oversight

Temporary Assistance for Needy Families: State Maintenance of Effort Requirements and Trends

Published by the Government Accountability Office on 2012-05-17.

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

                            United States Government Accountability Office

GAO                         Testimony
                            Before the Subcommittee on Human
                            Resources, Committee on Ways and
                            Means, House of Representatives

                            TEMPORARY ASSISTANCE
For Release on Delivery
Expected at 2:00 p.m. EDT
Thursday, May 17, 2012

                            FOR NEEDY FAMILIES
                            State Maintenance of Effort
                            Requirements and Trends
                            Statement of Kay E. Brown, Director
                            Education, Workforce, and Income Security




GAO-12-713T
                                            May 17, 2012

                                            TEMPORARY ASSISTANCE FOR NEEDY
                                            FAMILIES
                                            State Maintenance of Effort Requirements and
Highlights of GAO-12-713T, a testimony
                                            Trends
before the Subcommittee on Human
Resources, Committee on Ways and Means,
House of Representatives



Why GAO Did This Study                      What GAO Found
The $16.5 billion TANF block grant,         The Temporary Assistance for Needy Families (TANF) block grant’s
created in 1996, is one of the key          maintenance of effort (MOE) provisions include specified state spending levels
federal funding streams targeted to         and general requirements on the use of funds. For example, these provisions
assist low-income families. While the       generally require that each state spend at least 80 percent (75 percent if the
block grant provides states with a fixed    state meets certain performance standards) of the amount it spent on welfare
amount of federal dollars annually, it      and related programs in fiscal year 1994, before TANF was created. If a state
also includes state MOE requirements,       does not meet its MOE requirements in any fiscal year, the federal government
which require states to maintain a          will reduce dollar-for-dollar the state’s federal TANF grant in the following year. In
significant portion of their own historic
                                            order to count state spending as MOE, funds must be spent on benefits and
financial commitment to welfare-related
                                            services to families with children that have incomes and resources below certain
programs. Over the last 15 years, this
federal-state partnership has seen
                                            state-defined limits. Such benefits and services must generally further one of
multiple program and fiscal changes,        TANF’s purposes, which broadly focus on providing financial assistance to needy
including a dramatic drop in the            families; promoting job preparation, work, and marriage; reducing out-of-wedlock
number of families receiving monthly        births; and encouraging the formation of two-parent families. Within these broad
cash assistance, as well as two             goals, states have significant flexibility to design programs and spend their funds
economic recessions. To provide             to meet families’ needs.
information for its potential extension     Total MOE spending reported by states remained relatively stable around the
or reauthorization, this testimony draws
                                            required minimum spending level of $11 billion through fiscal year 2005, and then
primarily on previous GAO work to
                                            increased to about $4 billion higher than this minimum in fiscal years 2009 and
focus on (1) the key features of the
state MOE requirements and (2) how          2010. Several reasons likely accounted for these increases, including states’
the role of state MOE spending has          reliance on MOE spending to help them meet TANF work participation rates.
changed over time. To address these         Work participation rates identify the proportion of families receiving monthly cash
issues, GAO relied on its prior work on     assistance that participate in allowable work activities for a specified number of
TANF block grant and state MOE              hours each week. Federal law generally requires that at least 50 percent of
spending issued between 2001 and            families meet the work requirements; however, most states have engaged less
2010, including the May 2010 report         than 50 percent of families in required activities in each year since TANF was
examining how state MOE spending            created, according to HHS data. Various policy and funding options in federal law
affects state TANF programs’ work           and regulations, including credit for state MOE expenditures that exceed required
participation rates. To develop the         spending levels, have allowed most states to meet the rate requirements even
spending-related findings in this body      with smaller percentages of families participating. States generally began relying
of work, GAO reviewed relevant              on MOE spending to get credit toward meeting TANF work participation rates in
federal laws, regulations, and              fiscal year 2007 because of statutory changes to the rate requirements enacted
guidance, state TANF data reported to       in 2006. For example, for fiscal year 2009, the most recent data available, 16 of
the U.S. Department of Health and           the 45 states that met the TANF work participation rate would not have done so
Human Services (HHS), and related           without the credit they received for excess state MOE spending.
financial data from selected states.
GAO also interviewed relevant officials
from HHS and selected states.               The expanded role of MOE in state TANF programs highlights the importance of
                                            having reasonable assurance that MOE spending reflects the intended
                                            commitment to low-income families and efficient use of federal funds. GAO’s
                                            previous work makes clear that MOE provisions are often difficult to administer
                                            and oversee, but can be important tools for helping ensure that federal spending
                                            achieves its intended effect. This work also points out that with appropriate
                                            attention to design, implementation, and monitoring issues, such provisions are
                                            one way to help strike a balance between the potentially conflicting objectives of
View GAO-12-713T. For more information,     increasing state and local flexibility while attaining certain national objectives.
contact Kay E Brown at (202) 512-7215 or
brownke@gao.gov.

