United States General Accounting Office

GAO Report to the Chairman, Subcommittee

on Human Resources, Committee on

Ways and Means, House of

Representatives

August 1998 WELFARE REFORM

Early Fiscal Effects of

the TANF Block Grant

GAO/AIMD-98-137

GAO United States

General Accounting Office

Washington, D.C. 20548

Accounting and Information

Management Division

B-277800 

August 18, 1998

The Honorable E. Clay Shaw, Jr.

Chairman, Subcommittee on Human Resources

Committee on Ways and Means

House of Representatives

Dear Mr. Chairman:

In 1996 the Congress made sweeping changes to national welfare policy in

passing Public Law 104-193, the Personal Responsibility and Work

Opportunity Reconciliation Act (PRWORA). This act creates the Temporary

Assistance for Needy Families (TANF) block grant,1

 a fixed federal funding

stream that replaces the Aid to Families with Dependent Children (AFDC)

program and a number of welfare programs in which federal funding

matched state spending and increased automatically with caseloads.

This report is part of a series of GAO work reviewing the implementation of

federal welfare reform. In this report, we focus on the fiscal aspects of

welfare reform. You asked us to review states’ fiscal decisions for the TANF

block grant and to address whether states are taking steps now to prepare

for the effects of future economic downturns on their welfare programs.

Specifically, you asked us to report on (1) how state budgetary resources,

including federal aid, have been allocated since states have had access to

TANF funds, (2) what plans states are making to assure programmatic

stability in times of fiscal and economic stress, and (3) the extent to which

states have used, or plan to use, the program’s federal Contingency Fund

and the Loan Fund which are available for downturns or other

emergencies affecting states.

In a related report, we responded to a request from you and the Chairman

of the Senate Committee on Finance to monitor states’ efforts to

implement programs to meet the stated objectives of Title I (TANF) of

PRWORA. In that report, we described states’ efforts to require and

encourage welfare recipients and potential recipients to assume greater

personal responsibility, examined how states are providing services to

1

Aid to Families with Dependent Children (AFDC), Job Opportunities and Basic Skills (JOBS), and

Emergency Assistance (EA) programs and the associated administrative expenses were consolidated

in the TANF block grant whereas the AFDC-related child care program and other child care programs

were combined in the Child Care and Development Block Grant (CCDBG). In this report, we focus on

those programs consolidated in the TANF block grant.

Page 1 GAO/AIMD-98-137 Welfare Reform
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support the objectives of TANF, and reviewed early reported data to assess

states’ progress.2

Background Currently authorized through federal fiscal year 2002, the TANF block grant

represents an entitlement to states of $16.5 billion annually.3

 Federal

funding under the TANF grant is fixed, and states are required to maintain a

significant portion of their own historic financial commitment to their

welfare programs as a condition of receiving their full TANF

grant—referred to as their maintenance of effort requirement (MOE).4

These two funding streams—federal TANF and state general funds for

MOE—represent the bulk of the resources available to states as they design,

finance, and implement their new low-income family assistance programs.

(See figure 1.) Under TANF, states have the flexibility to design their own

programs and strategies for promoting work over welfare and

self-sufficiency over dependency. At the same time, states must meet

federal requirements that emphasize the importance of work for those

receiving assistance. To avoid federal financial penalties, in fiscal year

1997 states must ensure that 25 percent of their TANF families, rising to

50 percent in 2002, are engaged in work activities. In addition, the law

prohibits the use of TANF funds to provide assistance for families with

adults who have received assistance for more than 5 years.

2

Welfare Reform: States Are Restructuring Programs to Reduce Welfare Dependence

(GAO/HEHS-98-109, June 18, 1998).

3

In this report we refer to the fixed entitlement to states (State Family Assistance Grant) as the TANF

grant.

4

States’ MOE requirements are based on their own spending in federal fiscal year 1994 on AFDC, JOBS,

Emergency Assistance (EA), related administrative costs, and AFDC-related child care programs:

AFDC/JOBS child care program, Transitional Child Care, and At-Risk Child Care programs. A state that

does not meet PRWORA’s work participation rates must maintain at least 80 percent of its MOE. A

state that meets its work participation rate must maintain at least 75 percent of its MOE. Preliminary

data show that 34 states spent at least 80 percent of their MOE in fiscal year 1997, with 21 states

spending above 80 percent. A recent National Conference of State Legislatures’ report on states’

enacted appropriations for state fiscal year 1998 shows that 37 plan to spend at least 80 percent of

MOE, with 30 states planning to spend more than 80 percent.

Page 2 GAO/AIMD-98-137 Welfare Reform
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Figure 1: Funding for State Low-Income Family Assistance Programs

Prior Financing

Current Financing

Federal Funds State Funds

AFDC JOBS Emergency

Assistance AFDC JOBS Emergency

Assistance

Transitional

Child Care

AFDC/JOBS

Child Care

At-risk

Child Care

TANF block grant Maintenance of effort

Budgetary resources for

state low-income family assistance

programs

In addition to giving states more responsibility and flexibility in the design

of welfare programs, TANF shifts the fiscal risk to states, thus highlighting

the importance of fiscal planning, especially contingency budgeting. In the

past, any increased costs were shared by the federal government and the

states. Under TANF, however, if costs rise, states face most of the burden of

financing the unexpected costs.5

 States must also handle this

responsibility in the context of any 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.

States have various options and resources to help them handle this new

fiscal responsibility. PRWORA provides states with the ability to save an

5

The Congress, however, could approve supplemental appropriations to help states address

unanticipated funding deficiencies. The federal government, therefore, has an interest in the extent of

contingency budgeting for recessions and other emergencies.

Page 3 GAO/AIMD-98-137 Welfare Reform
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unlimited amount of their TANF block grant funds for use in later years.

These resources must be left in the U.S. Treasury until they are needed.

States may also respond to the fiscal risks implicit in the new block grant

environment by increasing the levels of their state “rainy day funds,”6

 or by

establishing dedicated reserves, consisting of state funds, for their welfare

programs. PRWORA also creates two safety-net mechanisms for states to

access additional federal resources in the event of a recession or other

emergency—the $2 billion Contingency Fund for State Welfare Programs

(Contingency Fund)7

 and a $1.7 billion Federal Loan Fund for State

Welfare Programs (Loan Fund).8

Scope and

Methodology

To address the objectives for this report, we collected fiscal information

on all 50 states from the U.S. Department of Health and Human Services

(HHS). In addition, we interviewed officials from state budget offices and

reviewed state general fund budgets and low-income family assistance

budgets. We selected the seven states examined in GAO’s parallel report,

Welfare Reform: States are Restructuring Programs to Reduce Welfare

Dependence (GAO/HEHS-98-109)—California, Connecticut, Louisiana,

Maryland, Oregon, Texas, and Wisconsin. For this report, we added

Colorado, Michigan, and New York to enrich the discussion of states’

efforts to budget for contingencies. These 10 states represent 53 percent of

total program dollars and administer about half the nation’s caseload. We

did not independently verify the reported levels of state spending nor

whether reported federal or state spending met the qualifications set forth

in the act. We conducted our fieldwork from April 1997 through

February 1998 in accordance with generally accepted government auditing

standards. (For more detail on our scope and methodology, see appendix

I.)

Results in Brief More federal and state resources are currently available for states’

low-income family assistance programs since welfare reform passed in

1996 than would have been available under the previous system of

6

Forty-five states report having some type of rainy day fund. State budgetary distress associated with

economic downturns is often addressed through the use of these funds. These reserves are often used

to correct short-term imbalances between revenue and expenditures. According to the National

Association of State Budget Officers (NASBO), general fund “ending balances” and rainy day fund

balances were estimated to exceed $24 billion or 6 percent of total state expenditures in 1998.

7

The Adoption and Safe Families Act of 1997 reduces the Contingency Fund for State Welfare

Programs by $40 million over the remaining 4 years the fund is authorized. (P.L. 105-89, §404, 111 Stat.

2134.)

8

Loans from this fund are to have a maturity of no more than 3 years at an interest rate comparable to

the average market yield on outstanding marketable federal obligations with comparable periods to

maturity.

Page 4 GAO/AIMD-98-137 Welfare Reform
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financing welfare programs consolidated in the TANF block grant. Our

estimates showed that, taking caseload declines into account, 46 states

would9

 have more total resources—both state and federal—for their

low-income family assistance programs than they would have had under

the previous welfare programs. These additional resources result from a

combination of significant declines in caseloads, the new fixed-level

financing mechanism created by the TANF block grant, and the

maintenance-of-effort requirement on the state share. Both the level of the

TANF block grant and the state MOE are fixed and were set based on time

periods when caseloads were high.10

States are transforming the nation’s welfare system into a work-focused,

temporary assistance program for needy families and generally chose to

spend these resources to expand programs and benefits by shifting the

emphasis from entitlement to self-sufficiency, enhancing support services,

and increasing work participation rates. States have taken advantage of

the flexibility allowed under PRWORA to use federal and state funds to help

recipients, those who are moving off public assistance, and those at risk of

coming on the rolls to obtain child care, transportation subsidies, and

training to promote job placement. States also achieved budgetary savings

by reducing state funds to the statutory MOE level of 75 or 80 percent of

previous state spending levels. This, however, constituted a higher level of

spending per recipient in 21 states because of declining caseloads. In

addition, four of the states we visited have set aside a portion of the

federal and state resources in reserve for future contingencies. States

generally have leveraged the higher federal grant levels and employed a

combination of these options; the result was a greater proportion of

federal resources in their programs.

While states have gained greater resources under the block grant, they also

take greater responsibilities for fiscal risks should program costs increase

in the future. In their budget choices, states struck a balance between

investing in today’s caseload and saving for tomorrow’s. At the outset, 5 of

the 10 states we visited planned to use all available federal TANF funds to

invest in programs to promote self-sufficiency with expectations that this

would reduce future caseload growth. In four of the other states, however,

9

Because states made the transition to TANF at different points during federal fiscal year 1997, our

calculations reflect the amount states would have been eligible to receive for the full fiscal year rather

than the amount they actually received. (See appendix II for a more detailed discussion of this topic.)

10As stated in footnote 4, states’ MOE requirements are based on their own spending in federal fiscal

year 1994 for the programs replaced by the TANF grant and combined in the CCDBG. The level of the

TANF grant is set based on the higher of federal spending on the programs consolidated in TANF for

federal fiscal year 1994, fiscal year 1995, or the average for the years 1992 through 1994 periods during

which caseloads and federal spending were at historically high levels.

Page 5 GAO/AIMD-98-137 Welfare Reform
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a portion of their federal and state resources were set aside to cover

potential future caseload increases and costs.11 Officials in these states

were concerned that additional resources would be difficult to obtain in

the future if the economy were to worsen and if costs were to rise

unexpectedly. Most states, including 7 of the 10 we visited, also have

general fund budget stabilization or “rainy day” funds that could be used to

augment program spending during an economic downturn, but welfare

programs would have to compete for these resources with other state

funding priorities.

The act includes features that could provide federal funding to cover

future increases in program needs. States can carry forward unused TANF

funds without fiscal year limitation. As of September 30, 1997, states had

left about $1.2 billion in unspent balances in their accounts with the U.S.

Treasury, or about 9 percent of the total grant.12 However, this may be less

an indicator of state contingency planning and more a reflection of the

transitional nature of the states’ first year with welfare reform. It is unclear

whether these balances will remain, shrink, or increase as states gain

experience with the program.

The act also creates two federal safety-net mechanisms—the Contingency

Fund and the Loan Fund—that were designed to provide states with

access to additional funds during times of economic downturn or fiscal

stress. Officials in states we visited said they did not view the Contingency

Fund as a viable source of additional resources. This is largely because a

more narrowly defined range of state funding is used to permit a state to

access the Contingency Fund than is required under the TANF MOE13 and

11Louisiana did not establish a specific reserve fund for its welfare programs; however, the state did

not plan to spend $31 million—or about 20 percent—of its TANF block grant in its 1998 state fiscal

year (July 1, 1997, to June 30, 1998).

