States may not exceed an estimated 95 percent of the annual revenue yield from the 0.45 percent. The remaining 0.05 percent goes to finance Federal administration. (The additional FUTA revenue not earmarked for administrative purposes finances the Federal share of extended unemployment benefits and unemployment loans to the States.) Title III of the Social Security Act specifies the conditions which a State must meet to be eligible for administrative grants.

Section 8. Aid to Families With Dependent Children (Title IV-A)

ELIGIBILITY

Aid to dependent children (ADC) was established by the Social Security Act of 1935 as a cash grant program to enable States to aid needy children without fathers. Renamed aid to families with dependent children (AFDC), the program provides cash welfare payments for needy children (and their mothers or other caretaker relatives), who have been deprived of parental support or care be

cause:

—their fathers are absent from home continuously (85.9 percent of the children), are incapacitated (5.3 percent), deceased (2.2 percent), or unemployed (5.2 percent); or

-their mothers are incapacitated, absent or dead (1.4. percent). (Percentages are from the 1979 AFDC Study.)

States define "need," set their own benefit levels, establish (within Federal limitations) income and resource limits, and administer the program or supervise its administration. All States, the District of Columbia, Guam, Puerto Rico, and the Virgin Islands offer AFDC to needy children without able-bodied fathers at home, and 23 jurisdictions offer Federal cash supplements also to children in two-parent families who are needy because of the unemployment of one of their parents (aid to families with dependent children of unemployed parents (AFDC-UP). Eligibility for AFDC on the basis of a parent's unemployment is limited to those families in which the principal wage earner is unemployed.

Eligibility for federally aided AFDC ends on a child's 18th birthday, or at State option upon a child's 19th birthday if the child is a full-time student in a secondary or technical school and may reasonably be expected to complete the program before he or she reaches age 19.

Prior to the amendments contained in the Omnibus Budget Reconciliation Act of 1981, Public Law 97-35, a State could continue benefits through age 20 for students.

Federal law requires certain able-bodied recipients, including mothers whose youngest child is at least 6 years old, to register for training and employment services (which may include job search for no more than 8 weeks per year) under the work incentive program (WIN). Public Law 97-35 allows States to establish community work experience programs under which AFDC recipients would be required to work on public projects in return for their AFDC benefits. Persons exempt under present law from participation in the WIN program would also generally be exempt from participation in these programs except that parents caring for children under age 6 (but not under age 3) could be required to participate if child care is available.

Federal law also requires AFDC mothers to assign their child support rights to the State and to cooperate with welfare officials in establishing the paternity of a child born outside of marriage and in obtaining support payments from the father.

FINANCING

The Federal Government pays at least 50 percent of each State's benefit payments and more than 70 percent in four States. Federal matching for AFDC varies from State to State depending, in part, on per capita income. Under matching formulas in the law, about 55 percent of each AFDC benefit dollar is paid by the Federal Government and 45 percent is paid by the States, some of of which require local governments to share costs. The Federal share varies among States, ranging from 50 percent to 77.36 percent, and it is inversely related to State per capita income. The Federal Government pays 50 percent of administrative costs in all States.

The Federal share of AFDC payments is determined by either the "regular" formula specified in title IV of the Social Security Act or, if the State has a medical assistance (medicaid) program under title XIX of the act, an alternate formula specified in title XIX of the act.

AFDC Formula

Under the regular, two-part formula, the aggregate amount of a State's AFDC expenditures eligible for Federal financial participation is based on the average monthly payment per recipient,1 up to a ceiling of $32, multiplied by the number of recipients.2 The first part of the formula is uniform for all States, with Federal funds representing % of the first $18 per month of the average payment per recipient made by the State multiplied by the total number of recipients. The second part of the formula provides for a specified percentage (50 to 65 percent, based on relative per capita income) of the next $14 per month of the average payment multiplied by the number of recipients. The maximum amount paid with Federal dollars is $24.10 per recipient [(%×18)+(0.65×14)]. Average payments over $32 are financed from State and local funds.

The actual formula used in determining the State and Federal share of payments between $18 and $32 is as follows:

State share=State per capita income squared/national per capita income squared 50 percent

Federal share=100 percent-State share (with Federal minimum of 50 percent and maximum of 65 percent)

1 To calculate average monthly AFDC benefits per recipient divide total annual AFDC payments by the average monthly number of recipients and then divide by 12.

2 However, under the AFDC foster care program the ceiling is $100 multiplied by the number of foster care recipients.

For the outlying areas (Guam, Puerto Rico, and the Virgin Islands) the "regular" AFDC formula provides 50 percent of AFDC benefit expenditures, up to a ceiling of $18 monthly in average benefits. These areas use instead a special version of the medicaid matching formula, which provides a 75 percent Federal funding share for AFDC; but the law imposes a ceiling on total Federal funds.

As of late 1981, only Texas and Arizona used this formula, which places a ceiling on average benefits eligible for Federal matching. Medicaid Formula

States with medicaid programs may choose to use the medicaid cost-sharing formula for their AFDC benefits.

The actual formula used in determining the State and Federal share is as follows:

State share=State per capita income squared/national per capita income squared >45 percent

Federal share=100 percent-State share (with a minimum of 50 percent and a maximum of 83 percent)

The Federal share of the benefits is shown in Table 1.

TABLE 1.-FEDERAL SHARE OF THE AFDC PROGRAM, FISCAL YEARS 1978 THROUGH 1983

TABLE 1.-FEDERAL SHARE OF THE AFDC PROGRAM, FISCAL YEARS 1978 THROUGH

1 Except in States that elect an alternate formula. Texas and Arizona did so in fiscal year 1981. Preliminary data indicate that Federal funds paid about 40.8 percent of AFDC benefits in Arizona and 65.0 percent in Texas in fiscal year 1981. The Federal medicaid matching rates are 60.81, 61.47, and 59.87 percent for Arizona and 60.66, 58.35, and 55.75 percent for Texas for fiscal years 1978-79, 1980-81, and 1982-83, respectively. 2 Effective Oct. 1, 1977, through Sept. 30, 1979.

3 Effective Oct. 1, 1979, through Sept. 30, 1981.

4 Effective Oct. 1, 1981, through Sept. 30, 1983.

5 Public Law 95-600 changed the Federal share for fiscal year 1979 from 50 to 75 percent. Public Law 96-272 made permanent the 75-percent matching rate for AFDC effective Oct. 1, 1979. For medicaid the matching rate remains 50 percent.

Source: Department of Health and Human Services.

Prepared by: Subcommittee on Public Assistance and Unemployment Compensation.