                                                                                      United States Government Accountability Office
Chairman Davis, Ranking Member Doggett, and Members of the
Subcommittee:

I am pleased to have the opportunity to participate in today’s discussion
of state spending related to the Temporary Assistance for Needy Families
(TANF) block grant, which is one of the key federal funding streams
targeted to assist low-income families. State spending represents about
40 percent of the $406 billion in total TANF and related state spending for
the past 15 years since TANF was created in 1996. As you know, the
federal government significantly changed federal welfare policy in 1996
when it created TANF, a $16.5 billion annual block grant provided to
states to operate their own welfare programs within federal guidelines.
While the block grant provides states with a fixed amount of federal
dollars annually, it also includes state maintenance-of-effort (MOE)
requirements, which require states to maintain a significant portion of their
historic financial commitment to welfare-related programs. At the same
time, TANF gives states the authority and flexibility to make key decisions
about how to design programs and allocate federal and state funds to
assist low-income families. Over the last 15 years, this funding
partnership has undergone multiple program and fiscal changes,
including a dramatic drop in the number of families receiving monthly
cash assistance benefits, as well as two economic recessions.

My remarks today are based primarily on our past work on state MOE
spending, including our May 2010 report examining how state MOE
spending affects state TANF programs’ work participation rates. 1 I will
focus on (1) the key features of the state MOE requirements and (2) how
the role of state MOE spending has changed over time. To develop our
MOE-related findings for our May 2010 report on work participation, we
conducted our work from August 2009 to May 2010. 2 In addition, in July
2011, we obtained more recent data on MOE and work participation from
the US Department of Health and Human Services (HHS), and we
reported on those data in our September 2011 testimony before this
subcommittee. 3 For today’s statement we also drew on our prior reports


1
 GAO, Temporary Assistance for Needy Families: Implications of Recent Legislative and
Economic Changes for State Programs and Work Participation Rates, GAO-10-525
(Washington, D.C.: May 28, 2010).
2
For more information on our methodology, see appendix I of GAO-10-525.
3
 GAO, Temporary Assistance for Needy Families: Update on Families Served and Work
Participation, GAO-11-880T (Washington, D.C.: Sept. 8, 2011).




Page 1                                                                    GAO-12-713T
             on TANF block grant spending issued between 2001 and 2006 as well as
             earlier reports on grant design and accountability generally. To develop
             findings for all of these reports, we used a variety of approaches,
             including interviewing officials from the HHS and selected states and
             reviewing state TANF data reported to HHS; related financial data from
             selected states; relevant federal laws, regulations, and guidance; and
             literature reviews. For more details on our methodologies, see the related
             reports cited throughout. We determined that these data were sufficiently
             reliable for the purposes of this testimony. We conducted our work in
             accordance with generally accepted government auditing standards.
             Those standards required that we plan and perform the audit to obtain
             sufficient, appropriate evidence to provide a reasonable basis for our
             findings and conclusions based on our audit objectives. We believe that
             the evidence obtained provides a reasonable basis for our findings and
             conclusions based on our audit objectives.


             The TANF block grant was created by the Personal Responsibility and
Background   Work Opportunity Reconciliation Act of 1996 (PRWORA) 4 and was
             designed to give states the flexibility to provide both traditional welfare
             cash assistance benefits as well as a variety of other benefits and
             services to meet the needs of low-income families and children. TANF
             has four broad goals: (1) provide assistance to needy families so that
             children may be cared for in their own homes or homes of relatives; (2)
             end dependence of needy parents on government benefits by promoting
             job preparation, work, and marriage; (3) prevent and reduce out-of-
             wedlock pregnancies; and (4) encourage two-parent families. Within
             these goals, states have responsibility for designing, implementing, and
             administering their welfare programs to comply with federal guidelines, as
             defined by federal law and HHS.

