Last week, the House Ways and Means Subcommittee on Human Resources held a hearing addressing an obscure regulatory loophole, known as “excess MOE,” that is gutting the work requirement of the 1996 welfare reforms.

Most states are taking advantage of this loophole, which allows them to get credit for moving people into employment without having to help a single person.

States began to take significant advantage of this loophole in 2005, when Congress reauthorized the Temporary Assistance for Needy Families (TANF) program and tightened the work requirement. This reauthorization created higher standards for states to meet in engaging welfare recipients with employment activities.

States discovered a loophole that would help them shrink their required work participation rate by spending more than their required amount of state dollars on welfare-type activities, called “excess MOE.” The more excess MOE a state claims, the smaller its work participation rate. A state can even claim third-party expenditures as their own and virtually serve no welfare recipients in the process.

Excess MOE is being widely used by the states. According to testimony from Grant Collins, former deputy director of the Office of Family Assistance which runs the TANF program:

In FY [fiscal year] 2004, only one state reported spending more than 100 percent of their required MOE level. By FY 2009, 23 states were reporting spending more than 100 percent of the required level. This resulted in large excess MOE claims that reduced work rate requirements for many states. The larger the excess MOE, the greater the credit against the work rate, which results in fewer recipients needing to find work in order to avoid penalties.

(Collins also included this chart in his testimony to document the rise of states claiming extra MOE spending since the loophole became known.)

See chart HERE.

Without having to help a single welfare recipient find a job or prepare to enter the workforce, states are getting credit for putting people to work. The excess MOE loophole is destroying the very provision that made welfare reform a success. It is gutting the work requirement and keeping families dependent on government-provided welfare.

The core concept of welfare reform was that recipients would be required to work, prepare for work, or at least look for a job as a condition of receiving aid. Due to the MOE loophole, this principle has been almost completely lost. As Congress looks to reauthorize the TANF program in the near future, it should ensure that this loophole is eliminated. Restoring the core principle of welfare reform—work—is crucial to promoting self-sufficiency rather than welfare dependence.