oversight

Welfare Reform: Information on TANF Balances

Published by the Government Accountability Office on 2003-09-08.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 United States General Accounting Office

GAO              Report to the Chairman, Subcommittee
                 on Human Resources, Committee on
                 Ways and Means, House of
                 Representatives

September 2003
                 WELFARE REFORM

                 Information on TANF
                 Balances




GAO-03-1094
Contents


Letter                                                                                                 1


Appendix I   Briefing Slides                                                                           6




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             Page i                                                     GAO-03-1094 Welfare Reform
United States General Accounting Office
Washington, DC 20548




                                   September 8, 2003

                                   The Honorable Wally Herger
                                   Chairman, Subcommittee on Human Resources
                                   Committee on Ways and Means
                                   House of Representatives

                                   Dear Mr. Chairman:

                                   The Personal Responsibility and Work Opportunity Reconciliation Act of
                                   1996 made sweeping changes to the nation’s key welfare program for
                                   needy families. It established the $16.5 billion Temporary Assistance for
                                   Needy Families (TANF) block grant, which provides to the states federal
                                   funds to support low-income families and help these families reduce their
                                   dependence on welfare. TANF provides states significant flexibility—
                                   within federal guidelines—to determine who is to be served and what
                                   services to provide. States also have the flexibility to transfer up to 30
                                   percent of their TANF block grant each year to their child care or social
                                   services block grants.1 Along with this flexibility, states must meet federal
                                   requirements designed to ensure that TANF assistance is transitional in
                                   nature and that parents receiving aid take steps to become employed.

                                   The welfare legislation also fundamentally changed how the federal
                                   government funds assistance for low-income families, shifting much of the
                                   fiscal risk for welfare programs to the states. Before welfare reform, any
                                   increased costs for states’ welfare programs were shared by the federal
                                   government and the states. Under TANF, however, states receive a fixed
                                   amount of TANF funds each year and, if costs rise, states must find a way
                                   of financing the additional costs. To manage these fiscal risks, states may,
                                   in any given year, set aside or reserve some of their annual TANF block
                                   grant funds for times when the annual grants are insufficient to cover
                                   current spending needs.2




                                   1
                                    Maximum transfers to the Social Services Block Grant (SSBG) have been set at 10 percent
                                   of federal TANF funds since 1997.
                                   2
                                    Reserved funds must be used to provide ongoing, basic aid (such as cash assistance) to
                                   needy families, and therefore lose some of their flexibility.



                                   Page 1                                                      GAO-03-1094 Welfare Reform
To better understand states’ spending patterns for TANF funds as the
Congress debates the program’s reauthorization,3 you asked us to provide
information on (1) TANF balances, including the amount of funds
transferred to states’ child care and social services block grants, that
remain unspent and (2) the extent to which these balances reflect reserves
available for future use. To address these questions, we interviewed
program and finance officials at the Department of Health and Human
Services (HHS), which oversees the TANF, child care,4 and the social
services block grants. We reviewed U.S. Treasury balance reports as of
July 31, 2003, the most recent available, and used this information to
estimate TANF balances through September 30, 2003 (the end of fiscal
year 2003). While states can save some of their federal funds each year,
they are not allowed to draw those funds from the U.S. Treasury until they
actually spend those funds.5 While balances recorded by Treasury provide
some information on the level of unspent TANF funds, they do not
distinguish TANF funds transferred to the other block grants from those
that remained within the TANF program.