             In creating TANF, the federal government significantly changed its role in
             financing welfare programs in states. PRWORA ended low-income
             families’ entitlement to cash assistance by replacing the Aid to Families
             with Dependent Children (AFDC) program— for which the federal grant
             amount was based on the amount of state spending—with the TANF
             block grant, a $16.5 billion per year fixed federal funding stream to states.
             PRWORA coupled the block grant with an MOE provision, which requires



             4
             Pub. L. No. 104-193, § 103(a), 110 Stat. 2105, 2112.




             Page 2                                                            GAO-12-713T
states to maintain a significant portion of their own historic financial
commitment to their welfare programs as a condition of receiving their full
federal TANF allotments. Importantly, with the fixed federal funding
stream, states assume greater fiscal risks in the event of a recession or
increased program costs. However, in acknowledgment of these risks,
PRWORA also created a TANF Contingency Fund that states could
access in times of economic distress. 5 Similarly, during the recent
economic recession, the federal government created a $5 billion
Emergency Contingency Fund for state TANF programs through the
American Recovery and Reinvestment Act of 2009, available in fiscal
years 2009 and 2010. 6

The most recent data available, for fiscal year 2010, show that the federal
government and states spent almost $36 billion 7 on benefits and services
meeting one or more of the TANF goals. In that year, states provided, on
average, about 1.9 million families per month with ongoing cash
assistance, 8 including about 800,000 families in which the children alone
received benefits. 9 This represents a significant drop from the more than
3 million families receiving cash assistance when states implemented
TANF in fiscal year 1997. In addition, states provide a broad range of
services to other families in need not included in the welfare caseload
data. The total number of families assisted is not known, as we have




5
    Pub. L. No. 104-193, § 103(a)(1), 110 Stat. 2105, 2122.
6
    Pub. L. No. 111-5, § 2101(a)(1), 123 Stat. 115, 446.
7
 Total federal and state TANF expenditures in fiscal year 2010 equaled $35.8 billion, of
which about 58 percent was federal funds and 42 percent was state MOE funds. Federal
funds spent in fiscal year 2010 included those provided through the TANF block grant,
supplemental grants, the Contingency Fund, and the Emergency Contingency Fund.
Supplemental grants refer to a capped amount of federal funds that have been available
to several states each year if they meet certain criteria related to increased need in the
state.
8
 The most recent data from HHS for fiscal year 2011 shows an average monthly caseload
of 1.92 million families, which fell slightly to 1.89 million families in the first quarter of fiscal
year 2012.
9
 These cases are referred to as child-only cases, in which a parent or non-parent
caregiver is not receiving TANF cash assistance for a variety of reasons. For more
information, see GAO, TANF and Child Welfare Programs: Increased Data Sharing Could
Improve Access to Benefits and Services, GAO-12-2 (Washington, D.C.: Oct. 7, 2011).




Page 3                                                                                 GAO-12-713T
noted in our previous work. 10 These allowable services under TANF can
generally include any spending reasonably deemed to meet one or more
of the four broad goals of TANF, and can include one-time cash
payments, work and training activities, work supports such as child care
and transportation, efforts to promote two-parent families or marriage,
and child welfare services, among others. When TANF began, cash
assistance represented the largest spending category (73 percent in fiscal
year 1997). In contrast, cash assistance spending in fiscal year 2010
accounted for 30 percent of total TANF spending.

Reducing dependence on government benefits through job preparation
and employment is a key goal of TANF, and PRWORA identified the work
participation rate as one of the federal measures of state TANF programs’
performance. This rate is generally calculated as the proportion of work-
eligible TANF cash assistance recipients engaged in allowable work
activities. 11 As a result, HHS is responsible for holding states accountable
for ensuring that generally at least 50 percent of all families receiving
TANF cash assistance benefits participate in one or more of the allowable
work activities for a specified number of hours each week. 12 TANF
provisions include other features to help emphasize the importance of
work and the temporary nature of assistance, such as 60-month time
limits on the receipt of aid for many families.




10
  GAO, Welfare Reform: States Provide TANF-Funded Services to Many Low-Income
Families Who Do Not Receive Cash Assistance, GAO-02-564 (Washington, D.C.: Apr.5,
2002).
11
  42 U.S.C. § 607. The 12 work activities are: unsubsidized employment, subsidized
private sector employment, subsidized public sector employment, work experience (if
sufficient private sector employment is not available), on-the-job training, job search and
job readiness assistance, community service programs, vocational educational training,
job skills training directly related to employment, education directly related to employment
(for recipients who have not received a high school diploma or certificate of high school
equivalency), satisfactory attendance at secondary school or in a course of study leading
to a certificate of general equivalence (for recipients who have not completed secondary
school or received such a certificate), and the provision of child care services to an
individual who is participating in a community service program. 42 U.S.C. § 607(d).
12
  Some families receiving cash assistance benefits are excluded from work requirements,
with the most significant group being certain child-only cases.




