Welfare Digest | Minnesota’s $250M Fraud Exposes Federal Aid Waste
Links & Benefits Breakdowns
Here are this week’s reading links and benefits breakdowns:
End Broad-Based Categorical Eligibility. Broad-Based Categorical Eligibility (BBCE) is a policy that automatically qualifies Temporary Assistance for Needy Families (TANF) and Supplemental Security Income (SSI) recipients for Supplemental Nutritional Assistance Program (SNAP) benefits. Congress created BBCE to reduce the administrative burden of eligibility checks for welfare programs, but as AEI’s Angela Rachidi notes, states often use it to give SNAP benefits to households that wouldn’t otherwise qualify—sometimes by providing only minimal TANF benefits like brochures or hotline referrals. These ‘token benefits’ trigger automatic SNAP enrollment and allow states to circumvent the program’s statutory requirements. In FY 2022, 13.6 percent of all SNAP participants were eligible due to BBCE. The solution, according to Rachidi, is to eliminate BBCE to “return eligibility limits to their Congressional intent.”
Minnesota Fraud Illustrates Federal Aid Failure. In a recent Cato blog, Chris Edwards discussed how investigators uncovered massive fraud in Minnesota’s school food subsidies. The nonprofit Feeding Our Future was caught stealing $250 million in federal school aid administered by the state Department of Education. “Because the Minnesota food program was federally funded, the state had little incentive to manage it efficiently, and after the scandal broke, the federal and state governments blamed each other for the costly mess.” While the Minnesota program’s fraud was exacerbated by particularly lax administration, “fraud in aid-to-state programs is chronic nationwide. If the Trump administration is interested in pursuing budget savings, it should push to eliminate federal aid-to-state programs.”
Trump Admin Emphasizes Self-Sufficiency in Housing Strategy. Three Department of Housing and Urban Development (HUD) employees anonymously reported the Trump administration’s plan to cut over half of HUD’s permanent housing funds and redirect them toward transitional housing assistance that is coupled with work or service requirements. As Cicero Institute scholar Devon Kurtz highlights, “permanent supportive housing gets recipients caught in the same trap as other forms of welfare: it reduces incentives to move off publicly-provided assistance rather than improving self-sufficiency.” Transitional housing, by contrast, provides a “necessary stepping stone to independent housing” because it prioritizes moving people off housing assistance and towards financial independence. This paradigm shift in federal housing policy is a vital step forward in breaking the cycle of reliance on perpetual government assistance and promoting genuine recovery and long-term economic independence. “HUD is no longer in the business of permanently funding homelessness without measuring program success at promoting recovery and self-sufficiency,” said a HUD spokesperson.
Romina Boccia Champions State-Led Welfare Reform in Response to TANF Pilot. Last week, the Department of Health and Human Services (HHS) selected five states to participate in a six-year redesigned TANF pilot. This pilot tests new measures for success by replacing the Work Participation Rate (WPR) with metrics focused on long-term employment, earnings growth, reduced government dependency, and strengthened family outcomes. Cato scholar Romina Boccia points out that the pilot “closing WPR loopholes and improving the focus on outcome measures is reasonable in the short term,” but the “long-term solution is returning responsibility for welfare programs to the states. Federal rules and metrics often create paperwork and incentives for gaming, rather than better results for families or taxpayers.” True welfare reform “should shrink Washington’s role and give states the freedom to design programs that meet local needs.”
SNAP Reform Needs More Cost-Sharing for Better Accountability. According to Douglas Besharov’s 2015 paper on SNAP, individual states paid half of SNAP’s administrative costs (now 75 percent post-OBBBA, set to take effect FY 2027) but, critically, do not pay for any of the benefit costs, which are covered entirely by the federal government. As such, “states have no incentive to reduce SNAP caseloads and in fact... have an incentive to shift recipients from their state-funded TANF [Temporary Assistance for Needy Families] programs to the federally funded SNAP, while keeping the resulting savings and enjoying the political benefit of a reduced cash welfare caseload.” Real reform, says Basharov, requires that “states be made financial partners of the federal government. . . As in the case of many other federal, means-tested programs, states should be required to pay a portion of SNAP’s costs, so that they would have a stake in enforcing eligibility rules.”
The Welfare State’s “Leaky Budgets.” As Manhattan Institute scholar Chris Pope points out, “most public entitlement spending in America now goes to the middle class” because of the enormous expansion of the welfare state. This has, as economist Arthur Okun suggested, created a leaky budget comprising the “funds that are lost in the transfer between taxpayers and intended beneficiaries.” This leakage, writes Pope, “occurs not only due to administrative costs and imprecision in identifying need, but also through incentives to claim public aid rather than to work, to consume rather than to invest, to deploy resources less productively, and to employ costly schemes to avoid taxation.” The broader the welfare state grows, the greater the leakage, and the more it crowds out private provision rather than filling unmet needs. Pope concludes, “America’s entitlement programs should be fiscally sustainable, politically accountable, and effective at aiding those who need it most. . . A targeted welfare state is the best means of ensuring all three.”