12As of September 30, 1997, states had expended $9.9 billion, or about 74 percent of the $13.3 billion in

TANF funds awarded to them for federal fiscal year 1997; made obligations but not yet outlayed about

$1.7 billion, or 13 percent, of the remaining funds; and transferred almost $0.5 billion, or about 4

percent, to the Social Services Block Grant (SSBG) and CCDBG, as permitted by PRWORA. The

remainder, $1.2 billion, represents levels of TANF funds that states had neither drawn down nor

obligated. As part of their financial reporting to HHS, states report their balances of unobligated TANF

funds remaining at the U.S. Treasury to HHS; however, these balances reflect obligations from the

states’ perspective. From the federal perspective when the TANF grants are awarded to the states they

become obligated whether the state has spent these funds or not. To avoid confusion we will refer to

these balances throughout the report as “unspent” TANF funds.

13To be eligible for the Contingency Fund, a state must certify that its current year TANF program

expenditures for the full year in which it draws from the fund are at least 100 percent of what the state

spent in fiscal year 1994 on its low-income family assistance programs excluding child care-related

programs. In addition, state spending on certain state-only funded programs and child care-related

programs that count towards meeting the basic TANF MOE does not count towards meeting the

Contingency Fund MOE.

Page 6 GAO/AIMD-98-137 Welfare Reform
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because the Fund provides only limited federal matching funds for every

additional dollar spent by the state. Similarly, officials in many states we

visited indicated they did not believe their states would borrow from the

Loan Fund during an economic downturn.

TANF Shifts Fiscal

Responsibility to the

States

The act made sweeping changes to the nation’s cash assistance program

for needy families with children and eliminated a family’s entitlement to

federal assistance. These reforms gave states flexibility to design their

own programs and strategies for acheiving program goals, including how

welfare recipients would move into the workforce. The act changed the

way in which federal funds flow to states for welfare programs. Under the

old system of financing, matching grants provided states with resources to

implement federal welfare programs.14 The federal match was largely

open-ended so that if a state experienced caseload and related cost

increases, federal funds would increase with state funds to cover

expenditures for the entire caseload. This open-ended federal commitment

provided that financing for every dollar spent on these programs was

shared between the federal government and the states, thereby limiting the

states’ exposure to escalating costs.15

In contrast, under the TANF block grant, the federal government provides a

fixed amount of funds regardless of any changes in state spending or the

number of people the programs serve. During periods when caseloads are

decreasing, federal funds per recipient will be higher under TANF than

under the old program. Conversely if caseloads and costs increase, federal

funds per recipient would be lower. A state would then be presented with

several options, including using resources previously saved for

contingencies, reallocating budgetary resources to maintain program

stability, reducing program benefits and/or services to ensure that

previously allocated resources go further, or raising additional revenues

through taxes or fees.

PRWORA allows states more choices concerning the mix of services they

can offer and the people they can serve, and these choices are likely to be

affected by differences in the rules regarding the use of TANF and MOE

14Under the AFDC program, the federal contribution to program costs ranged from 50 percent to

79 percent—based on a state’s per capita income—while administrative costs were shared at a

uniform rate of 50 percent. Activities funded under the JOBS program were matched at higher rates,

but the federal contribution was capped and allocated based on the number of AFDC recipients in

each state.

15In some states, including three of those we visited, local governments also provide funding for

low-income family assistance programs.

Page 7 GAO/AIMD-98-137 Welfare Reform
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funds. For example, state MOE funds may be used with more flexibility than

TANF funds. TANF grant funds may be used for cash assistance, child care

assistance, work placement programs, subsidized work programs and

other efforts not specifically prohibited by PRWORA. MOE funds can be used

not only for these purposes but also to provide benefits to some recipients

excluded from TANF assistance.16 States make these budgetary decisions as

part of their regular appropriations process. Since any unspent TANF funds

remain available to states without fiscal year limitation, a decision to

dedicate a portion of these funds for a future contingency represents one

aspect of a state’s program budgeting under welfare reform.

States have modified their policies to require and encourage welfare

recipients and potential recipients to adopt behaviors that facilitate

becoming more self-sufficient. For example, in our recently issued report

on state program restructuring,17 we found that the proportion of

recipients assigned to job placement activities—as opposed to education

or training activities—was substantially higher in 1997 than in 1994.

Furthermore, as states seek to expand the number of adults participating

in work activities, they have generally expanded the roles of welfare

workers to better support the work focus of their programs. These

workers’ new responsibilities vary but include such tasks as motivating

clients to seek work, exploring the potential for welfare diversions, and

collecting more information about applicants and recipients to determine

what they need to facilitate self-sufficiency. States are also expanding their

programs to help families address barriers to employment. For example,

these states are using a range of approaches to help recipients obtain

reliable transportation, such as providing funding for rural transportation

systems, enlisting volunteers to provide transportation for recipients, and

providing funds for vehicle repairs.

Substantial declines in welfare caseloads and increases in the number of

welfare recipients finding jobs provide signs of early progress. For

example, caseloads have dropped on average about 20 percent since 1996,

when PRWORA was enacted, and by one-third since 1994. However,

questions remain about what will happen over the long term to families

that no longer rely on cash assistance but continue to need other kinds of

16Among other restrictions, TANF funds may not be used to provide benefits or services to any family

with an adult who received TANF assistance for more than 60 months (cumulative lifetime total) nor

to women under the age of 18 who have not received their high school diploma or equivalent unless

they are attending school. States can use their own funds to provide services to these and certain other

types of recipients who do not meet all requirements for TANF assistance; states may count these

expenditures towards their MOE requirements.

17Welfare Reform: States Are Restructuring Programs to Reduce Welfare Dependence

(GAO/HEHS-98-109, June 18, 1998).

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assistance to maintain their employment and about how much these

services will cost. Furthermore, as more families leave welfare programs,

states may face increasing challenges in serving increasing proportions of

long-term recipients with multiple barriers to employment. This adds to

the uncertainty surrounding the resource needs of low-income family

assistance programs in the future.

Even if TANF caseloads continue to decrease over time, they may become

more volatile. Such caseload volatility may put the states at greater risk for

budgetary stress than did previous matching grant programs. We noted in

our recent report on states’ efforts to restructure their welfare programs

that although states have had a great deal of success implementing welfare

reform programs in a strong economy, little is known about how a poor

economy will affect their programs. It is possible that caseloads may prove

more volatile under the new system than under the old. This is because the

greater emphasis on work implies a tighter link to the state of the job

market and hence to the economy. Although research on pre-reform

caseloads found varying degrees of correlation between the economy (as

measured by unemployment rates) and the AFDC single-parent family

caseload, it generally found strong correlation between the economy and

changes in the smaller AFDC-unemployed parent (AFDC-UP) family caseload.18

 This difference has been attributed to the AFDC-UP caseload’s stronger

connection to the labor market. Since the new TANF grant emphasizes

work-related activities, TANF caseloads may act more like the AFDC-UP

caseload rather than the single-parent AFDC caseload and hence be more

closely aligned to the economy. Alternatively, some analysts suggest that

future caseloads under TANF may not be as susceptible to economic

downturns because states are beginning to place much greater emphasis

on strengthening labor force ties. For example, many states have

substantially increased the levels of resources allocated to job training,

child care, and transitional medical care. These efforts may make the

former welfare population less susceptible to being the first to be laid off

in the event of an economic downturn than the AFDC-UP population was.

Those who remain on the rolls may be a smaller as well as more stable

population. These differing perspectives highlight the uncertainties that

states will face as they implement and finance their new welfare programs

and thus highlight the importance of budgeting for contingencies.

Budgetary stress caused by caseload volatility may be compounded by the

limitations placed on most states by constitutional or statutory

18Eligibility for AFDC-UP was limited to those families in which the principal wage earner (a) was

unemployed but had a history of work or (b) worked fewer than 100 hours per month. AFDC-UP

caseloads comprised 7 percent of the total AFDC caseload in 1995.

Page 9 GAO/AIMD-98-137 Welfare Reform
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requirements to balance their general fund budgets.19 For example, if

revenues fall during an economic downturn, a state’s enacted budget can

fall into deficit. State balanced budget requirements often motivate states

both to reallocate resources within their budgets and cut program

spending during recessions. The need to cut spending can be alleviated if a

state has accumulated surplus balances in “rainy day” funds. These

surpluses may be used to cover a given year’s deficit. However, unless

there are reserves specifically earmarked for low-income family assistance

programs, these programs will have to compete for “rainy day” fund

resources with all other programs in a state’s general fund in times of

budgetary stress. These factors together—the likelihood of increased

volatility and the limited budgetary flexibility available during an

economic downturn—point to the importance of state contingency

budgeting.

States Have

Additional Budgetary

Resources to Finance

Their Low-Income

Family Assistance

Programs

A combination of the decline in caseload levels, the higher federal grant

levels, and the MOE requirement for states’ contributions to their programs

means that most states have more budgetary resources available for their

low-income family assistance programs since enactment of welfare reform

than under prior law. In many states, caseloads began to decline even

before the enactment of PRWORA. Since enactment, this trend has continued

in all states except Hawaii and in many cases the trend has accelerated.

(See appendix II for a more detailed discussion and caseload data.)

The amount of each state’s block grant was based on amounts received by

the state in 1994 and 1995, years when caseloads and spending were at

historic highs. As a result, we calculated that 45 states were eligible to

receive more in federal fiscal year 1997 for the TANF block grant than they

received in 1996 under the previous welfare programs. (See appendix II for

a more detailed discussion of the assumptions used in our estimates and

our analytical techniques.) We estimated that if all states had drawn their

entire 1997 TANF grant, the states would have received about $1.4 billion

more under TANF than they received under previous welfare programs in

1996, when caseloads were much higher.20 It is important to note,

19General funds are those state funds into which general revenue receipts are credited and from which

discretionary programs are funded. In addition, states operate other funds such as capital funds,

enterprise funds, and trust funds. Although states may be required to balance these funds as well, they

do not necessarily follow the federal approach to measuring deficit or surplus (that is, matching

current year receipts to current year expenditures). For more information, see Balanced Budget

Requirements: State Experiences and Implications for the Federal Government (GAO/AFMD-93-58BR,

March 26, 1993).

20We calculated that 49 states would have received higher federal funding levels per recipient under

TANF than they received per recipient under the previous welfare programs in 1996.

Page 10 GAO/AIMD-98-137 Welfare Reform
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however, that there is a great deal of disparity among the states in the

levels of additional resources. These differences ranged from 70 percent

more federal resources for Indiana to 7 percent less for

Pennsylvania—with the median increase about 9 percent for all 50 states.

Furthermore, states are required to maintain a significant portion of their

own historic financial commitment to these programs. Like the TANF grant,

this minimum MOE is fixed and does not depend on the number of people

served or the types of services a state chooses to provide. The MOE

requirement establishes a minimum, or floor, for state spending, but there

is no federal ceiling on how much a state can spend. States face severe

fiscal penalties if they do not meet their MOE requirement.21 The interaction

between the MOE and the lower caseloads means that in 21 states, although

total state spending went down, spending per recipient increased. For

example, in Idaho the MOE requirement is about 28 percent lower than

what the state spent in 1996; however, state spending per recipient will

more than double from $870 to $1,849 per year.

Aside from the nominal changes in funding, another way of viewing

resources available for welfare is to compare total federal and state

resources available under the block grant with what comparable

federal-state spending would have been for 1997 caseloads under prior

law. Overall, we calculated that under the block grant, 46 states would22

have more total resources—state and federal—for their new welfare

programs than they would have had under the old welfare programs—with

a median increase of 22 percent—or about $4.7 billion more nationwide.