Page 4                                                                          GAO-12-713T
                        The preamble to the final rule issued by HHS in 1999 noted that the MOE
MOE Provisions          cost-sharing arrangement reflected Congress’ recognition that state
Include Specified       financial participation is essential for the success of welfare reform. 13 The
State Spending Levels   preamble to this final rule also noted that Congress wanted states to be
                        active partners in the welfare reform process. 14 These requirements are
with Some Flexibility   an important element of TANF—if a state fails to meet its MOE
                        requirement for any fiscal year, HHS is required by law to reduce dollar-
                        for-dollar the amount of a state’s basic TANF grant for the following fiscal
                        year. 15

                        Maintenance of effort requirements are sometimes found in federal grant
                        programs to prevent states from substituting federal for state dollars.
                        Such provisions can help ensure that federal block grant dollars are used
                        for the broad program area intended by the Congress, in this case the
                        four broad TANF purposes. Without such provisions, federal funds
                        ostensibly provided for these broad areas could, in effect, be transformed
                        into general fiscal relief for the states, as states could use some or all of
                        their federal block grants to replace their own money invested in the
                        program area. To the extent that this occurs, the ultimate impact of these
                        federal dollars would be to increase state spending in other programs,
                        reduce taxes, or some combination of both. A maintenance of effort
                        requirement brings its own challenges—it can be complex to monitor and
                        may lock states into meeting minimum spending levels that may no longer
                        be warranted given changing conditions. 16

                        Under TANF, while states have significant flexibility in how to spend their
                        own money, several requirements guide the use of these state funds,
                        including how much, for whom, and for what.


How Much?               Each state’s amount of MOE is generally based on fiscal year 1994 state
                        spending for a specific set of programs. 17 The 1996 welfare reform law


                        13
                             64 Fed. Reg. 17,720, 17,821.
                        14
                             Id. at 17,816.
                        15
                             See 42 U.S.C. § 609(a)(7).
                        16
                         For more information, see GAO, Block Grants: Issues in Designing Accountability
                        Provisions, GAO/AIMD-95-226 (Washington, D.C.: September 1, 1995).
                        17
                             42 U.S.C. § 609(a)(7).




                        Page 5                                                                    GAO-12-713T
consolidated and replaced programs under which the amount of federal
spending was often based on state spending levels, and considerable
state dollars contributed to these pre-TANF programs. Figure 1 shows the
federal programs with related state spending that were included in
establishing the fixed annual amount of the TANF block grant and state
maintenance-of-effort level for each state.

Figure 1: Federal TANF Block Grant and State MOE Funding Levels Are Determined
by Prior Year Expenditures for Several Terminated Programs




Note: The previous AFDC program provided ongoing monthly cash assistance, JOBS provided states
funds for welfare-to-work activities for AFDC recipients; and EA provided states funds to help eligible
families with emergency needs. Prior federal funding was also available for AFDC-related child care;
federal funding targeted to child care for low-income families is now funded through the Child Care
and Development Fund.


The required percentages of these previous state spending levels vary
under different conditions:

•         80 percent—To receive its federal TANF funds, a state must generally
          spend state funds in an amount equal to at least 80 percent of the
          amount it spent on welfare and related programs in fiscal year 1994. 18
•         75 percent—If a state meets its minimum work participation rate
          requirements, then it generally need expend only 75 percent of the
          amount it spent in fiscal year 1994. 19



18
    42 U.S.C. § 609(a)(7).
19
    Id.




Page 6                                                                                  GAO-12-713T
            •     100 percent—To receive contingency funds, a state must expend 100
                  percent of that fiscal year 1994 amount. 20
            In addition to its own spending, a state may count toward its MOE certain
            in-kind or cash expenditures by third parties, such as nonprofit
            organizations, as long as the expenditures meet other MOE
            requirements, including those related to eligible families and allowable
            activities, discussed below. 21 In addition, an agreement must exist
            between the state and the third party allowing the state to count the
            expenditures toward its MOE.


