Summary of the Just Enacted Federal Fiscal Responsibility Act

On Capitol Hill last Thursday, the months-long debt-limit fight concluded with both the House and Sente voting to pass the Fiscal Responsibility Act (FRA). The passage of this package was not without controversy. Several conservative House Freedom Caucus members voted against the bill—meaning Speaker Kevin McCarthy had to rely on Democrats to get the bill approved.

Several of the controversial provisions in this bill impact how states run entitlement programs, so this edition of  SPN’s Dispatch from DC will delve into these programmatic changes.

The Fiscal Responsibility Act 101

After months of policy debates and negotiations, President Biden signed a debt-limit increase just two days before the Treasury Department estimated the federal government was set to run out of money to pay its bills. The FRA included the following provisions:

  • Suspends the debt ceiling through January 1, 2025.
  • Implements two years of caps on discretionary and military spending, and then nonbinding spending targets for further years.
  • Enacts administrative PAYGO through 2024, which requires agencies to identify offsets if they increase spending—but the White House Office of Management and Budget can waive the requirement if it is determined the spending is “necessary for effective program delivery.”
  • Rescinds $1.4 billion of the Inflation Reduction Act’s $80 billion IRS appropriation and then pares back the funding by about $10 billion each year for 2024 and 2025.
  • Formally ends the freeze on student-loan repayments, although does not address the loan forgiveness program.
  • Claws back most of the remaining unspent COVID-19 relief funds, estimated to be $30 – $40 billion.
  • Implements federal environmental permitting reforms to expedite large-scale energy and infrastructure projects.
  • Strengthens work requirements for certain recipients of Supplemental Nutrition Assistance Program (SNAP) and Temporary Assistance for Needy Families (TANF) benefits.

New Work Requirements in the FRA: What it Means for the States

The debate over entitlement work requirements was one of the more controversial issues during negotiations. The final agreement did not address Medicaid, just SNAP and TANF. Both programs are administered by states and the changes will impact how states manage recipient populations.

TANF Changes in the Fiscal Responsibility Act

TANF is block granted to states to be used for family cash assistance programs. The laws governing the program note that a state must have 50% of all families and 90% of two-parent families that are recipients engaged in at least part-time work or other approved activities.

States have flexibility in setting up work requirements and are permitted to reduce the percentage of recipients that must work based on reducing their caseloads. For every percent decline in caseload since FY2005, states can reduce their work requirement by one percentage point. For example, if a state reduced the number of families receiving assistance by half (50 percent), it reduces its 50 percent work standard to 0 percent. In FY2021, 30 states had an adjusted work standard of 0 percent. Even in red states that usually have legislative leaders that support work requirements, some program administrators prefer not having the extra administrative burden of verifying if program recipients are working.

The changes adopted in the FRA keep the state caseload reduction credit but changes the baseline year from FY2005 to FY2015. According to the Congressional Research Service, most states have experienced a reduction in families on the program since FY2015, but caseload declines vary by state. The American Enterprise Institute estimates the caseload reduction credit in the average state would decline to around 42 percent, so modest work requirements will be reapplied to the program.

Some states, such as California, issue small checks to working families so they can be counted toward meeting their work requirement goals. The FRA does not close this loophole, but instead requires a minimum of $35 a month to be paid out as benefits.

The final major change to TANF in FRA is the authorization for the Department of Health and Human Services to operate a five-state pilot program for six years that would test changes in how states operate their work programs. Instead of being held to current work standards, states would be required to meet a set of negotiated employment outcomes such as employment rates and median wages for those leaving assistance, along with other measures of family well-being.

Many Republicans would characterize the changes to TANF as heading towards the right direction and opening the door for more reforms when the program is reauthorized. Unfortunately, the same cannot be said for the changes to SNAP.

SNAP Changes in the Fiscal Responsibility Act

The FRA raises the top age at which adults without children living in their homes must work to receive SNAP assistance, from 49 to 54, phased in over three years. But the law also includes exemptions for the homeless, veterans, and individuals 24 or younger who were in foster care. The Congressional Budget Office issued an estimate that new exemptions will actually result in 78,000 more people receiving assistance and increased spending of about $2.1 billion over 10 years. Some policy experts believe that the estimate overstates the impact of the exemptions.

The bill also does not directly address the various gimmicks states use to get around work requirements. In a recently published study that was cited by The Wall Street Journal Editorial Board, the Foundation for Government Accountability outlines how states exploit various loopholes to maximize waivers that remove work requirements in areas with unemployment rates above 10 percent. The FGA study found that in the 800 counties where work is waived, only 20 of them actually have unemployment rates over 10 percent. That means of the four million able-bodied adults on SNAP, 75 percent don’t work and less than three percent work full-time.

The FRA does change how states can reserve work requirement exemptions and use them in the future. Prior to the FRA, states were allowed to waive work requirements for a limited number of people and stockpile unused exemptions. The FRA reduced the number of monthly exemptions and limited states to one year to use those exemptions. Approved work requirement waivers will also be made public so policy advocates and Congress can have more oversight of how the Department of Agriculture runs the program.

All eyes should be on how states and counties respond and adhere to these changes.

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