This calculation represents the difference between states’ post-reform

total budgetary resources—TANF plus MOE—and what they would have

budgeted for their 1997 caseloads if they were still using the pre-reform

cost structure. These differences are largely attributable to the change in

financing mechanisms: total funding under the previous program was

based on caseload, whereas under TANF, funding is based on federal and

state spending levels in a prior period when caseloads were higher. (See

appendix II for further discussion of the assumptions and analytical

techniques used in our estimates.) Again, there was great variation among

21If a state fails to meet its MOE in a given year, the following year’s TANF grant will be reduced by the

shortfall (P.L. 104-193, §409, 110 Stat. 2144). Furthermore, the state will be required to bring its

spending up in the following year to its required MOE and replace the shortfall from the previous year.

(110 Stat. 2146).

22Because states made the transition to TANF at different points during federal fiscal year 1997, our

calculations reflect the amount states would have been eligible to receive for the full fiscal year rather

than the amount they actually received. (See appendix II for a more detailed discussion.)

Page 11 GAO/AIMD-98-137 Welfare Reform
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the 46 states with the estimated increase ranging from 1 percent in Alaska

and Connecticut to 102 percent in Wyoming.

States’ Use of

Additional Resources

Additional budgetary resources for state welfare programs present states

with a unique opportunity to invest more in programs that can help people

find and keep their jobs and prevent them from returning to welfare while

still saving some resources for a “rainy day.” All 10 states we visited

planned to use some of their additional resources to expand their

programs. Most states recognize that achieving self-sufficiency and job

placement calls for significant investment in social services and incentives.

These states have generally not increased cash benefit levels; rather, they

plan to spend additional resources for job placement services, child care,

and other supportive services that can help welfare recipients make the

transition to work.23 For example, Texas increased the budget for its job

placement and training programs by about $100 million (or about

200 percent) in order to expand access to job placement services and

enhance its “Invest in Long Term Success” initiative. This initiative

(1) seeks to match employers with welfare recipients and provides

recipients with targeted training opportunities to meet the needs of those

employers, (2) enhances job retention services to help former welfare

recipients keep their jobs, and (3) creates “local innovation grants” to

support innovative welfare-to-work programs, such as micro-enterprise

development funds. (See text box 1 for examples of how states are using

federal and state funds to enhance their welfare programs.)

23Since implementing TANF, Maryland has increased cash assistance payments. Under the state’s

welfare reform legislation, cash benefit levels are in effect indexed to inflation.

Page 12 GAO/AIMD-98-137 Welfare Reform
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Text Box 1: Examples of Expansion and Enhancements of State Welfare Programs

Many states have used the additional resources available to expand and enhance their welfare programs by offering new services;

to expand earned income disregards and transitional services to people who are working and are no longer eligible for cash

assistance but still need help with child care, transportation, or continued case management; and to invest in new information

technologies to prevent fraud, track cases, and improve services to clients.

Texas increased spending on employment services to ensure sufficient funding to meet its federal work participation requirements

and created new programs to train recipients for targeted jobs, provide innovation grants to local employment centers, and develop

job retention and re-employment services.

Louisiana approved a 24 percent increase in funding on services for vocational education, on-the-job-training, job search

assistance and transportation subsidies used to enable clients to move from welfare to work.

New York passed more than $230 million in new programs for employment training and job readiness skills, teen pregnancy

prevention programs and new computer systems. In addition, New York enhanced funding for child care services by about $100

million.

California increased funding for employment related services by $288 million--or 122 percent, and for Child Care services by $147

million--or 103 percent.

Michigan increased funding for day care services by 9 percent and employment services by 24 percent. The additional funding for

employment services is used primarily for transportation and other support services as a means of increasing the work

participation rate among the two-parent family caseloads.

Connecticut used its additional resources to increase child care funding, create a new early childhood development program, and

establish a system of safety net services for families moving off welfare.

Maryland increased spending on job training by 39 percent. Other program enhancements include one-time emergency

assistance grants to welfare applicants and demonstration projects aimed at assisting welfare recipients to achieve economic

independence.

Wisconsin's total program budget will increase by 42 percent. The state plans to invest over $89 million more in child care

services in state fiscal year 1998 and an additional $22 million in state fiscal year 1999.

In addition, as part of an effort to “make work pay,” many states have

changed their policies relating to the treatment of earned income from

those previously in effect under AFDC to permit recipients to keep more of

their monthly cash assistance payments or retain them for longer periods

once they begin working. More than two-thirds of the states have

increased the amount of assets and the value of a vehicle that recipients

can own and still remain eligible for cash assistance. The asset and vehicle

limits in the prior AFDC program were widely considered to be too low,

creating barriers to families’ efforts to become more self-sufficient. As

these changes allow more people to remain eligible for program benefits

and to remain eligible for transitional benefits, total state program budgets

have generally increased relative to caseload.

Page 13 GAO/AIMD-98-137 Welfare Reform
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In addition, the higher level of federal funds and lower caseloads enabled

states to reduce their own funding for the program down to the required

MOE level and still maintain higher total program budgets. TANF permits

states to achieve some budgetary savings but the MOE requirement

constitutes a higher level of spending per recipient in many states due to

declining caseloads—limiting the level of savings the state can achieve

during a period of declining caseloads.24 (See text box 2 for additional

examples of how states have achieved budgetary savings in this manner.)

In California, budget officials said that they were frustrated by the MOE

requirement because it limited their budgetary flexibility. Given the fixed

nature of the MOE levels, these officials noted that the state will no longer

realize any budgetary savings from a declining caseload because they must

spend the same amount of state funds on their welfare program as they did

in the previous year even if their caseloads are lower.

24We did not independently verify the reported levels of state spending nor whether reported federal or

state spending met the qualifications set forth in the act. States reported their fiscal year 1997 federal

TANF and state MOE expenditures in November 1997. Federal regulations specifying which state

expenditures qualify as MOE were still in draft. Although no comprehensive verification of state

expenditures has been undertaken at this point, annual audits performed under the Single Audit Act of

1984 should provide a useful tool for ensuring that states are promoting financial accountability for

block grant programs such as TANF.

Page 14 GAO/AIMD-98-137 Welfare Reform
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Text Box 2: Examples of States’ Use of Federal TANF Funds to Achieve Budgetary Savings

The combination of additional budgetary resources and lower caseloads has permitted states to achieve state budgetary savings

which were reallocated to other state fiscal priorities. These states were still able to meet their MOE requirement under TANF and

many were also able to provide a higher level of state funds per case. A number of states show this substitution in their budget

documents. Even though many state officials indicated that state funds withdrawn from their welfare programs were used in other

health and human services programs, any state funds that were reallocated became part of the larger general fund and become

available for any state funding priority.

Oregon reduced the state's share of its total welfare program budget by nearly $55.2 million. These state funds, no longer needed

to meet the MOE requirement, were reallocated to help finance other state priorities. However, our analysis shows that Oregon

must spend about 27 percent more per recipient than it spent per recipient under prior law in order to meet its MOE .

Michigan reduced its contribution to its welfare program by about $42 million but must increase the level of spending per recipient,

as required under the MOE, by about 22 percent.

Texas freed up $114.9 million in state funds in its welfare program to maximize the use of federal funds. Nevertheless, the MOE

requirement serves to increase, by about 6 percent, the amount of state funds expended per recipient.

New York took advantage of TANF's financing changes to provide over $344 million in fiscal relief to the state and localities by

reducing the total state and local contributions to the program's financing by 16 percent.

California reduced its own contribution to its welfare program by about $357 million, compared to past AFDC cost sharing ratios,

but still met its minimum MOE requirement, which is about 7 percent lower than what it spent per recipient under AFDC.

Colorado reduced general fund contributions to its welfare program by $8.3 million and the counties' contributions by $3.6 million

for state fiscal year 1998. The state used the displaced general funds to increase funding for other state programs and required

the counties to deposit their portion of the savings in local social services reserves.

As allowed under PRWORA, 11 states reported that they transferred funds from TANF to either the CCDBG or the title XX Social

Services Block Grant (SSBG). For example, both Connecticut and Wisconsin shifted TANF funds to their SSBG programs--$24

million and $32 million respectively. These states reduced, by an equal share, the level of state funding formerly dedicated to

SSBG. 

Note: PRWORA allows states to transfer up to 30 percent of their TANF block grant into the

CCDBG and the title XX Social Services Block Grant (SSBG). Of this percentage, only 10 percent

can be transferred to SSBG and must be used only for programs and services for children and

families with incomes below 200 percent of the poverty line. The Transportation Efficiency Act for

the 21st Century (TEA-21) reduces the amount a state can transfer from TANF to SSBG to

4.5 percent for fiscal year 2001 and after. Pub. L. No. 105-178 §8401(b), 112 Stat. 107, 499

(1998).

Oregon provides an example of a state that used TANF funds to free up a

portion of state funds for other state priorities. State officials told us that

during budget deliberations for the 1998-1999 biennium,25 one of the

Governor’s proposals was a major overhaul of the state’s school financing

25Oregon’s current biennium began on July 1, 1997, and ends on June 30, 1999.

Page 15 GAO/AIMD-98-137 Welfare Reform
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system. Although the state’s economy was sound and state revenues

exceeded the forecast, the Governor informed state agencies responsible

for program budgets that some state resources would have to be

reallocated to the school financing initiative. According to agency officials

responsible for Oregon’s welfare programs, many state programs were

affected by this reallocation. Since their TANF grant was higher than what

they had received in the previous biennium, their MOE requirement lower

than what had been budgeted in the previous biennium, and their

caseloads had declined by over 50 percent since 1994, they were able to

reallocate nearly $55.2 million in state funds from their welfare program

and still meet their MOE requirement. Those state general funds shifted out

of their welfare program were reallocated to other programs within the

Human Services department to cover budgetary needs for planned

program expansions in, for example, the Oregon Health Plan and for other

state general fund shortfalls resulting from the Governor’s overall budget

priorities. As a result, the federal share of the state’s TANF program

expenses now totals 68 percent, compared to the previous federal share of

about 56 percent.26

In contrast, Maryland took a different approach by permitting the state’s

Department of Human Resources to reinvest the state’s budgetary savings

that result from caseload reductions. Ten percent of the total savings

achieved in the state each year may be allocated to demonstration projects

to test innovative approaches to reduce welfare dependency. Any

remaining savings may be distributed by the state, with about half

returning to the local social service departments that achieved the

caseload reductions as a performance bonus. These “reallocated savings”

may be used for, among other things, child care, welfare avoidance grants,

drug treatment for targeted recipients, transportation emergency funds, or

any other direct service to applicants or recipients that are considered

appropriate to accomplish the program’s goals.

There are several differing perspectives for assessing states’ fiscal

commitment to these programs. Although states have been able to reduce

their commitments of state funds below previous levels, they nevertheless

must still maintain spending at higher levels than they would have spent

26According to state officials, Oregon has historically invested more state funds in its JOBS program

than were required in order to obtain the maximum federal matching grant. For example, during the

1996-1997 biennium the state fiscal commitment to the JOBS program represented 68 percent of the

program budget, with federal matching funds representing 32 percent. With the passage of PRWORA,

the state was able to maximize all available resources by using federal TANF funds where state funds

had been previously used. In addition, the 1998-1999 biennial program budget includes a 37 percent

expansion to the state’s welfare program that was made possible by the availability of additional

federal TANF funds.

Page 16 GAO/AIMD-98-137 Welfare Reform
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under the matching grant programs. In fact, given the caseload decline,

these lower levels of state spending are providing more per recipient in

many states. Some states have correspondingly argued that the MOE

requirement prevents them from achieving even greater savings and from

reaping the budgetary rewards traditionally associated with a declining

caseload. On the other hand, some have raised concerns that reductions in

overall state spending could limit welfare reform’s potential to provide the

resources necessary to move people from welfare to work.

State Contingency

Budgeting for

Economic Downturns

In most of the states we visited, decisions on how to allocate the

additional budgetary resources available for low-income family assistance

programs were made in a context of strong state economies, and most

forecasts expected these trends to continue in the short term. Given the

strength of their economies, most states we visited did not see an

immediate need to prepare for a recession for their welfare programs.