To determine the amount of unspent TANF transfers, we reviewed the
data states reported to HHS on their annual financial reports for each of
the three block grants for the fiscal year ending September 30, 2002, the
most recent state reports available. Although state reports on the child
care and social service block grant balances do not identify the TANF
transfers, per se, we were able to estimate them, based on the assumption
that states were likely to use the more restricted child care and social




3
  Since October 1, 2002, the TANF program has been operating under extensions. On June
30, 2003, the President signed a bill that extended TANF and other related programs, on
fiscal year 2002 terms, through September 30, 2003. (P.L. 108-40).
4
 This block grant represents only one of the funding streams considered part of the Child
Care and Development Fund that provides states federal funds to subsidize child care for
low- and moderate-income families and to promote child care quality.
5
 This provision is in accordance with the Cash Management Improvement Act of 1990. This
act settled a long-standing dispute between the federal government and the states over
disbursement of funds for federal programs administered by the states. The act helps to
ensure that neither party incurs unnecessary interest costs in the course of federal
government disbursements. See U.S. General Accounting Office, Financial Management:
Implementation of the Cash Management Improvement Act, GAO/AIMD-96-4
(Washington, D.C.: Jan. 8, 1996).




Page 2                                                      GAO-03-1094 Welfare Reform
service dollars before spending the more flexible TANF funds.6 The fiscal
year 2002 reports also provided information on the range of balances
among the states, which was not readily available from the more recent
Treasury balance reports. We conducted this review in accordance with
generally accepted government auditing standards from July 2003 through
August 2003.

On September 2, 2003, we briefed you on the results of our analysis. This
report formally conveys the information provided during that briefing. In
summary, we found the following:

Based on spending through July 31, 2003—the most recent data
available—we estimate that the TANF balance will be about $5.6 billion on
September 30, 2003. While data were not readily available to project how
much of the balance might be comprised of TANF transfers to the child
care and social services block grants, we did estimate that unspent
transfers represented about 30 percent of the TANF balance for fiscal year
2002.

The information available on TANF balances is not sufficient to assess the
availability of reserves to help states meet future needs. We found that the
current reporting requirements do not provide reliable, consistent
information regarding states’ plans for their balances.7 As a result, it is
difficult to determine what portion of any reported balance is already
committed or how much is reserved for future use on TANF-related
expenditures. The importance of distinguishing between a committed
balance and a real reserve becomes more apparent when comparing
states. Although we cannot tell from state reports how much of their
balance is committed, when we analyzed state TANF balances as of
September 30, 2002, including our estimates of unspent TANF transfers,
we found they varied considerably. While many states had large balances,
others did not. The variations suggest that, at the end of fiscal year 2002,
some states may have been better positioned than others to meet current
and future needs.


6
 Once TANF funds are transferred to the Child Care and Development Block Grant
(CCDBG) and SSBG they cannot be saved indefinitely; each grant has specific and different
rules governing the time frame within which states must obligate and spend any transferred
funds. However, as established in program guidance, states can transfer funds back to
TANF, within specific time frames, to avoid losing access to those funds.
7
 See U.S. General Accounting Office, Welfare Reform: Challenges in Maintaining a
Federal-State Fiscal Partnership, GAO-01-828 (Washington, D.C.: Aug. 10, 2001).




Page 3                                                     GAO-03-1094 Welfare Reform
While the fixed block grant structure creates opportunities for states to
establish reserves for the future and/or expand programs or develop new
services when welfare caseloads fall, states can face fiscal challenges
when their caseloads or program costs rise.8 We recently reported that
states are in one of the most challenging fiscal crises to confront them in
years.9 In a limited review of five states—Arizona, Iowa, Montana,
Pennsylvania, and Wisconsin—we reported that each of the five planned
to dip into some of their unspent TANF balances to fund their programs
during the next fiscal year.

Welfare reform ushered in a new fiscal partnership between the states and
the federal government in supporting the nation’s low-income families and
helping them avoid welfare dependence. In this new fiscal partnership,
sound fiscal management practices suggest that it would be prudent for
states to develop some contingency plans—including establishing reserves
from federal funds to meet the needs of their low-income families over
time. However, the data currently required of states do not provide
sufficient information to help the Congress and federal oversight officials
assess the adequacy of states’ reserves. Moreover, we have previously
reported on state officials’ concerns that leaving large TANF balances—
without any way to identify the amount of funds set aside as reserves—
might signal that these funds were not needed and, as a result, state
officials felt pressures to spend down their balances quickly.

