Congress has failed to act in a timely manner on the reauthorization of the Temporary Assistance to Needy Families block grant. Nonetheless, the next generation of welfare reform is already underway. A slowly growing economy, the end of rapid caseload reductions, massive state and local budget problems, and the constraints of a closed-ended block grant will pose serious constraints on state flexibility and on states’ ability to continue new programs developed under the block grant. At the same time, a larger portion of child-only cases, increased sanction rates, a residual population of longer-term cases and the needs of the working poor will require new programs and more effective services. Although it will be difficult, states have little option but to begin to address these problems without waiting for federal action.