The mechanism for federal funding of welfare experienced a serious transformation under the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996. Funding for state-run welfare programs switched from open-ended match grants to fixed block grants. The switch had a number of significant implications. The withdrawal of federal grants that matched state spending placed the burden of marginal costs of welfare programs on states. The implementation of fixed block grants from the federal government simultaneously increased the discretion of states to make decisions regarding their own welfare expenditures. Concerns over possible drastic cuts in benefit levels, tightened eligibility requirements, or the elimination of citizen entitlements to meet the new fiscal constraints have stimulated major discussions about the effectiveness of this switch. Some important questions are: What are the impacts on state fiscal environments by switching to block grants? How much of the burden of welfare finance does PRWORA effectively transfer to the states? How efficiently are the federal block grants and the additional "stabilizing funds" used in states?

Powers study uses a simulation method to analyze the period since PRWORA was enacted. She finds that the total cost to the federal government under the new system of block grants (in the form of TANF - Temporary Aid to Needy Families) is just 1.4 percent less than the prior cost of AFDC - Aid to Families with Dependent Children. Therefore, while the nature of federal funding changed immensely under the new block grant system, the quantity changed very little. Also, the distribution of federal funding among states is uneven and arbitrary. As a result, some states have been forced to spend far more than others under TANF, while a number of other states spend much less.

The Contingency Fund is the stabilizing federal fund which is divided among those states with demonstrable needs. Due to unfair requirements, the distribution of this $2 billion fund is also fairly arbitrary. In order for states to be eligible to receive contingency funding, they must demonstrate a significant increase in their unemployment rates and food stamp caseloads, as well as a 20 percent increase in their welfare spending. Under these conditions, states experiencing substantial and ongoing financial difficulties may still fail to meet the exact criteria for accessing the fund, while mostly larger states with higher concentrations of poor can qualify easily without significantly increasing their welfare spending.

This study argues for the need to adjust block grants during the funding cycle in response to the varied fiscal scenarios of the states. The current block grant system is not responsive to the evolving needs of individual states. The distribution of federal funds is based on illogical standards, and the fixed nature of these grants keeps states from spending as much as they need. States exhaust themselves financially to qualify for use of the Contingency Fund. States now view welfare spending as more of a monetary risk than a positive social investment. If the federal government continues to devolve the fiscal responsibility of social welfare to the states in this way, state policymakers will continuously seek ways to make larger cuts in programs in order to survive financially and politically, and have less regard for the welfare of individuals left in need.