In our earlier work, we provided your committee with options, including
improving reporting requirements, that might provide states with more
incentives to save.10 We are reiterating our recommendation that the
Secretary of HHS work with the states to provide for more transparent
reporting of their plans for their unspent balances. Reporting requirements
should enable collection of data that will assist policymakers in their
oversight responsibilities and, while care should be taken to avoid
unnecessary reporting burdens on the grant recipients, comparable data



8
 In contrast to the federal government that can run budget deficits, states face limitations—
including legislative restrictions, constitutional balanced budget mandates, or conditions
imposed by the bond market—on their ability to increase spending, especially in times of
fiscal stress.
9
 U.S. General Accounting Office, Welfare Reform: Information on Changing Labor Market
and State Fiscal Conditions, GAO-03-977 (Washington, D.C.: July 15, 2003).
10
 U.S. General Accounting Office, Welfare Reform: Challenges in Saving for a “Rainy Day”
GAO-01-674T (Washington, D.C.: Apr. 26, 2001).




Page 4                                                       GAO-03-1094 Welfare Reform
on state obligations, expenditures, and reserves of federal funds are
critical for effective oversight of federal programs.

We provided a draft of this briefing to officials at HHS for their technical
comments and incorporated their comments where appropriate.

We are sending copies of this report to relevant congressional committees
and other interested parties and will make copies available to others upon
request. This report will also be available at no charge on GAO’s Web site
at http://www.gao.gov. If you or your staff have any questions please
contact Cynthia M. Fagnoni at (202) 512-7215 or Paul L. Posner at (202)
512-9573. Gale C. Harris and Bill J. Keller also made key contributions.




Cynthia M. Fagnoni, Managing Director
Education, Workforce, and Income Security Issues




Paul L. Posner, Managing Director
Federal Budget Issues and Intergovernmental Relations




Page 5                                              GAO-03-1094 Welfare Reform
                Appendix I: Briefing Slides
Appendix I: Briefing Slides




    Welfare Reform: Information on
            TANF Balances

          Briefing to the Staff of the House
        Subcommittee on Human Resources,
          Committee on Ways and Means

                  September 2, 2003




                Page 6                        GAO-03-1094 Welfare Reform
                             Appendix I: Briefing Slides




 Introduction

States Have More Responsibilities under
Welfare Reform

Personal Responsibility and Work Opportunities Reconciliation Act, of
  1996
  Gave states more responsibility for managing programs of
  assistance and moving low-income families from welfare to
  employment. The act
         • shifted fiscal risks to the states through the TANF* block grant;
         • created latitude for reserves, funding transfers, and carryovers; and
         • underscored need for fiscal management and contingency
           planning.

    *Temporary Assistance for Needy Families




                                                                                    2




                             Page 7                             GAO-03-1094 Welfare Reform
                Appendix I: Briefing Slides




Key Questions

 To better understand states’ spending patterns as the
 Congress debates reauthorization of the TANF program,
 you asked us to provide information on

  •   TANF balances, including the amount of transferred
      funds that remain unspent, and
  •   the extent to which these balances reflect reserves
      available for future use.




                                                                      3




                Page 8                           GAO-03-1094 Welfare Reform
                                     Appendix I: Briefing Slides




Scope and Methodology

    To provide information on the TANF balances, including
    unexpended TANF transfers, we
       • used U.S. Treasury data through July 31, 2003—the most recent data
         available—to estimate the TANF balance for the end of this fiscal year;
       • reviewed (1) states’ 2002 annual financial reports to Health and
         Human Services (HHS), and (2) fund balances for these grants on
         account with the U.S. Treasury as of September 30, 2002, to calculate
         the share of the end of year 2002 TANF balance that had been
         transferred to states’ Child Care and Development Block Grant
         (CCDBG)1 and Social Services Block Grant (SSBG) programs; and
       • reviewed program rules and other program documents and
         interviewed program and finance officials at HHS to better understand
         how states spend their block grant funds.