Based on past experience, some state officials said that if the economy

worsened and states’ revenues fell, the budgetary impact would be felt in

all state programs—including welfare. Nine of the 10 states we visited

have established general fund “rainy day” funds to be used for downturns

in state economies and budget shortfalls, but only four of the nine have

significant balances.27

Some state officials believe that sound fiscal planning should include some

type of dedicated reserve for contingencies and other future welfare

program needs. These officials said that a future downturn could reduce

funds available for benefits at a time when they are most needed. This

could undermine welfare reform by reducing supportive services crucial to

the success of a welfare to work strategy. Four of the states we visited had

enacted budgets that established dedicated reserve funds although the

amounts saved were small relative to total program budgets. Three of the

four states budgeted some federal TANF funds to a special program-specific

reserve account,28 and one state, Maryland, set aside state general funds

for contingencies. (See table 1.)

27Bond rating agencies recommend that states maintain rainy day funds equal to a minimum of

3 percent of their general fund budgets. The four states we visited that projected a rainy day fund

balance above this threshold for state fiscal year 1998 are Colorado (3.9 percent), Connecticut

(3.6 percent), Maryland (7.2 percent), and Michigan (15.0 percent).

28Although the states appropriated these reserves, the funds are held in the U.S. Treasury until needed.

Page 17 GAO/AIMD-98-137 Welfare Reform
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Table 1: Earmarked Welfare Program

Reserve Balances Earmarked reserves for

state welfare programs

State

Millions of

dollars

Percent of

program

budget Comments

Colorado 8.9a 3.7 Two reserves were established: 

(1) Department of Human Services was

given a $3 million reserve that can be used

if needed without legislative approval and

(2) The other reserve consists of a $5.9

million long-term contingency fund that

requires legislative approval for

disbursement. This second reserve is

intended for use during an economic

downturn.

Maryland 15.7 3.3 Within its budget stabilization fund,

Maryland earmarked $15.7 million in state

funds for its Family Independence

Program.

Texas 25.3 2.3c The balance of all remaining TANF funds

available to the state was appropriated to

a Contingency Appropriations and made

available for all expenditures relating to

caseload growth and other program needs.

Wisconsin 50b 4.0c Reserves consist of (1) a Wisconsin Works

agency contingency fund, (2) a reserve for

additional benefit payments in Milwaukee,

and (3) a reserve for benefits to children of

Supplemental Security Income recipients.

aColorado subsequently deposited an additional $16 million in the reserve for long-term

contingencies. This reflected the balance of its federal fiscal year 1997 TANF grant that remains

unspent at the U.S. Treasury.

bWisconsin has subsequently drawn down the entire balance of its reserve for benefits to children

of Supplemental Security Income recipients and all but $2.8 million of its reserve for additional

benefits payments in Milwaukee, leaving a reserve of $27.8 million or 2.25% of its biennial

program budget.

cAs a percent of 1998-1999 biennial program budget.

States that established reserves cited the possibility of future economic

downturns and other factors in their decision-making. Officials in

Maryland expected that at some point in the future—as has happened in

the past—an economic downturn will bring higher caseloads and higher

program costs. Using state general funds, Maryland established a

$15.7 million reserve fund dedicated to low-income family assistance

programs in part to address concerns about assuring programmatic

stability during such a period of fiscal stress. In another example,

Page 18 GAO/AIMD-98-137 Welfare Reform
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Colorado allocated $5.9 million of its federal TANF grant to a long-term

contingency reserve in the event it experiences recession-driven caseload

increases in the future.

In contrast, officials in other states felt that sound fiscal planning should

focus on investing maximum resources now in a welfare-to-work strategy.

For example, officials in Oregon said that caseload levels have not

fluctuated with the health of Oregon’s economy (as measured by the

unemployment rate), and they do not expect this to change. They believe

caseloads will continue to decline if sufficient funds are invested now in

appropriate services to achieve recipients’ long-term self-sufficiency.

These officials attributed the state’s sizeable caseload declines, from a

reported 117,656 recipients in 1993 to 56,299 in 1997, to full investment in

the program and the new emphasis on work. Similarly, Michigan officials

stated that past experience with caseload changes during recessions may

not be relevant in a post-reform environment. These officials expect that

while caseload levels have not become completely independent of the

economy, they will eventually stabilize and then fluctuate with the

economy around some new, lower core-caseload level which they believe

will be so far below their historic high that they do not expect to have

difficulties financing the costs of any future caseload fluctuations.

The National Association of State Budget Officers (NASBO), the National

Governors’ Association (NGA), and some state officials have suggested that

proposed federal rules may actually discourage states from establishing

dedicated state reserves composed of general funds.29 For example, in

Michigan, state budget officials considered establishing a reserve with

state general funds until the state learned that reserved funds would not

count toward meeting the states’ TANF MOE requirement for the year in

which they were reserved. Although Maryland did establish a state reserve,

state officials there raised similar concerns and there are currently no

plans to add more state funds to this fund.30

29According to HHS’ draft regulations, dedicated state reserves for welfare programs do not count

toward a state’s maintenance-of-effort requirement until they are expended.

30As previously noted, in order for a state to gain access to the Contingency Fund a state must raise its

own spending to a meet the Contingency Fund’s higher and more stringent MOE requirement. These

funds may be hard to come by if the state is in the midst of a recession. A state official said, however,

that if a state has saved its own funds during robust economic times, it could more easily raise its

spending during downturns.

Page 19 GAO/AIMD-98-137 Welfare Reform
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The Federal Role in

Encouraging States’

Efforts to Plan for

Future Contingencies

The 1996 reforms of national welfare policy focused considerable

attention on the federal government’s role in welfare. While the resulting

legislation devolves much programmatic and financial responsibility to the

states, a significant federal role remains in providing a substantial share of

the funding for these programs, setting national program objectives,

establishing reporting and accountability criteria, and ensuring a safety

net. Fiscal planning responsibilities were devolved to the states. The states

were granted the ability to save federal funds without fiscal year

limitation—in other words to plan for future contingencies. The act also

provides two additional sources of federal funds—the Contingency Fund

and Loan Fund—to be available if economic conditions affect caseloads

and increase the fiscal burden on states. The Contingency Fund provides

states with a limited amount of matching funds, much like under AFDC, and

requires states to increase their own spending in order to receive federal

matching funds. The Loan Fund allows states to borrow a limited amount

as well, but they must repay this loan within 3 years at a rate equal to the

yield on a similar Treasury security. However, states have registered

concerns about the design of these federal contingency mechanisms.

Levels of Future Unspent

TANF Balances Held in

Reserve Are Uncertain

According to financial data reported by the states to HHS, many states had

not spent all of their fiscal year 1997 TANF block grants by the end of the

federal fiscal year, and some left considerable balances at the Treasury.

Thirty-one states carried over a total of more than $1.2 billion. While these

resources can certainly be used in the event of an economic downturn, the

presence of this apparent fiscal cushion may reflect the transitional nature

of the first year of the grant rather than explicit state savings decisions.

While we found that some states left a portion of their TANF grants in

reserve at the Treasury, we generally did not find a clear relationship

between the unspent TANF balances and states’ contingency plans. During

this transitional period, states generally have been unable to forecast

caseload levels with any degree of accuracy. In all states but one,

caseloads continued to decline, often at rates far faster than expected.

(See appendix II.) State program budgets are prepared based on the

projected caseload levels. Declines that are greater than expected have

resulted in large unspent balances. Furthermore, the timing of the states’

draws on the TANF funds, and thus the levels of unspent resources, depend

on when the states submitted their state plans, enacted their laws, and

implemented their reforms.

Page 20 GAO/AIMD-98-137 Welfare Reform
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In addition, a Treasury policy statement issued in June 1997 affected the

timing of states’ TANF draws. It requires that for each allocation of federal

funds a state draws down, it must spend a proportional share of its own

MOE funds. In this policy statement, Treasury applies principles set forth in

the Cash Management Improvement Act of 1990 (CMIA) to the TANF block

grant. CMIA settled a long-standing dispute between the federal government

and the states over the disbursement of funds for federal programs

administered by the states. CMIA helps to ensure that neither party incurs

unnecessary interest costs in the course of federal grant disbursements.31

HHS recognized that this policy might, in some cases, limit a state’s

financial flexibility. It noted that because PRWORA does not specifically

exempt the TANF program, CMIA principles apply whenever state MOE and

federal TANF funds can be used interchangeably. HHS indicated that if a

state were able to demonstrate a bona fide need to draw its TANF funds

under a different schedule than it spends its state MOE funds, the Office of

Management and Budget (OMB) would consider granting an exemption to

the proportionate draw down requirement.

Given these various transitional issues, current levels of unused TANF may

not be a reflection of state decisions to save for the future and therefore

may not be a reliable indicator of future balances. Also, a great deal of

uncertainty exists surrounding future welfare costs. PRWORA requires states

to place a growing percentage of their caseload in work related activities

over the next 5 years.32 As we noted in our related report on states’ efforts

to restructure their welfare programs, data from states that have

implemented early reforms and experienced large caseload reductions

indicate that many of the remaining recipients have multiple barriers to

participation in work activities, such as mental health and substance abuse

problems, and domestic violence. Even if the economy remains favorable,

per recipient costs may need to grow as states will have to place more of

their caseloads in work-related activities and a greater percentage of their

caseloads will need services that address the barriers to participation.

The way federal policies are implemented may play a role in influencing

states’ plans for future contingencies. Organizations representing states

31For additional information see Financial Management: Implementation of the Cash Management

Improvement Act (GAO/AIMD-96-4, January 8, 1996).

32Each state must meet two separate work participation rates, that is, the adult recipient must be

engaged in work or job search activities for a minimum of 20 hours per week. The overall minimum

participation rate was 25 percent in federal fiscal year 1997, rising to 50 percent in fiscal year 2002 and

thereafter. The minimum participation rate for adults in two-parent families is 75 percent in fiscal

years 1997 and 1998 rising to 90 percent in fiscal year 1999 and thereafter. A state that fails to meet its

participation rates is subject to a reduction in its TANF grant.

Page 21 GAO/AIMD-98-137 Welfare Reform
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and officials in some states we visited suggested that cash management

rules may reduce states’ incentives to save federal TANF funds for the

future. Although states may carry forward any unspent federal TANF funds

without fiscal year limitations, these unspent TANF reserves must be kept

at Treasury—not drawn down and kept in a state reserve.33 NASBO, NGA, and

the National Conference on State Legislatures (NCSL) have observed that

balances left at the U.S. Treasury may suggest to the Congress that grant

levels are too high and these funds remaining at Treasury are not needed

by the states. Citing past experience with other federal grant programs,

such as the State Legalization Impact Assistance Grants (SLIAG)34 program,

where initial levels were reduced over time and federal requirements

increased, officials at NCSL expressed a concern that unused TANF funds

perceived as “excess” would become vulnerable to reallocation by the

Congress to other areas of national need. These same concerns were also

expressed in some of the states we visited. Consequently, some state

officials suggested that these concerns might prompt states to spend

rather than save a greater proportion of their TANF funds.

In contrast, the Urban Institute argues that the federal application of CMIA

to TANF is important in ensuring that states have some reserves for a future

contingency. Since CMIA prohibits states from spending federal TANF funds

until they are needed and requires that each draw of federal funds be

matched by state funds, the Institute believes that the application of CMIA

to TANF has helped to ensure that some federal funds were held in reserve.

This is especially important, the Institute notes, because the draft HHS

regulations prohibit state funds held in reserve to be counted as MOE,

effectively creating a disincentive for states to create reserves with their

own funds.

Under HHS’ draft regulations, a state must report how much TANF and MOE

funds it spent on a variety of activities, such as cash assistance, child care

33According to HHS, placing TANF funds in a state reserve is prohibited by CMIA’s requirement that

states must minimize the time between federal funds transfer and expenditure.

