TANF-ACF-PI-2005-02 (Using Federal TANF or State MOE funds to purchase a business)
State agencies and Tribes administering the Temporary Assistance for Needy Families (TANF) program under title IV-A of the Social Security Act, and other interested parties.
Using Federal TANF or State MOE funds to purchase a business.
Section 404(a)(1) of the Social Security Act (Act), section 401 of the Act, Section 409(a)(7) of the Social Security Act, 45 CFR 260.20, 45 CFR 263.2, 45 CFR 263.11(b), 45 CFR 286.35, and 45 CFR 286.195.
This Program Instruction addresses whether States and Tribes operating an approved Tribal TANF program may use Federal TANF or State Maintenance of Effort (MOE) funds to purchase a business.
We have been asked whether program funds may be used to purchase a business. While the questions have primarily originated from Tribes operating their own Tribal TANF programs, the answer is equally applicable to States. This Program Instruction responds to this question.
States and Tribes may use both Federal TANF funds and State MOE funds in “any manner that is reasonably calculated” to accomplish one or more of the TANF purposes:
- To provide assistance to needy families so that children may be cared for in their own homes or in the homes of relatives;
- To end the dependence of needy parents on government benefits by promoting job preparation, work and marriage;
- To prevent and reduce out-of-wedlock pregnancies; and
- To encourage the formation and maintenance of two-parent families.
We have been asked whether it is reasonable to use program funds to purchase or to start-up/capitalize various types of businesses – e.g., a bowling alley, a fast-food restaurant franchise, a meat-packing plant, a coffee stand, etc. After carefully considering this issue, we concluded that government ownership and operation of a business is not reasonably calculated to accomplish any of the purposes of the TANF program. Therefore, States and Tribes may not use Federal TANF funds or State MOE funds to start or to purchase a business. We recognize that the Tribal TANF regulations at 45 CFR 286.35 permit Tribes to use Federal TANF funds for “assistance in economic development and job creation activities”. Economic development activities that are reasonably calculated to accomplish a purpose of the TANF program are an allowable use of Federal TANF or State MOE funds for both States and Tribes. Whereas TANF purposes may be promoted by business development, it is the activities related to operating the business, rather than the acquisition or purchase of the business itself, that lead to the desirable result. A purchase of a business inherently involves the acquisition of capital, which goes beyond TANF purposes. Economic development grows from the operation of a business, not the purchase of that business.
Basically, economic development contributes to a community’s overall viability. There are a number of program activities that could have a lasting impact on a community. Economic development activities that address the capacity of individuals in the community to secure and maintain employment and that bring or increase employment opportunities to an area would be reasonably calculated to accomplish a purpose of the TANF program. Examples of activities a
Tribe or State may pursue include:
- Paying an allocable portion of the cost of an analysis of the job skills, services, and strategies needed to attract businesses into the community or to help local businesses remain or become more competitive so as to maintain or increase employment opportunities;
- Establishing job training programs in the community that address and meet business needs;
- Establishing an Individual Development Account (IDA) program pursuant to section 404(h) of the Act and the TANF regulations at 45 CFR 263, Subpart C and 45 CFR 286.40 (one allowable way that eligible clients may use their IDA funds is for qualified business capitalization expenses);
- Providing start-up loans or grants to eligible clients to help start their own micro-enterprise; and,
Providing incentives to existing businesses, and to attract new businesses including businesses that are thinking of relocating to the area. Such business incentives for or on behalf of eligible clients might include:
- Payment of tools, uniforms, or other necessities directly related to the actual work performed;
- Assistance with employee counseling services;
- Subsidizing the wages of clients;
- Payment of on-the-job training, or vocational and educational skills upgrade training for job/career advancement opportunities, and any concomitant travel, meals, and lodging costs to attend the training classes;
- Payment of bonuses/awards/incentives for job retention, job achievement; or length of service;
- Help with health insurance costs (non-commingled MOE funds only);
- Help with other (non-medical) employee benefit programs;
- Help with employee commuting and child care costs; and,
- Help with necessary employee membership dues and fees.
In short, States and Tribes have broad discretion to fund a wide variety of activities that are considered reasonably calculated to accomplish a purpose of the TANF program. States and Tribes also have the flexibility to set different eligibility standards for various types of benefits. However, there are a few fundamental points to keep in mind in deciding whether to use Federal TANF funds or State MOE funds to pay for an activity.
Clients must be financially needy to receive (a) federally funded assistance, benefits, or services under purposes 1 and 2; (b) any MOE-funded benefits, services, or assistance regardless of the TANF purpose served in providing the benefit; and, (c) any federally funded assistance, regardless of the TANF purpose served in providing the assistance. “Financially needy” essentially means that the family has met the quantified income and applicable resource criteria established by the State or the Tribe to receive the particular benefit. Federally funded assistance and any MOE-funded benefits, services or assistance may only be provided to a financially needy family that consists of, at a minimum, a child living with a relative, or consist of a pregnant woman. But, under TANF purposes 3 and 4, States may use segregated Federal TANF funds (but not MOE funds) to help clients who are not financially needy with different benefits and services, as long as the activity does not constitute “assistance” as defined in 45 CFR 260.31(a) or 45 CFR 286.10(a).
Inquiries and comments should be directed to the appropriate Administration for Children and Families (ACF) Regional Administrator.
Andrew Bush, Director
Office of Family Assistance