1This block grant represents only one of the funding streams considered part of the Child Care and Development Fund (CCDF) that provides

states federal funds to subsidize child care for low- and moderate-income families and to promote child care quality.                      4




                                     Page 9                                                               GAO-03-1094 Welfare Reform
                     Appendix I: Briefing Slides




Summary

• Based on the most recent data available, we estimate that the
  TANF balance will be about $5.6 billion at the end of this fiscal
  year. Our estimate consists of
   • funds states will have left unspent in their TANF accounts and
   • funds states will have left unspent after the funds are
     transferred to the other block grants.

• Although TANF transfers represent a significant supplement to
  child care and social services block grants, data were not available
  to track recent state spending of transferred TANF funds
  separately from the other block grant funds.
• However, we estimated that about 30 percent of the fiscal year
  2002 balance represented funds that had been transferred.

                                                                               5




                     Page 10                              GAO-03-1094 Welfare Reform
                     Appendix I: Briefing Slides




Summary             (cont.)


• Current reporting does not provide consistent, reliable information
  on how much of the balances are truly committed or available for
  future needs.
    • States are not required to report on their plans for their unspent
      balances.
    • Information on reserves by state is important. Even though we cannot
      tell how much of their balances are committed, our estimates of state
      balances as of September 30, 2002, showed great variation,
      suggesting that some states may have been better positioned than
      others to provide TANF-related services to low-income families in the
      midst of the current state fiscal crises.
• We have reported that improved reporting requirements could
  provide states with more incentives to engage in contingency
  planning, including establishing reserves, for their TANF programs.


                                                                                 6




                     Page 11                                GAO-03-1094 Welfare Reform
                                      Appendix I: Briefing Slides




Background

States Have Greater Flexibility under TANF
Than under Previous Welfare Programs
• States can
      • use federal funds to design and finance programs for low-
        income families, determine who is served, and what services to
        provide;
      • use federal TANF funds without fiscal year limitation and save a
        portion of those funds for contingencies and future rising costs;
        and
      • transfer up to 30 percent of the TANF grant each year to the
        CCDBG and SSBG.1

• States must report quarterly on how they have spent federal
  TANF funds to HHS, which oversees all three block grants.


1Maximum   transfers to the SSBG have been set at 10 percent of federal TANF funds since 1997.
                                                                                                                     7




                                      Page 12                                                    GAO-03-1094 Welfare Reform
                      Appendix I: Briefing Slides




Background (cont.)

Federal TANF Grants Have Certain
Program and Financial Requirements
States must
   • design programs that emphasize the transitional nature of assistance
     for welfare recipients and importance of employment;
         (For example, states faced financial penalties if they did not place
         increasing percentages of adult TANF recipients into work-related
         activities.)

   • maintain a significant portion of their own historic spending for low-
     income families, known as “maintenance of effort” (MOE);
   • not draw down funds held in reserve at the U.S. Treasury until needed
     for a specific expenditure; and
   • spend funds they have transferred to CCDBG and SSBG according to
     the rules and time limits of those grants or, within the time limits
     established and program guidance, transfer the funds back to TANF.


                                                                                         8




                      Page 13                                         GAO-03-1094 Welfare Reform
                                             Appendix I: Briefing Slides




        Background (cont.)

       TANF Balances Consist of
                                                                           • Total federal TANF awards that
                             Treasury                                        states report they have not spent,
                                                                             plus

                                                                           • Total TANF awards that states
                                                                             have transferred to the CCDBG
                                States                     Territories       and the SSBG but have not spent,
                                                           and Tribes
                                                                             and

                                                                           • Total TANF funds allocated to
                           Temporary                                         territories and tribes that have not
                         Assistance for                                      been spent, and
 Child Care and
                         Needy Families                  Social Service
Development Block
                          Block Grant                     Block Grant
      Grant                                                                • Funds states have spent, but that
                                                                             may not have cleared the account.