34The Immigration Reform and Control Act of 1986 (IRCA) (P.L. 99-603) provided appropriations to

help states meet the costs, over a 7-year period, of services provided to aliens granted legal status by

IRCA and to cover federal program and administrative costs. The act provided for appropriations of 

$1 billion for each of the four fiscal years, 1988-91. Unused funds from these years were authorized to

be used by states through fiscal year 1994. In 1989 and again in 1990, the Congress reduced by about 

$1.1 billion the annual appropriations for fiscal years 1990 and 1991, promising to make these funds

available in fiscal year 1992. These actions were taken because the states were not expected to draw

down all appropriated funds through the end of fiscal year 1991. However, in 1992 the President’s

budget request proposed to rescind the $1.1 billion. We reported in May 1991 that the estimates of

future costs in the SLIAG program indicated that all of these remaining funds might be needed.

Ultimately, these grants to the states were reduced by $456 million, or 11 percent, of what had been

originally authorized. For more information, see Health and Human Services: Funding for State

Legalization Impact Assistance Grants Program (GAO/HRD-91-109, May 23, 1991).

Page 22 GAO/AIMD-98-137 Welfare Reform
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services, and work activities, but no mechanism currently exists for states

to inform the Congress about their future plans for spending or saving

TANF balances left at Treasury. Moreover, available data on TANF balances

are generally midyear data from the perspective of states’ budgets and

appropriations decisions—not data used in state decision-making.

In commenting on HHS’ draft TANF regulations, the Center on Budget and

Policy Priorities suggested that more information about state plans for

saving TANF could aid congressional oversight of welfare reform. The

Center suggested that as part of state financial reporting, HHS could give

states the option to record the amount of TANF funds they plan to set aside

for future contingencies, similar to accounts established in three of the

states we visited. Allowing for more transparency and information

regarding states’ contingency budgets and the nature of the balances left in

reserve in the U.S. Treasury could provide states with an opportunity to

clarify their longer term fiscal plans for the program. Consequently, this

would help the Congress gain a better picture of the nature of the unspent

TANF balances.

States Are Unlikely to

Make Extensive Use of

PRWORA’s Contingency

Fund or Loan Fund

Officials in most of the states we visited indicated that they would not use

the Contingency Fund for State Welfare Programs (Contingency Fund) nor

the Federal Loan Fund for State Welfare Programs (Loan Fund) even if

they became eligible to do so. These state officials told us that neither the

Contingency Fund nor the Loan Fund presented states with a viable option

for future contingencies.

Complex federal reconciliation provisions and a more stringent federal

definition of qualified expenditures have led some state officials to

conclude that the costs of gaining access to the Contingency Fund

outweigh any benefits to the states. To be eligible to receive federal

matching funds through the Contingency Fund, a state must meet certain

conditions. First, a state must qualify as “needy” under one of two triggers:

(1) in the most recent 3-month period, its average unemployment rate

(seasonally adjusted) must have been at least 6.5 percent and must have

increased at least 10 percent from the corresponding rate in at least one of

the 2 preceding years or (2) its average monthly food stamp caseload for

the most recent 3-month period must have increased at least 10 percent

compared to what enrollment would have been in the corresponding

3-month period of fiscal year 1994 or 1995.

Page 23 GAO/AIMD-98-137 Welfare Reform
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Second, a state must meet a higher and more stringent level of MOE

spending. None of the states included in our study had budgeted

100 percent for MOE. Most states we visited planned to meet only the

minimum MOE required by PRWORA (between 75 and 80 percent of their 1994

expenditure levels), thereby requiring a substantial increase in spending to

qualify for the Contingency Fund. In addition to the requirement that

states raise their spending levels to 100 percent of historical expenditures

to gain access to the Contingency Fund, a more limited range of a state’s

spending can be counted toward the Contingency Fund MOE than for the

general MOE. Although states may count expenditures on separate state

programs that can serve TANF-ineligible clients as part of their general MOE

requirement, these same expenditures cannot be counted toward the

100 percent Contingency Fund MOE. HHS agrees that the operation of the

Contingency Fund would be simplified by allowing states to count the

same expenditures toward both the TANF MOE and Contingency Fund MOE.

However, both HHS and the Congressional Budget Office (CBO) note that

changes that would ease access to the Contingency Fund would increase

the costs of the Contingency Fund in budgetary scoring terms and could

be subject to challenge under budget rules unless offsets were found.

Once a state meets these conditions, it is eligible to draw from the

Contingency Fund. The state’s annual draw is limited to 20 percent of its

annual TANF grant. However, the state must match all draws from the

Contingency Fund with additional state money as determined by its

matching rate under the Medicaid program, or federal medical assistance

percentage (FMAP).35 Moreover, there is a year-end reconciliation process

which can reduce state allotments depending on the number of months

during the year the state was eligible. (See text box 3 for more detailed

discussion of this point.) Lags in data availability mean states qualifying on

the basis of food stamp caseload increases would not even be aware of

their eligibility until some time after the need arose.

35Under AFDC, state spending was matched at a rate based on each state’s per capita income. This

rate, FMAP, is also used in other federal-state matching grant programs such as Medicaid. It ranges

from 50 percent for wealthy states to 79 percent for poorer states.

Page 24 GAO/AIMD-98-137 Welfare Reform
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Text Box 3: The Contingency Fund’s Annual Reconciliation Process

As currently structured, the reconciliation process favors states that are "needy" within a single federal fiscal year compared with

those that are "needy" in months that overlap consecutive federal fiscal years. A state that is "needy" for all 12 months during a

federal fiscal year would have to match all funds drawn at its applicable fiscal year FMAP rate with no adjustments for the number

of months it was eligible because it was needy throughout the year. However, a state that is "needy" for 12 consecutive months

that span 2 federal fiscal years (e.g., 6 months in each year) with an identical FMAP rate will see its federal match rate reduced by

half because of the adjustment made for the number of months the state was needy in each year. 

To illustrate, the state that was needy for an entire federal fiscal year and was eligible for and had drawn $20 million of Contingency

Funds would be able to retain these funds, provided the state had spent the necessary matching funds. In contrast, the state that

qualified as needy for the same number of months and was eligible for the same amount from the Contingency Fund but

overlapping 2 fiscal years would initially obtain $10 million for each year, reflecting its 6 months of eligibility in each year, but then

the state would have to remit half of these federal funds after each year's reconciliation. This latter reduction is the result of prorating the state's grant by the number of months it was eligible for contingency funds, even though the state's initial claim for each

year was already based on the number of months of eligibility. As a result, the second state would be allowed to retain a total of $5

million of federal funds in that fiscal year, $5 million of federal funds in the next fiscal year--a total of $10 million even though its

eligibility over these 2 years was the same as the state receiving $20 million. In addition, the second state would have to meet the

Contingency Fund MOE in both years.

Furthermore, the Adoption and Safe Families Act of 1997 (Public Law

105-89), §404 reduces the cap on Contingency Fund spending by

$40 million over 4 years. If a state drew funds in a year affected by the

reduction, the amount it could retain would be reduced by its share of the

annual reduction. For example, the total reduction in fiscal year 1999 is

$9 million. If two states drew funds in fiscal year 1999, at the end of the

year, these two states’ allocation would be reduced by $4.5 million each. If

the states had already received their allocation they would have to remit

$4.5 million each.

Although eight states36 qualified as needy and could have gained access to

the Contingency Fund in fiscal year 1997, according to HHS, only New

Mexico and North Carolina requested and were awarded funds.37 Although

Hawaii would have been eligible for resources from the Fund for all of

federal fiscal year 1997, the state determined that it did not have enough

qualifying state expenditures to meet the Fund’s 100 percent MOE

requirement. California was also eligible for Contingency Funds for the

first 4 months of federal fiscal year 1997 (October 1, 1996, through

January 31, 1997). Upon completing the reconciliation process, the state

calculated that it would have to increase its own spending by almost 

36Alaska, California, Hawaii, New Mexico, New York, North Carolina, Washington, and the District of

Columbia.

37North Carolina was awarded $15,111,980 and New Mexico was awarded $ 21,017,193.

Page 25 GAO/AIMD-98-137 Welfare Reform
B-277800 

$1.9 billion in order to receive $249 million from the Contingency Fund

and declined to do so. According to HHS officials, North Carolina and New

Mexico had been awarded funds on May 29, 1998. As of July 24, 1998,

neither state had completed the reconciliation process and HHS officials

expect that both states will be required to remit a large share of these

funds.

State officials also indicated that they are unlikely to borrow from the

Loan Fund established in PRWORA.

38 Officials in some states indicated that

borrowing specifically for social welfare spending in times of fiscal stress

would not receive popular support. We have previously reported on states’

reluctance to participate in a similar loan program in the Unemployment

Insurance (UI) Trust Fund.39 The UI program originally operated as a

forward-funded system with benefit levels and tax rates set so that the

program could “save for a rainy day” by building reserves during periods

of economic expansion and to be able to pay UI benefits during economic

downturns. This federal-state partnership is financed through payroll taxes

that are used to pay benefits, finance administrative costs, and maintain a

loan account from which financially troubled states can borrow funds to

pay UI benefits. By the early 1980s, as a result of severe back-to-back

recessions, many states had depleted their reserves and began to rely on

federal loans to sustain UI benefits. The Congress enacted several laws

designed to move the system toward healthier reserve balances. These

changes made it more expensive for states to borrow from the federal

government. State loan repayments increased, and states took other

actions including cutting program benefits, limiting the length of time

recipients could receive benefits and, in some cases, increasing payroll

taxes—jeopardizing the program’s objective of helping to stabilize the

economy during recessions. Although the UI program is designed to allow

states to build reserves during good economic times in order to pay

benefits during downturns—and allows states to borrow from the federal

government—these provisions have not always provided sufficient

protection against a need for additional federal resources. For example, in

1993 the Congress passed a $4 billion supplemental appropriations bill to

finance emergency unemployment benefits with federal funds due to

shortfalls in state unemployment compensation trust funds and the

38States that have not incurred penalties for improper use of TANF funds are eligible for loans from the

Loan Fund. Such loans are to have a maturity of no more than 3 years at an interest rate comparable to

the average market yield on outstanding federal obligations with comparable periods to maturity. The

cumulative total of loans made to a state from fiscal year 1997 through fiscal year 2002 is not to exceed

10 percent of a state’s TANF grant.

39Unemployment Insurance: Program’s Ability to Meet Objectives Jeopardized (GAO/HRD-93-107,

September 28, 1993).

Page 26 GAO/AIMD-98-137 Welfare Reform
B-277800 

unwillingness of states to borrow federal funds or expend state general

funds on UI.

40

Conclusions With the passage of PRWORA, the nature of the partnership between states

and the federal government for designing and financing welfare programs

changed. Much of the downside fiscal risk has been shifted to the states by

virtue of the fixed nature of the TANF block grant. States have gained

important new flexibility in making decisions, and their provisions for

financing their programs in the near and long term will have an important

bearing on the future success of welfare reform.

States currently have more resources available for these programs under

TANF than would have been available under the old financing system, but

future fiscal demands are uncertain. The fixed nature of the TANF block

grant, the potential volatility of welfare caseloads and program spending

along with the “pro-cyclical” budgetary pressures states face under their

balanced budget requirements highlight the importance of both the states’

own funding for contingencies as well as PRWORA’s provisions for

contingencies—allowing states to save unused TANF funds for future years’

use and the two safety net mechanisms, the Contingency Fund and the

Loan Fund.

As these provisions attest, the federal government retains a stake in states’

fiscal decisions affecting the sustainability of the program during

downturns. As we noted, states see limited incentives to use the

Contingency and Loan Funds, in part because the costs associated with

gaining access outweigh many of the benefits that these mechanisms may

offer. Although improving access might help states cope with the effects of

economic slowdowns, easing these funds’ requirements could prove costly

and may lessen the incentives for states to fulfill their own responsibilities

for fiscal planning and program financing. While the Congress may very

well revisit the design of these funds as the implementation of TANF

unfolds, for now the TANF balances left at Treasury constitute the principal

source of federal contingency funds for the states.