For Whom?   Generally, to count toward a state’s MOE, expenditures must be for
            “eligible families,” that is, families who: 22

            •     include a child living with his or her custodial parent or other adult
                  caretaker relative (or a pregnant woman); and
            •     meet the financial criteria, such as income and resources limits,
                  established by a state for the particular service or assistance as
                  described in its TANF plan. Each state is required to prepare and
                  provide a biennial TANF plan describing its programs to HHS.

For What?   Generally, expenditures for eligible families in these areas may count
            toward MOE: 23

            •     cash assistance;
            •     child care assistance;
            •     educational activities to increase self-sufficiency, job training and work
                  (except for activities or services that a state makes generally available
                  to its residents without cost and without regard to their income);




            20
                See 45 C.F.R. § 264.72.
            21
                45 C.F.R. § 263.2(e).
            22
              Changes made by the Deficit Reduction Act of 2005 allowed states to count as MOE
            total expenditures related to TANF purposes three and four—the prevention and reduction
            of out-of wedlock pregnancies and the formation and maintenance of two-parent families.
            These expenditures did not need to be directed solely at “eligible families.” See 71 Fed.
            Reg. 37,454, 37,470.
            23
                45 C.F.R. §§ 263.2, 263.4.




            Page 7                                                                      GAO-12-713T
                            •     certain administrative costs; and
                            •     other activities considered in keeping with a TANF purpose.
                            These expenditures may be made on behalf of families in a state’s cash
                            welfare program or for other eligible families through other state programs
                            or initiatives. 24 However, state-funded benefits, services, and activities
                            that were not a part of the pre-reform programs generally may count as
                            MOE only to the extent that they exceed the fiscal year 1995 level of
                            expenditures in the programs. 25 This is referred to as the “new spending”
                            test. For example, if a state has currently spent its own funds on eligible
                            families on an allowable activity, such as a refundable earned income tax
                            credit, it may count toward its MOE only the current amount that exceeds
                            that program’s expenditures in fiscal year 1995.



MOE Spending Has
Increased
Significantly, But the
Extent to Which It
Represents Increased
Service Levels Is
Unclear

MOE Levels Have             State MOE levels remained stable for many years and then increased
Increased in Recent Years   more recently for several reasons. As shown in figure 2, until fiscal year
                            2006, MOE levels remained relatively stable, hovering around the 80
                            percent required minimum or the reduced rate of 75 percent for states
                            that met their work participation rates. From fiscal years 2006 through
                            2009, they increased each year.




                            24
                                45 C.F.R. § 263.2.
                            25
                                45 C.F.R. § 263.5.




                            Page 8                                                              GAO-12-713T
Figure 2: State MOE Expenditures, Fiscal Years 1997 through 2010




In a 2001 report, we examined issues related to the new federal-state
fiscal partnership under TANF, noting several issues related to TANF and
MOE spending rules. 26 We found at that time that the MOE requirement,
in many cases, limited the extent to which states used their federal funds
to replace state funds—an intended role for MOE. 27 It also led to a
situation in which many state officials said they were spending more than


26
  GAO, Welfare Reform: Challenges in Maintaining a Federal-State Fiscal
Partnership,GAO-01-828 (Washington, D.C.: Aug. 10, 2001). In this report, we conducted
an in-depth analysis of 10 states.
27
  TANF does not include a provision that prohibits states from using federal TANF funds
to replace state funds. However, if states used TANF funds to replace state funds, they
may have had to increase their own spending on other low-income programs to satisfy the
MOE requirement. For example, a state could withdraw its own funds from a state
refundable earned income tax credit for low-income families, and use federal TANF dollars
instead. However, it would need to have enough other state spending to count toward its
MOE. If it had enough state spending to cover its MOE and had still freed up state dollars,
those dollars could be use for unrelated programs or for tax relief.




Page 9                                                                        GAO-12-713T
might be expected in the face of the large caseload drop in the earliest
years of TANF. 28

However, states have additional flexibility in making spending decisions.
While states must meet MOE requirements, federal TANF funds may be
“saved for a rainy day,” providing states additional flexibility in their
budget decisions. 29 In fact, many states had some TANF reserves that
they drew down to meet increasing needs in the recent economic
downturn. 30 Moreover, states have flexibility to provide a wide variety of
services—as long as they are in keeping with the four broad purposes of
TANF—to those on the cash welfare rolls and to other eligible families.