        Source: GAO analysis.
                                                                                                                      9
        Note: Solid arrows represent TANF funds




                                             Page 14                                             GAO-03-1094 Welfare Reform
                                       Appendix I: Briefing Slides




 Question 1

We Estimate the TANF Balance Will Fall to
$5.6 Billion by the End of Fiscal 2003
                            TANF Funding                                                    TANF Balances
  25 Billions                                                          12 Billions

                                                                       10
  20

                                                                        8
  15
                                                                        6
  10
                                                                        4

   5
                                                                        2

   0                                                                    0
       1998      1999           2000      2001        2002     2003*        1998     1999     2000     2001     2002    2003*

                        Spent          Appropriated


• Since 2001, states have spent more TANF funds, including those funds
  transferred to other block grants each year, than they receive in their
  annual awards.
• While TANF balances are large, states are drawing more heavily upon
  them.
 Source: GAO analysis of HHS and U.S. Treasury data.
                                                                                                                           10
 *Estimated balance for 2003.




                                       Page 15                                                       GAO-03-1094 Welfare Reform
                                             Appendix I: Briefing Slides




Question 1

States Are Using TANF Transfers to
Supplement Other Block Grants
    5 Billions

                                                                                   • States’ transfers to their
    4
                                                                                     child care block grant1
                                                                                     now equal the amount
    3                                                                                directly appropriated to
                                                                                     that grant.
    2

                                                                                   • Transfers to the SSBG
    1                                                                                have served to replace
                                                                                     some of the funds cut
    0
            1998                 1999         2000          2001           2002
                                                                                     from that grant.
              TANF Transfers

              CCDBG
              SSBG
    Source: GAO analysis of data from HHS.




1   Child care block grant amounts include only funds appropriated to the CCDBG and not other funding streams that comprise the CCDF.
                                                                                                                                        11




                                             Page 16                                                        GAO-03-1094 Welfare Reform
                                         Appendix I: Briefing Slides




      Question 1

      Unspent TANF Transfers Estimated at
      About 30 Percent of FY 2002 Balance
At the end of fiscal year (FY) 2002
Treasury recorded $8.9 billion in unspent
                                                             5%                   We estimate that about
TANF funds. Of that amount:
                                                                              5 percent—$436 million—was
  We estimate that about                                                        reported spent but had not
$352 million (4 percent) had                         4%                       cleared the Treasury account
been transferred to SSBG.                                                    by the end of the fiscal year or
                                                                                were TANF funds that had
                                                                             been awarded to territories and
                                                                                   tribes, not to states.

We estimate that about $2.3                        26%
billion (26 percent) had been
    transferred to CCDBG.


                                                                                States reported that they
                                                                                   left $5.8 billion (65
                                                                       65%
                                                                                percent) unspent for their
                                                                                    TANF programs.




     Source: GAO analysis of data from HHS and the U.S. Treasury.                                            12




                                         Page 17                                   GAO-03-1094 Welfare Reform
                                       Appendix I: Briefing Slides




  Question 2

  Current Reporting Yields Limited Data
  for Assessing Adequacy of Reserves
• States’ year-end reports provide detailed information on expenditures; but
  they do not provide consistent, reliable information on states’ balances.
     •    States report balances as either unliquidated obligations or unobligated balances.
          As we reported in 20011 the information states provide on these reports is not compiled
          consistently across all states.
     •    The lack of consistency is largely due to differences in the way states administer their
          welfare programs. For example,
            • states with county administration can record an obligation when they pass authority to
              spend funds to the counties regardless of whether the county has made any commitment
              to spend those funds, whereas
            • states that administer their welfare programs directly can only record an obligation when
              they have a specific commitment to spend those funds.

• While an unliquidated obligation implies that there is some underlying
  commitment on these funds, it is not possible to know if these funds are
  available for future contingencies.