While many states had TANF balances at Treasury at the end of fiscal year

1997, current reporting requirements do not clearly identify states’ plans

for these balances. We identified a number of transitional issues that may

have affected the levels of balances. A number of factors unrelated to

states’ savings decisions have influenced the levels of these funds,

40P.L. 103-24, 107 Stat. 67.

Page 27 GAO/AIMD-98-137 Welfare Reform
B-277800 

including cash management practices, slow-starting programmatic

spending, and caseload declines. States we visited took different

approaches to contingency budgeting for TANF, and states’ practices may

change as they gain experience in implementing their reformed programs

under the grant. Better information on states’ plans for future

contingencies, including on states’ unused TANF balances, could play a role

in the continuing dialogue between states and the Congress as welfare

reform continues to unfold.

In the new block grant environment, the federal government has an

interest in encouraging state savings, but what constitutes “adequate”

saving will remain a state judgment made under conditions of

considerable uncertainty. Finding the right balance between saving

budgetary resources for future contingencies and investing them in

programs that help people make the transition from welfare to work will

be one of the main challenges for states as they develop strategies to

address the needs of low-income families.

Recommendation We recommend that the Secretary of Health and Human Services consult

with the states and explore various options to enhance information

regarding states’ plans for their unused TANF balances. Such information

might include explicit state plans for setting aside TANF-funded reserves for

the future. Allowing for more transparency regarding states’ fiscal plans

for TANF funds could enhance congressional oversight over the multi-year

time frame of the grant and provide states with an opportunity to more

explicitly consider their long-term fiscal plans for the program.

Agency Comments We received comments from HHS, which are reprinted in full in appendix

III. In addition, portions of the report were reviewed for technical

accuracy by officials in the states we visited, and their comments were

incorporated as appropriate. We also asked the National Governor’s

Association (NGA), the National Conference of State Legislatures (NCSL),

and the American Public Welfare Association (APWA) to review the report.

We incorporated comments from these organizations as appropriate.

HHS, NGA, NCSL, and APWA generally agreed that this report is an accurate

and comprehensive portrayal of the current fiscal issues facing states as

they make progress toward implementing welfare reform. HHS, however,

expressed concern that our analysis of states’ additional budgetary

resources did not take into account that states must now engage a

Page 28 GAO/AIMD-98-137 Welfare Reform
B-277800 

significantly higher percentage of their caseload in work activities and that

the costs of operating a welfare program before reforms could not be

compared to the costs of operating a welfare program under TANF. Indeed,

HHS, NGA, and NCSL all emphasized that under TANF, states are expected to

do much more than under AFDC. Our analysis was not meant to compare

the real costs of operating the AFDC program to the real costs of operating

a welfare program under TANF, nor was it meant to minimize the additional

responsibilities incumbent on states as they make progress implementing

welfare reforms. Instead, we sought to illustrate the levels of resources

that are available to finance the dramatic changes in states’ welfare

programs. In our recent report on state program restructuring, we

described how states are moving away from a welfare system that focused

on entitlement to assistance to one that emphasizes finding employment as

quickly as possible and becoming more self-sufficient. For example, we

found that states were using some of their additional budgetary resources

to enhance support services, such as transportation and child care, for

recipients participating in work activities and poor families who have

found jobs and left the welfare rolls. We concluded that the confluence of

a strong national economy that fosters employment opportunities and the

availability of additional budgetary resources has created an optimal time

for states to reform their welfare programs.

HHS concurred with our recommendation, but NGA and NCSL expressed

concerns that it would lead to an increase in the reporting requirements

already imposed on the states. It is because we agree that costs associated

with collecting information should not outweigh its usefulness that we

suggested HHS and the states work together on developing a reporting

option. We recognize that estimates of future caseloads would affect

estimates of future unspent TANF balances and that developing accurate

caseload estimates at this early stage in TANF implementation poses

problems for states. However, as NCSL and NGA agreed, information on

states’ plans for unspent TANF balances could prove useful as the Congress

executes its oversight responsibilities of the TANF program and the

program’s funding levels. We continue to believe that the Congress would

benefit from more complete information on states’ plans for future

contingencies, including unspent TANF balances. As states, HHS, and other

cognizant parties meet to discuss final reporting requirements under TANF,

we urge them to work together to explore reporting options. This

discussion can form part of the ongoing dialogue on how best to

restructure governmental roles and responsibilities to achieve the goals of

welfare reform.

Page 29 GAO/AIMD-98-137 Welfare Reform
B-277800 

NGA, NCSL, and APWA also underscored states’ concerns about applying CMIA

to TANF. In their view, CMIA limits state flexibility by restricting TANF funds

from being held in state reserve accounts and by requiring that all draws of

federal TANF funds be matched with state MOE funds. According to APWA,

because caseloads have declined in many states and because states must

still meet their MOE requirements, many states are not even drawing federal

funds until the fourth quarter of the federal fiscal year. These comments

reinforce the point made in our report that cash management practices

may have had an impact on the level of TANF resources remaining at

Treasury at the end of the federal fiscal year.41 On a related issue, APWA

cited the Congress’ recent decision to reduce the proportion of TANF a

state can transfer to its SSBG program as effectively limiting states’

flexibility in TANF draw downs, which in APWA’s view, penalized states for

leaving TANF funds in the Treasury.

NGA and NCSL urged that the federal Contingency Fund be redesigned to be

a more attractive option for states. Specifically, NGA recommended

changing the Contingency Fund’s MOE provision to conform to the TANF

MOE requirement and to change the reconciliation requirement to eliminate

the reduction in the state’s match rate that is based on the number of

months the state was eligible to access the Contingency Fund. We noted in

our report that very few state budget officials perceive that the

Contingency Fund will serve to help states maintain stable program

financing if caseloads rise during a recession. However, HHS noted that

redesigning the Contingency Fund could result in significant increases in

federal costs. The Contingency Fund was designed to balance competing

objectives. On the one hand it could not be so generous as to encourage

routine or casual use which would have led to significantly higher federal

costs. On the other hand, if the Contingency Fund is overly restrictive

many states would be disinclined to use it and it would not serve as the

fiscal stabilizer it was intended to be. Balancing these competing

objectives will likely challenge the Congress as well as the states as they

continue to make progress in implementing their welfare programs under

a variety of economic and demographic conditions.

As agreed with your office, unless you release this report earlier, we will

not distribute it until 30 days from the date of this letter. At that time, we

will send copies to the Chairmen and Ranking Minority Members of the

Senate Committee on Finance and the Senate Subcommittee on Social

41As noted earlier in our report, HHS has stated that because PRWORA does not specifically exempt

the TANF program, CMIA principles apply whenever state MOE and federal TANF funds can be used

interchangeably.

Page 30 GAO/AIMD-98-137 Welfare Reform
B-277800 

Security and Family Policy, Committee on Finance, and other interested

parties. We will also make copies available to others upon request.

If you have any questions, please call me at (202) 512-9573.

Sincerely yours,

Paul L. Posner

Director, Budget Issues

Page 31 GAO/AIMD-98-137 Welfare Reform
Contents

Letter 1

Appendix I 

Scope and

Methodology

34

Appendix II 

Estimating Additional

Budgetary Resources

Available for States’

Welfare Programs

36

Appendix III 

Comments From the

Department of Health

and Human Services

51

Appendix IV 

Major Contributors to

This Report

55

Tables Table 1: Earmarked Welfare Program Reserve Balances 18

Table II.1: Changes in Welfare Caseloads 1994-97 36

Table II.2: Additional Federal Resources Under TANF 39

Table II.3: Additional Federal Resources Per Recipient Under

TANF

41

Table II.4: State Resource Levels—Pre-Reform Versus

Post-Reform

44

Table II.5: State Resource Levels Per Recipient—Pre-Reform

Versus Post-Reform

46

Table II.6: Total Additional Budgetary Resources 49

Figures Figure 1: Funding for State Low-Income Family Assistance

Programs

3

Page 32 GAO/AIMD-98-137 Welfare Reform
Contents

Text Box 1: Examples of Expansion and Enhancements of State

Welfare Programs

13

Text Box 2: Examples of States’ Use of Federal TANF Funds to

Achieve Budgetary Savings

15

Text Box 3: The Contingency Fund’s Annual Reconciliation

Process

25

Abbreviations

AFDC Aid to Families With Dependent Children

AFDC-UP Aid to Families With Dependent Children Unemployed

Parent program

APWA American Public Welfare Association

CBO Congressional Budget Office

CCDBG Child Care and Development Block Grant

CMIA Cash Management Improvement Act of 1990

EA Emergency Assistance

FMAP Federal Medical Assistance Percentage

HHS Department of Health and Human Services

IRCA Immigration Reform and Control Act of 1986

JOBS Job Opportunities and Basic Skills

MOE Maintenance of Effort

NASBO National Association of State Budget Officers

NCSL National Conference of State Legislatures

NGA National Governors’ Association

OMB Office of Management and Budget

PRWORA Personal Responsibility and Work Opportunities Act of 1996

SLIAG State Legalization Impact Assistance Grants program

SSBG Social Services Block Grant

TANF Temporary Assistance to Needy Families

TEA-21 The Transportation Efficiency Act for the 21st Century

UI Unemployment Insurance program

Page 33 GAO/AIMD-98-137 Welfare Reform
Appendix I 

Scope and Methodology

This review was conducted in conjunction with a review conducted by

GAO’s Health, Education and Human Services (HEHS) Division. The HEHS

review studied welfare reform implementation in seven states: California,

Connecticut, Louisiana, Maryland, Oregon, Texas, and Wisconsin. These

states were selected because they represent a diverse range of

socioeconomic characteristics, geographic locations, and experiences

with state welfare initiatives. According to the U.S. Bureau of the Census

and HHS estimates, the states ranged in population from about 3.2 million

(Oregon) to about 31.0 million (California) in 1996; in median income for

three-person families, from about $33,337 (Louisiana) to about $52,170

(Connecticut) in federal fiscal year 1997; and in overall poverty rates, from

8.5 percent (Wisconsin) to about 19.7 percent (Louisiana) in 1995. Some

states like Wisconsin and Oregon have had reform initiatives in place for

several years that include elements similar to those in PRWORA, such as

time limits for welfare benefits (Wisconsin) and increased work

participation requirements (Oregon and Wisconsin); others, such as

Louisiana, have been operating more traditional cash assistance programs

with welfare-to-work components and were only beginning more

extensive reforms in fiscal year 1997.

In addition, in order to capture a broader picture of the fiscal and

budgetary implications of welfare reform, we added three additional states

to our review: Michigan, New York, and Colorado. Historically, Michigan’s

economy and budget have been highly sensitive to economic change, and

in 1977 Michigan created a Budget Stabilization Fund to help stabilize the

state’s fiscal policy. Like California, New York and Colorado have county

administered welfare programs that share in the costs of the welfare

programs. We added these states to obtain the views of local officials on

the fiscal implications of welfare reform in their states. By including New

York, Michigan, and Colorado, we also increased the geographic diversity

of our study states and included states that when combined with the other

seven states administer the welfare programs of about half the nation’s

total caseload.

To meet our objectives, we interviewed state and local officials in the local

low-income family assistance programs and in program and state-wide

budget offices. Specifically, we met with officials from the following

organizations during our state visits: executive branch budget offices;

legislative budget/finance committees; social service agencies; selected

county program and budget offices; and advocacy groups. We also

reviewed state program and budget documents, the PRWORA legislation, HHS

Page 34 GAO/AIMD-98-137 Welfare Reform
Appendix I 

Scope and Methodology

regulations and policy guidance, prior GAO reports, and welfare experts’

studies.

We also analyzed fiscal data related to all 50 states’ low-income family

assistance programs obtained from HHS to determine the level of additional

budgetary resources states’ received as a result of welfare reform. (See

appendix II for a more detailed explanation of the methodology used in

this calculation.) We did not verify the accuracy of these data.

