payments, supporting an argument to invest in TANF too. Improvements to the program made by DHHS and the Whitmer administration are a step in the right direction, yet more can still be done.  

Kalena Thomhave is a freelance journalist on poverty and inequality. In May 2021, she received a master of public policy from the Gerald R. Ford School of Public Policy at the University of Michigan. This story was written with the support of a collaboration between BridgeDetroit and the Ford School.