  1U.S. General Accounting Office Welfare Reform: Challenges in Maintaining a Federal-State Fiscal Partnership, GAO-01-828

  (Washington, D.C.: Aug. 10, 2001).                                                                                             13




                                       Page 18                                                              GAO-03-1094 Welfare Reform
                      Appendix I: Briefing Slides




Question 2

Current Reporting Yields Limited Data
for Assessing Adequacy of Reserves (cont.)
• Under current reporting requirements, states that have established
  reserves must report such funds as unobligated—thereby providing
  no information on states’ plans for these funds nor the ability to
  assess the adequacy of any reserves.
    • Little progress has been made to create better reporting since August
      1998 when we first recommended that HHS work with the states to
      provide for more transparent reporting by the states of their unspent
      balances.
    • HHS officials said they expect to undertake a comprehensive review of
      the current reporting requirements once TANF is reauthorized.

• Information on balances by state is important for oversight
  purposes.


                                                                                14




                      Page 19                                GAO-03-1094 Welfare Reform
                                    Appendix I: Briefing Slides




 Question 2

States’ Fiscal Year 2002 TANF Balances
Varied Considerably


                                                                                      Our estimates of the FY
                                                                                      2002 TANF balance,
                                                                                      including TANF
                                                                                      transfers, for each state
                                                                                      are calculated as a share
                                                                                      of each state’s annual
                                                                                      TANF grant plus their
                                                                                      supplemental grant for
                                                                                      population increases.

                                                                                        ≥ 50%       24 states
                                                                                       25-49.9%      15 states
                                                                                       10-24.9%       5 states
                                                                                       0-9.9%         7 states



               ≥ 50%                    25-49.9%                  10-24.9%   0-9.9%


Source: GAO analysis of HHS data.                                                                          15




                                    Page 20                                   GAO-03-1094 Welfare Reform
                                   Appendix I: Briefing Slides




Question 2

States Cite Few Incentives to Create
Reserves for TANF Programs
• Access to federal funds for more than 1 fiscal year provided states
  with flexibility to better manage their programs by
      • reserving some funds to manage the downside fiscal risks of the TANF
        program and
      • reducing some of the pressures--which can lead to wasteful spending--
        to spend all available funds before the end of any given fiscal year.

• In spite of this flexibility, state officials feared that leaving large
  TANF balances might signal that these funds were not needed and
  they felt pressures to spend down their balances quickly.1

• We have previously provided this committee1 with options, including
  improving reporting requirements, that might provide states with
  more incentives to save.

1See for example, U.S. General Accounting Office, Welfare Reform: Challenges in Saving for a “Rainy Day”, GAO-01-674T

(Washington, D.C.: Apr. 26, 2001).                                                                                          16




                                   Page 21                                                             GAO-03-1094 Welfare Reform
                    Appendix I: Briefing Slides




Concluding Observations

• The Congress and other federal oversight officials need
  consistent, reliable information in order to assess the
  adequacy of state TANF reserves.
   • In a block grant environment decisions regarding how much to save
     and how much to invest in programs that help families make the
     transition from public assistance to independence have become
     largely a state responsibility made under conditions of considerable
     uncertainty.
   • Reporting requirements should enable collection of data that will assist
     policymakers in their oversight responsibilities.

• We reiterate our recommendation that HHS should work with
  the states to provide for more transparent reporting by the
  states of their unspent balances.


                                                                                 17




                    Page 22                                  GAO-03-1094 Welfare Reform
                                  Appendix I: Briefing Slides




           Appendix 1: Estimation Methodology

           • To estimate the TANF balance as of September 30, 2003, we
             compared actual spending through July 31, 2003, with the
             corresponding period in 2002 reported by the U.S. Treasury. We
             then projected August and September 2003 spending based on
             actual rates of spending in August and September 2002.
           • To estimate the level of TANF funds that were transferred to other
             grants and were left unspent as of September 30, 2002, we
               •   reviewed state annual financial reports for all three grant programs and
               •   assumed that states would spend funds directly appropriated to the CCDBG
                   and SSBG first, preserving the flexibility of the TANF funds.

           • We consulted with officials from the Congressional Budget Office,
             the Congressional Research Service, and HHS’s Administration for
             Children and Families on our methodology.


                                                                                                18




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                                  Page 23                                    GAO-03-1094 Welfare Reform
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