We requested written comments on a draft of this report from HHS, NGA,

NCSL, and the American Public Welfare Association (APWA). These

comments are discussed in the letter, and HHS’ comments are reprinted in

appendix III.

Page 35 GAO/AIMD-98-137 Welfare Reform
Appendix II 

Estimating Additional Budgetary Resources

Available for States’ Welfare Programs

States currently have more budgetary resources available for their welfare

programs than they would have had under prior law. This is primarily the

result of a combination of three interrelated factors: (1) the unprecedented

declines in caseloads, (2) the new federal financing mechanism, or block

grant, that provides resources to the states without regard to the numbers

of people states’ welfare programs serve, and (3) the maintenance of effort

requirement on states that establishes a minimum, or floor, funding level

for their state welfare programs. This appendix describes the influence

each of these factors has on total resources available, and then presents

our estimates of the combined effect they have on total available

resources.

Impact of Declining

Caseloads on

Available Resources

Given the fixed nature of the federal funding stream and states’ minimum

MOE contributions, caseload volatility will dramatically affect the resources

available per recipient for state welfare programs. As caseloads drop,

there will be more resources available to the states to finance their welfare

programs since programs’ finance needs are largely driven by caseload

assumptions. In contrast, if caseloads rise, there will be fewer federal

dollars per recipient when compared to the previous budget period, and

states will need to raise additional resources on their own or adjust their

programs to make their resources go further. In many states, caseloads

began to decline even before the enactment of PRWORA and continued to do

so after passage of the law as shown in Table II.1. While there remains

controversy over some of the reasons for the caseload declines, research

indicates that important factors include the strong economy and changes

in federal and state welfare policies.

Table II.1: Changes in Welfare Caseloads 1994-97

Total AFDC/TANF recipients by state

State January 1994 August 1996 July 1997

Percent change

1994-97

Percent change

1996-97

Alabama 135,096 100,510 74,097 –45 –26

Alaska 37,505 35,540 33,663 –10 –5

Arizona 202,350 169,440 137,899 –32 –19

Arkansas 70,563 56,230 51,506 –27 –8

California 2,621,383 2,578,450 2,282,389 –13 –11

Colorado 118,081 95,790 59,171 –50 –38

Connecticut 164,265 159,060 151,321 –8 –5

Delaware 29,286 23,650 21,841 –25 –8

Florida 689,135 533,800 407,598 –41 –24

Georgia 396,736 329,160 243,541 –39 –26

(continued)

Page 36 GAO/AIMD-98-137 Welfare Reform
Appendix II 

Estimating Additional Budgetary Resources

Available for States’ Welfare Programs

Total AFDC/TANF recipients by state

State January 1994 August 1996 July 1997

Percent change

1994-97

Percent change

1996-97

Hawaii 60,975 66,480 74,297 22 12

Idaho 23,342 21,800 7,890 –66 –64

Illinois 709,969 640,870 547,958 –23 –14

Indiana 218,061 141,850 107,355 –51 –24

Iowa 110,639 85,940 73,837 –33 –14

Kansas 87,433 63,780 47,434 –46 –26

Kentucky 208,710 170,890 151,190 –28 –12

Louisiana 252,860 228,120 178,335 –29 –22

Maine 65,006 53,790 44,972 –31 –16

Maryland 219,863 194,130 154,166 –30 –21

Massachusetts 311,732 219,580 196,630 –37 –10

Michigan 672,760 501,440 424,612 –37 –15

Minnesota 189,615 169,740 151,201 –20 –11

Mississippi 161,724 122,750 87,118 –46 –29

Missouri 262,073 222,820 182,022 –31 –18

Montana 35,415 28,240 25,258 –29 –11

Nebraska 46,034 38,510 37,455 –19 –3

Nevada 37,908 33,920 27,896 –26 –18

New Hampshire 30,386 22,940 17,493 –42 –24

New Jersey 334,780 275,700 240,338 –28 –13

New Mexico 101,676 99,660 69,605 –32 –30

New York 1,241,639 1,143,960 1,002,936 –19 –12

North Carolina 334,451 266,470 231,506 –31 –13

North Dakota 16,785 13,130 10,508 –37 –20

Ohio 691,099 549,310 449,123 –35 –18

Oklahoma 133,152 96,010 74,567 –44 –22

Oregon 116,390 78,420 56,299 –52 –28

Pennsylvania 615,581 530,520 432,907 –30 –18

Rhode Island 62,737 56,460 54,498 –13 –3

South Carolina 143,883 113,430 79,820 –45 –30

South Dakota 19,413 15,840 12,497 –36 –21

Tennessee 302,608 238,890 163,236 –46 –32

Texas 796,348 647,790 479,933 –40 –26

Utah 50,657 39,060 31,975 –37 –18

Vermont 28,095 24,270 22,403 –20 –8

Virginia 194,959 152,680 119,430 –39 –22

Washington 292,608 268,930 238,920 –18 –11

West Virginia 115,376 89,039 80,359 –30 –10

(continued)

Page 37 GAO/AIMD-98-137 Welfare Reform
Appendix II 

Estimating Additional Budgetary Resources

Available for States’ Welfare Programs

Total AFDC/TANF recipients by state

State January 1994 August 1996 July 1997

Percent change

1994-97

Percent change

1996-97

Wisconsin 230,621 148,890 100,387 –56 –33

Wyoming 16,740 11,400 4,957 –70 –57

Total 14,008,503 11,969,079 9,956,349 –29 –17

Average 280,170 239,382 199,127 –33 –19

Median 152,804 118,090 83,739 –32 –18

Source: HHS, Administration for Children and Families. These data are reported by the states to

HHS and have not been independently verified by GAO.

Note: The “total percent change” presented in this table represents the percent difference in the

nationwide totals. The “average percent change” is a simple average of the percentage

differences across states, with each state having equal weight.

Overall, states’ caseloads have declined by about a third since 1994.

However, this national average masks the differences among the states in

the magnitude and timing of their caseload declines. For example, in North

Carolina, the caseload dropped by about a third since 1994, with a decline

of 20 percent before federal reforms had been enacted and an additional

13 percent decline in the last year. In contrast, in New Mexico, the overall

decline is also near the national average; however, virtually all of the

change occurred in the last year—after PRWORA passed. There is also a

large disparity among the states in total caseload change since 1994,

ranging from an decrease of 70 percent in Wyoming to an increase of

22 percent in Hawaii.

Impact of Block Grant

on Available

Resources

Tables II.2 and II.3 present estimates of the change in federal resources

available to implement welfare reform. Table II.2 presents our estimates of

the differences between available nominal federal resources for family

assistance programs under AFDC and under TANF. Our analysis shows that

45 states will receive more federal resources under TANF than they

received in the last year before reform.1 TANF provides about $1.4 billion

more federal dollars to the states than they received under the

consolidated programs in 1996, when caseloads were on average much

higher. These differences ranged from 70 percent more for Indiana to

7 percent less for Pennsylvania; the median increase was about 9 percent.

1

This analysis compared actual 1996 federal expenditures for the programs TANF replaced with states’

full year TANF allotments. These allotments may not represent resources states actually received in

1997 because states became eligible to receive TANF at different points during the year depending on

when they filed their state programs plans with HHS. Sixteen states were eligible for their full annual

TANF grant award for all of federal fiscal year 1997 and 28 states for at least 9 months.

Page 38 GAO/AIMD-98-137 Welfare Reform
Appendix II 

Estimating Additional Budgetary Resources

Available for States’ Welfare Programs

Table II.2: Additional Federal

Resources Under TANF

State

Total federal TANFrelated program

spending in 1996 TANF block grant

Percent

difference

Alabama $78,773,572 $93,315,207 18

Alaska 60,674,212 63,609,072 5

Arizona 199,721,493 222,419,988 11

Arkansas 53,694,984 56,732,858 6

California 3,527,307,569 3,733,817,784 6

Colorado 138,940,350 136,056,690 –2

Connecticut 244,355,429 266,788,107 9

Delaware 30,174,601 32,290,981 7

Florida 527,068,864 562,340,120 7

Georgia 300,803,817 330,741,739 10

Hawaii 98,386,892 98,904,788 1

Idaho 31,299,902 31,938,052 2

Illinois 593,427,626 585,056,960 –1

Indiana 121,379,747 206,799,109 70

Iowa 123,547,672 131,524,959 6

Kansas 86,790,703 101,931,061 17

Kentucky 170,664,524 181,287,669 6

Louisiana 122,357,457 163,971,985 34

Maine 73,231,234 78,120,889 7

Maryland 209,499,543 229,098,032 9

Massachusetts 372,009,461 459,371,116 23

Michigan 581,487,845 775,352,858 33

Minnesota 238,786,264 267,984,886 12

Mississippi 69,324,485 86,767,578 25

Missouri 207,861,860 217,051,740 4

Montana 39,332,524 45,534,006 16

Nebraska 56,093,250 58,028,579 3

Nevada 41,241,248 43,976,750 7

New Hampshire 36,045,607 38,521,261 7

New Jersey 362,624,796 404,034,823 11

New Mexico 129,909,486 126,103,156 –3

New York 2,331,710,268 2,442,930,602 5

North Carolina 313,314,815 302,239,599 –4

North Dakota 24,270,062 26,399,809 9

Ohio 558,275,390 727,968,260 30

Oklahoma 122,960,328 148,013,558 20

(continued)

Page 39 GAO/AIMD-98-137 Welfare Reform
Appendix II 

Estimating Additional Budgetary Resources

Available for States’ Welfare Programs

State

Total federal TANFrelated program

spending in 1996 TANF block grant

Percent

difference

Oregon 146,431,168 167,924,513 15

Pennsylvania 769,802,235 719,499,305 –7

Rhode Island 82,015,807 95,021,587 16

South Carolina 98,792,638 99,967,824 1

South Dakota 19,791,424 21,893,519 11

Tennessee 182,575,643 191,523,797 5

Texas 435,279,035 486,256,752 12

Utah 67,756,472 76,829,219 13

Vermont 42,215,710 47,353,181 12

Virginia 134,649,524 158,285,172 18

Washington 390,759,361 404,331,754 3

West Virginia 91,328,347 110,176,310 21

Wisconsin 239,847,605 318,188,410 33

Wyoming 13,628,240 21,781,446 60

Total $14,992,221,089 $16,396,057,420 9

Average $299,844,422 $327,921,148 13

Median $126,728,579 $153,149,365 9

Source: GAO analysis based on data reported by states to HHS, Administration for Children and

Families. These data are reported by the states to HHS and have not been independently verified

by GAO.

Note: The “total percent difference” presented in this table represents the percent difference in

the nationwide totals. The “average percent difference” is a simple average of the percentage

differences across states, with each state having equal weight.

Table II.3 presents these additional federal resources on a per recipient

basis to take into account the significant declines in caseload that have

occurred since passage of PRWORA. These estimates of states’ additional

federal resources considered on a per recipient basis present a different

picture not only because the estimates take post-PRWORA declines in

caseloads2

 into account but also because of differences among the states

2

Under AFDC, caseloads were defined as the number of families receiving monthly cash assistance.

Although many states had implemented TANF provisions before or by July 1997, the caseload data for

that month most likely is still based on this pre-PRWORA definition of cash assistance. Under

HHS-proposed regulations for TANF, issued in November 1997, the definition of assistance has been

broadened to include ongoing financial support, including work subsidies and assistance with child

care, in addition to ongoing cash assistance. As a result, future caseload data will include those

receiving these types of assistance. While the proposed regulations note that states may also assist

individuals in other ways, such as with counseling, case management, and employment services and

one-time, short-term financial aid, such as automobile repair, states will not be required to report on

the numbers receiving these forms of assistance. As such, these recipients will not count as part of the

TANF caseload even though they are receiving benefits funded with TANF or state MOE resources.