Nationwide, the amount of MOE spending started to increase in fiscal
year 2006 and reached its peak in fiscal year 2009. Several reasons
account for this increase:

•      Many states (20) accessed TANF Contingency Funds between fiscal
       years 2007 and 2010—when the fund was depleted—which required
       them to meet a 100 percent MOE requirement. Further, almost all
       states accessed the Emergency Contingency Fund in fiscal years
       2009 and 2010, which required them to have had increases in one of
       two specific types of expenditures—short-term, nonrecurrent benefits
       or subsidized employment—or in the number of families receiving
       cash assistance.
•      Following the Deficit Reduction Act of 2005, an interim rule
       temporarily broadened the types of activities on which states could
       spend state funds and be countable for MOE purposes. Between
       fiscal years 2006 and 2008, total state MOE expenditures increased


28
  In calendar year 1994, which generally served as the base year for establishing the
TANF block grant and MOE amounts, AFDC caseloads had reached their highest levels
ever, totaling 5 million families in an average month. This number had dropped to 2.3
million families in calendar year 2000, a period covered by the prior studies on which this
testimony is based.
29
  42 U.S.C. § 604(e). Each year, a state may in effect reserve some of its federal TANF
funds to help it meet increased needs and costs in later years. A state’s unspent funds
can “accumulate” as a type of “rainy day fund” for its future use. Since TANF was created
in 1996, states have been permitted to spend prior year TANF block grant funds on
assistance—a category that includes cash benefits and supportive services for families
receiving these benefits. However, the Recovery Act increased states’ flexibility to spend
prior year TANF block grant funds on all TANF-allowable benefits and services.
30
     For more information on this issue, see GAO-10-525.




Page 10                                                                        GAO-12-713T
                             by almost $2 billion, and much of the increase in expenditures was in
                             areas that had temporarily been broadened. 31
                        •    Many states claimed additional MOE to help them meet the work
                             participation rates, as discussed in the next section.



MOE Spending Helped     In recent years, some states have used their MOE spending to help them
Some States Meet Work   meet TANF work participation rates. Generally, states are held
Rates                   accountable for ensuring that at least 50 percent of all families receiving
                        TANF cash assistance and considered work-eligible participate in one or
                        more of the federally defined work activities for a specified number of
                        hours each week. 32 However, most states have not engaged that many
                        recipients in work activities on an annual basis. For example, in fiscal
                        year 2009, the most recent year for which data are available, less than 50
                        percent of TANF cash assistance families participated in work activities
                        for the specified number of hours each week in 44 states, according to
                        HHS. However, various policy and funding options in federal law and
                        regulations allowed most of these states to meet their work participation
                        rates. Factors that influenced states’ abilities to meet the work
                        participation rates included not only the number of families receiving
                        TANF cash assistance who participated in work activities, but also
                        decreases in the number of families receiving TANF cash assistance, and
                        state MOE spending beyond what is required, for example.




                        31
                          Between the interim rule issued in 2006 and the final rule issued in 2008, HHS allowed
                        states to claim total expenditures related to TANF purposes three and four—the
                        prevention and reduction of out-of wedlock pregnancies and the formation and
                        maintenance of two-parent families. These expenditures did not need to be directed solely
                        at “eligible families,” and states had significant flexibility to determine allowable
                        expenditures in those areas. The final rule issued in 2008 limited the types of expenditures
                        that states may count in these areas for individuals that do not meet the “eligible families”
                        definition to those “healthy marriage” and “responsible fatherhood” activities specified in
                        federal law.
                        32
                          To be counted as engaging in work for a month, TANF families are required to
                        participate in work activities for an average of 30 hours per week in that month. 42 U.S.C.
                        § 607(c). However, federal law sets different weekly work hour requirements for teen
                        parents attending school, single parents of children under age 6, and two-parent families.
                        Further, certain families are not included in the calculation of state work participation rates,
                        such as child-only families and, at state option, single parents of children under age 1.
                        See 42 U.S.C. § 607(b)(5) and 45 C.F.R. § 261.2(n). In fiscal year 2009, about 130,000
                        families were excluded from the calculation of the all families work participation rate.




