Financing Options

In order to ensure that state policies are sustainable it is important to consider ways to both maximize federal resources and to utilize public-private partnerships. To that end, there are several opportunities to support state efforts to reduce child poverty. For example:

• Maximize Federal Funding

Food Stamp Employment and Training (FSET). FSET is a federal program that provides grants to states to provide job training services for food stamp recipients.  In addition, this program also provides unlimited 50 percent federal funding match for additional state and local funds invested in training for this population.  States that access these uncapped matching funds can leverage significant federal dollars to provide expanded job training and related supports to those at the lowest end of the income scale.  See more information and examples of how states are using FSET.

Federal funding for EITC outreach and free tax preparation. In 2009, for the first time, the Internal Revenue Service (IRS) made $8 million available to government and nonprofit entities across the nation working to raise awareness of the EITC and provide free tax preparation services for low-income people.  See a list of 2011 grantees in your state. The IRS posts updated information for this funding source on the IRS Community Service website.

TANF funding for EITC. Several states use TANF funding to help support state EITCs. TANF funds can be used to support the portion of the EITC that is refunded to TANF recipients. As of 2011, 21 states are using TANF funds to help support the state EITC efforts.

Maximize federal reimbursements. The federal government pays 100 percent of food assistance program benefits. Federal and State governments share administrative costs (with the federal government contributing nearly 50 percent). Alternately, by providing a TANF or Maintenance of Effort-funded benefit that meets the definition of “assistance” under the TANF rules, a state can count these working families towards its work participation rate and boost the rate it achieves. Thus, the approach can help states meet federal requirements and assist in avoiding federal fiscal penalties, while also supporting low-income families as they transition into employment.

No-cost legal restrictions. Protections such as a 36 percent cap on small loans require very little new costs because states already have systems in place to monitor and enforce compliance with lending laws.  These restrictions may actually save money because they can replace more complicated laws that that apply unique restrictions to different types of lenders.

Cost-neutral tax code adjustments. Tax-relief for low-wage working families could be provided at no cost to the state by closing tax loopholes or raising rates in other areas of the tax code.

•  Utilize Public-Private Partnerships

Public-private partnerships for sector-based training. Public-private partnerships can play a major role in financing job training that is focused on industry-specific skills that are in demand by local businesses. For example, to establish 22 career pathways focused on specific industry needs, Kentucky allocated $6.2 million of state money and leveraged an additional $12.7 million from participants, employers, and other sources.

Training funded through payroll contributions. Half of states have developed training funds modeled on the unemployment insurance (UI) system of employer contributions. These funds have enhanced job training resources significantly, and provide much greater flexibility than federal funds. See more information on innovative state approaches to these programs.