                        Page 11                                                                           GAO-12-713T
Since TANF was created, the factor that states have commonly relied on
to help them meet their required work participation rates is the caseload
reduction credit. Specifically, decreases in the numbers of families
receiving TANF cash assistance over a specified period are accounted for
in each state’s caseload reduction credit, which essentially lowers the
states’ required work participation rate from 50 percent. 33 For example, if
a state’s caseload decreases by 20 percent during the relevant time
period, the state receives a caseload reduction credit equal to 20
percentage points, which results in the state work participation rate
requirement being adjusted from 50 to 30 percent. In each year since
TANF was created, many states have used caseload declines to help
them lower the required work participation rates. For example, in fiscal
year 2009, 38 of the 45 states that met their required work participation
rates for all TANF families did so in part because of their caseload
decreases (see fig. 3). 34

However, in recent years, the Congress updated the base year for
assessing the caseload reduction credit, 35 and as a result, some states
also began to rely on state MOE expenditures to increase their caseload
reduction credit, which lowers their required work participation rates.
Under federal regulations, if states spend in excess of their required MOE
amount, they are allowed to correspondingly increase their caseload




33
  42 U.S.C. § 607(b)(3). However, under federal TANF statutes, the credit calculation
excludes caseload reductions resulting from changes in states’ eligibility criteria.
34
  The caseload reduction credit is generally calculated by determining the change in the
state’s caseload—or the average number of families receiving TANF cash assistance in
each state—between a federally-defined base year and the year preceding the current
one. However, the Recovery Act modified the credit calculation for fiscal years 2009-2011
by generally allowing states the option of comparing the base year to the state’s caseload
in fiscal year 2007, 2008, or the year preceding the current one. This option gives states
that experienced caseload increases in more recent years potentially greater caseload
reduction credits.
35
  In fiscal year 2006, the Deficit Reduction Act of 2005 reauthorized the TANF block grant
and made several modifications that were generally expected to strengthen TANF work
requirements and improve the reliability of work participation data and program integrity.
For example, the act changed the caseload reduction credit by moving the base year for
measuring caseload declines from 1995 to 2005. Because of this change, the dramatic
declines in the numbers of families receiving cash assistance that immediately followed
TANF implementation were no longer factored into state caseload reduction credits
beginning with fiscal year 2007.




Page 12                                                                       GAO-12-713T
reduction credits. 36 By doing so, a state reduces its required work
participation rate. In fiscal year 2009, 32 of the 45 states that met their
required work participation rates for all TANF families claimed excess
state MOE spending toward their caseload reduction credits. 37 Sixteen of
these states would not have met their rates without claiming these
expenditures (see fig. 3). Among the states that needed to rely on excess
state MOE spending to meet their work participation rates, most relied on
these expenditures to add between 1 and 20 percentage points to their
caseload reduction credits (see fig. 4).




36
  45 C.F.R. § 261.43. When calculating the caseload reduction credit, federal regulations
allow a state that spent in excess of its required amount in the year preceding the current
one to include only the pro rata share—in its overall caseload number—of the total
number of families receiving state-funded cash assistance required to meet the state’s
basic requirement. This means that in the calculation of a state’s caseload reduction
credit, its total caseload number is reduced by a number equal to an estimate of the
number of assistance cases the excess MOE spending would have supported.
37
  We did not determine whether these increases reflect new state spending or spending
that had been occurring before but was not reported as state MOE spending at that time.




Page 13                                                                        GAO-12-713T
Figure 3: Factors that Helped States That Met Their Work Participation Rates for All
TANF Families in Fiscal Years 2007 through 2009




Note: This figure reflects updated information obtained from HHS in 2012.




Page 14                                                                     GAO-12-713T
                           Figure 4: Extent to Which States’ Caseload Reduction Credits Increased because of
                           State Spending beyond What Is Required (for those States That Relied on Such
                           Spending to Meet Their Work Participation Rates for All TANF Families)




                           Note: This figure reflects updated information obtained from HHS in 2012.




Increased MOE Role         MOE is now playing an expanded role in TANF programs, as many
Highlights Importance of   states’ excess MOE spending has helped them meet work participation
Monitoring and Oversight   rates. While one state had used MOE expenditures toward its caseload
                           reduction credit before fiscal year 2007, over half of the states (27) relied
                           on these expenditures to increase their credits and help them meet their
                           required work participation rates in one or more years between fiscal
                           years 2007 and 2009.

                           States may be making programmatic and budgetary decisions to use
                           excess MOE to help them avoid penalties for failure to meet participation
                           rates and possibly losing funds. In our previous work, states have cited


                           Page 15                                                                     GAO-12-713T
concerns about difficulties in engaging a sufficient number of cash
recipients in required activities for the required number of hours for
several reasons, including limits on the types of activities that count,
limited resources for developing and providing appropriate work activities,
a lack of jobs particularly during tough economic times, and the
characteristics of some cash assistance recipients that make it difficult for
them to engage in countable work activities.

 However, this greater emphasis on the use of MOE increases the
importance of understanding whether effective accountability measures
are in place to ensure MOE funds are in keeping with requirements. In
our 2001 report, some states expressed concerns that this MOE provision
could become difficult to enforce. In doing that work, we spoke to many
auditors who were in the midst of developing audit plans to address
compliance with the new spending test. Several told us that developing
these plans was relatively straightforward: the auditor should simply be
able to establish a baseline for all the MOE expenditures the state was
using and then trace those programs back to 1995 and certify that
spending used for MOE was indeed new spending. However, we also
noted that these plans could become more complex if states frequently
changed the expenditures they were counting from one year to the next
(i.e., changed the programs for which they needed baselines). In one
state at that time, we were told that all expenditure data were archived
after 5 years, and that auditing the annual certification would be
especially difficult and time consuming if the state changes the programs
it uses to meet its MOE requirement from year to year. We expect that
several factors, such as changes in what MOE expenditures states may
count, growth in some particular spending areas, as well as the growth in
MOE spending overall may have greatly increased the complexities
involved in tracking MOE.

In its final rule published in 1999, 38 HHS provided information related to
its plans for monitoring state MOE and noted that states recognize that
they are ultimately accountable for their expenditure claims. HHS stated
that states are audited annually or biennially and compliance with the




38
 64 Fed. Reg. 17,720.




Page 16                                                           GAO-12-713T
               basic MOE provisions is part of the audit. 39 HHS added that it would use
               the results of the audits, together with its own analysis of state-provided
               data—required state quarterly expenditure reports and annual descriptive
               reports on MOE activities—to assess states’ compliance. It also said it
               might undertake additional state reviews based on complaints that arise
               or requests from the Congress.

               We have not reviewed existing efforts to monitor MOE and cannot
               comment on their effectiveness. However, the extent to which states have
               relied on these expenditures to help them meet work participation rates
               as well as meeting MOE generally highlights the importance of having
               reasonable assurances that current oversight is working. If MOE claims
               do not actually reflect maintaining or increasing service levels, low-
               income families and children may not be getting the assistance they need
               in the current environment and federal funds may not be used in the most
               efficient manner.


               MOE provisions are important but not without implementation and
Observations   oversight challenges. Based on our previous work on federal grant design
               as well as more recent work on some MOE provisions under the
               Recovery Act, it is clear that such provisions are important mechanisms
               for helping ensure that federal spending achieves its intended effect. With
               TANF, what is at stake are billions of federal and state dollars that
               together represent a federal-state partnership to help needy families
               provide for their children and take steps toward economic independence.
               The work also points to administrative, fiscal, and accountability
               challenges in implementing MOE provisions, both from federal and state
               perspectives. While MOE provisions may be imperfect tools, with
               appropriate attention to design, implementation, and monitoring issues,
               such provisions are one way to help strike a balance between the
               potentially conflicting objectives of increasing state and local flexibility
               while attaining certain national objectives, including efficient use of federal
               resources in today’s fiscal environment.


               39
                 Compliance with federal financial requirements is generally assessed annually through
               the state’s single audit. Rather than being a detailed review of individual grants or
               programs, a single audit is an organizationwide financial and compliance audit that
               focuses on accounting and administrative controls. A single audit is designed to advise
               federal oversight officials and program managers on whether an organization’s financial
               statements are fairly presented and to provide reasonable assurance that federal financial
               assistance programs are managed in accordance with applicable laws and regulations.




               Page 17                                                                      GAO-12-713T
                  We provided drafts of the reports we drew on for this testimony to HHS
                  for its review, and copies of the agency’s written responses can be found
                  in the appendixes of the relevant reports. We also provided HHS a draft
                  of this testimony, and officials provided technical comments that we
                  incorporated as appropriate.


                  Chairman Davis, Ranking Member Doggett, and Members of the
                  Subcommittee, this concludes my statement. I would be pleased to
                  respond to any questions you may have.


                  For questions about this statement, please contact Kay E. Brown at (202)
GAO Contact and   512-7215 or brownke@gao.gov. Contact points for our Offices of
Staff             Congressional Relations and Public Affairs may be found on the last page
                  of this statement. Individuals who made key contributions to this
Acknowledgments   statement include James Bennett, Robert Campbell, Rachel Frisk, Alex
                  Galuten, Gale Harris, Tom James, Jean McSween, Ronni Schwartz, and
                  Michelle Loutoo Wilson.




(131180)
                  Page 18                                                        GAO-12-713T
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