Page 40 GAO/AIMD-98-137 Welfare Reform
Appendix II 

Estimating Additional Budgetary Resources

Available for States’ Welfare Programs

in their expenditures for emergency assistance and administration, which

TANF also replaced.3 Adjusting for smaller caseloads, on average, the new

financing mechanisms in TANF provide states with about $614 more federal

dollars per recipient than the consolidated programs provided in 1996.

This table shows an increase in federal resources for all states but one,

with a median increase of 47 percent more than before reform. The change

in federal resources per recipient ranged from an increase of 334 percent

(Wyoming) to a decrease of 10 percent (Hawaii). Our analysis shows that

38 states received an increase of 25 percent or more.

Table II.3: Additional Federal

Resources Per Recipient Under TANF Federal resources per recipient

State 1996 1997

Percent

difference

Alabama $733 $1,259 72

Alaska 1,717 1,890 10

Arizona 1,169 1,613 38

Arkansas 912 1,101 21

California 1,336 1,636 22

Colorado 1,408 2,299 63

Connecticut 1,522 1,763 16

Delaware 1,315 1,478 12

Florida 921 1,380 50

Georgia 822 1,358 65

Hawaii 1,479 1,331 –10

Idaho 1,339 4,048 202

Illinois 900 1,068 19

Indiana 829 1,926 132

Iowa 1,356 1,781 31

Kansas 1,235 2,149 74

Kentucky 971 1,199 24

Louisiana 514 919 79

Maine 1,304 1,737 33

Maryland 1,015 1,486 46

Massachusetts 1,542 2,336 52

(continued)

3

A recent study from the Urban Institute found that the relationship between the caseload decline and

the change in federal funding is not perfectly correlated. They noted that many of the states that

received less funding actually experienced declines in AFDC caseloads from their TANF grant base

years to 1996 but still received less total welfare funding in 1997 (relative to 1996) because they spent

more on emergency assistance and/or administrative costs in 1996 than in their TANF grant base years.

See Gordon Mermin and C. Eugene Steuerle, “The Impact of TANF on State Budgets,” Urban Institute

Number A-18 in the Series, New Federalism: Issues and Options for States (November 1997).

Page 41 GAO/AIMD-98-137 Welfare Reform
Appendix II 

Estimating Additional Budgetary Resources

Available for States’ Welfare Programs

Federal resources per recipient

State 1996 1997

Percent

difference

Michigan 1,091 1,826 67

Minnesota 1,396 1,772 27

Mississippi 524 996 90

Missouri 878 1,192 36

Montana 1,213 1,803 49

Nebraska 1,464 1,549 6

Nevada 1,027 1,576 53

New Hampshire 1,480 2,202 49

New Jersey 1,243 1,681 35

New Mexico 1,269 1,812 43

New York 1,957 2,436 24

North Carolina 1,120 1,306 17

North Dakota 1,793 2,512 40

Ohio 1,015 1,621 60

Oklahoma 1,120 1,985 77

Oregon 1,600 2,983 86

Pennsylvania 1,404 1,662 18

Rhode Island 1,357 1,744 28

South Carolina 816 1,252 53

South Dakota 1,183 1,752 48

Tennessee 693 1,173 69

Texas 613 1,013 65

Utah 1,657 2,403 45

Vermont 1,639 2,114 29

Virginia 815 1,325 63

Washington 1,423 1,692 19

West Virginia 931 1,371 47

Wisconsin 1,310 3,170 142

Wyoming 1,013 4,394 334

Total $1,193 $1,647 38

Average $1,188 $1,802 55

Median $1,224 $1,687 47

Source: GAO analysis based on data reported by states to HHS, Administration for Children and

Families. These data are reported by the states to HHS and have not been independently verified

by GAO.

Note: The “total percent difference” presented in this table represents the percent difference in

the nationwide totals. The “average percent difference” is a simple average of the percentage

differences across states, with each state having equal weight.

Page 42 GAO/AIMD-98-137 Welfare Reform
Appendix II 

Estimating Additional Budgetary Resources

Available for States’ Welfare Programs

Impact of MOE on

State Spending

Given a declining national caseload, the state MOE requirement further

augments the budgetary resources available on a per recipient basis to

finance states’ low-income family assistance programs.4

 The state MOE is

based on spending for a larger set of programs than the TANF block grant

and was pegged to state spending in those programs during a period of

high caseloads and high spending.5

 In the absence of a MOE requirement,

states could draw down all of their federal TANF grants, and then reduce

their own financial commitment to the program to whatever level would

maintain a current service budget baseline.6

 In all states but

one—Indiana—the 80 percent TANF-MOE requirement is less than what the

state spent on those programs in 1996 (see table II.4) and would allow

them to reduce their own financial commitment to the program.

4

If a state meets certain work participation rates, its MOE requirement drops to 75 percent. However,

we assumed that states would budget conservatively at the higher rate since they could not know at

the start of a fiscal year whether they would meet the work participation rates. This assumption

produces a conservative estimate of the additional state resources since states can spend more than

minimally required. In federal fiscal year 1997, 21 states reported spending more than 80 percent, 13

reported spending 80 percent, and 16 states met their work participation rates and were able to take

advantage of the lower MOE requirement.

5

As noted in the letter, the MOE is based on spending in those programs consolidated in the TANF

block grant as well as spending on programs that were combined in the Child Care and Development

Block Grant (CCDBG)—AFDC-related Child Care, Transitional Child Care, and At-Risk Child Care.

6

A current-service baseline assumes the continuation of current policies and reflects anticipated costs

of ongoing programs and activities without policy changes. It generally includes allowances for

inflation and changes in caseload. Proposed policy changes that would affect the costs of programs are

compared to the current-services baseline to estimate the budgetary impact.

Page 43 GAO/AIMD-98-137 Welfare Reform
Appendix II 

Estimating Additional Budgetary Resources

Available for States’ Welfare Programs

Table II.4: State Resource

Levels—Pre-Reform Versus

Post-Reform

Differences in State Resources Under AFDC in

1996 and Under the TANF Block Grants

State

MOE related state

spending in 1996 80 percent MOE

Percent

difference

Alabama $53,483,367 $41,828,393 –22

Alaska 63,412,721 52,205,229 –18

Arizona 128,934,235 101,362,854 –21

Arkansas 28,946,483 22,228,215 –23

California 3,624,777,252 2,914,566,324 –20

Colorado 138,102,387 88,395,622 –36

Connecticut 265,717,429 195,649,127 –26

Delaware 34,293,367 23,222,474 –32

Florida 481,292,387 395,646,987 –18

Georgia 237,020,582 184,926,429 –22

Hawaii 101,127,338 77,846,912 –23

Idaho 20,255,271 14,590,646 –28

Illinois 657,265,076 457,621,890 –30

Indiana 99,927,497 121,093,310 21

Iowa 87,418,746 66,094,156 –24

Kansas 74,964,352 65,866,201 –12

Kentucky 96,465,302 71,913,050 –25

Louisiana 64,490,198 59,109,470 –8

Maine 49,856,343 40,296,038 –19

Maryland 230,500,750 188,763,140 –18

Massachusetts 414,599,899 382,877,358 –8

Michigan 512,964,169 499,752,934 –3

Minnesota 230,083,835 191,728,278 –17

Mississippi 28,619,923 23,172,595 –19

Missouri 170,397,434 128,128,826 –25

Montana 21,968,011 16,735,379 –24

Nebraska 51,366,287 30,902,916 –40

Nevada 43,879,854 27,188,122 –38

New Hampshire 40,747,726 34,256,105 –16

New Jersey 416,194,085 324,219,206 –22

New Mexico 58,529,496 39,947,126 –32

New York 2,377,231,367 1,824,848,309 –23

North Carolina 255,019,427 164,454,147 –36

North Dakota 16,429,294 9,673,984 –41

Ohio 440,169,491 416,587,574 –5

(continued)

Page 44 GAO/AIMD-98-137 Welfare Reform
Appendix II 

Estimating Additional Budgetary Resources

Available for States’ Welfare Programs

Differences in State Resources Under AFDC in

1996 and Under the TANF Block Grants

State

MOE related state

spending in 1996 80 percent MOE

Percent

difference

Oklahoma 83,846,543 65,333,660 –22

Oregon 125,393,961 98,405,163 –22

Pennsylvania 758,034,488 434,267,306 –43

Rhode Island 76,887,061 64,391,515 –16

South Carolina 61,055,562 38,228,678 –37

South Dakota 13,496,812 9,359,245 –31

Tennessee 140,545,724 88,330,537 –37

Texas 348,217,343 251,439,646 –28

Utah 41,359,316 26,976,586 –35

Vermont 31,431,632 27,363,633 –13

Virginia 143,919,823 136,718,048 –5

Washington 422,477,682 290,198,320 –31

West Virginia 43,458,106 34,881,108 –20

Wisconsin 196,055,505 180,510,647 –8

Wyoming 11,749,234 11,376,348 –3

Total $14,114,380,173 $11,055,479,766 –22

Average $282,287,603 $221,109,595 –22

Median $98,196,400 $74,879,981 –22

Source: GAO analysis based on data reported by states to HHS, Administration for Families and

Children. These data are reported by the states to HHS and have not been independently verified

by GAO.

Note: The “total percent difference” presented in this table represents the percent difference in

the nationwide totals. The “average percent difference” is a simple average of the percentage

differences across states, with each state having equal weight.

However, the minimum MOE requirements, taken together with the further

decrease in caseloads had the effect of increasing the level of state

resources spent on a per recipient basis for a number of states.7

 In table

II.5, we estimated that 22 states must spend more per recipient than they

7

In this analysis, we used AFDC cash-benefits caseload data. Since the programs combined in the

CCDBG included populations in addition to those receiving AFDC cash benefits, the data for actual

spending per recipient will appear inflated. However, the comparison between spending required

under PRWORA and spending under the consolidated and combined programs is more meaningful if

the same caseload data are used in the denominator. Furthermore, state TANF-MOE spending on child

care also can be counted toward receiving CCDBG matching funds. In effect, these state funds are

double counted; once to qualify for the federal TANF grant and once to obtain federal CCDBG

matching funds. For more information, see Welfare Reform: States’ Efforts to Expand Child Care

Programs (GAO/HEHS-98-27, January 13, 1998).

Page 45 GAO/AIMD-98-137 Welfare Reform
Appendix II 

Estimating Additional Budgetary Resources

Available for States’ Welfare Programs

spent per recipient under AFDC in 1996, assuming state spending at

80 percent MOE.

Table II.5: State Resource Levels Per

Recipient—Pre-Reform Versus

Post-Reform

State resources per recipient

State 1996 1997 Percent difference

Alabama $500 $565 13

Alaska 1,795 1,551 –14

Arizona 758 735 –3

Arkansas 494 432 –13

California 1,374 1,277 –7

Colorado 1,401 1,494 7

Connecticut 1,656 1,293 –22

Delaware 1,497 1,063 –29

Florida 843 971 15

Georgia 650 759 17

Hawaii 1,521 1,048 –31

Idaho 870 1,849 113

Illinois 999 835 –16

Indiana 685 1,128 65

Iowa 962 895 –7

Kansas 1,070 1,389 30

Kentucky 551 476 –14

Louisiana 272 331 22

Maine 890 896 1

Maryland 1,118 1,224 10

Massachusetts 1,721 1,947 13

Michigan 964 1,177 22

Minnesota 1,348 1,268 –6

Mississippi 217 266 22

Missouri 722 704 –2

Montana 680 663 –3

Nebraska 1,345 825 –39

Nevada 1,094 975 –11

New Hampshire 1,675 1,958 17

New Jersey 1,430 1,349 –6

New Mexico 574 574 0

New York 1,996 1,820 –9

North Carolina 915 710 –22

North Dakota 1,219 921 –24

(continued)

Page 46 GAO/AIMD-98-137 Welfare Reform
Appendix II 

Estimating Additional Budgetary Resources

Available for States’ Welfare Programs

State resources per recipient

State 1996 1997 Percent difference

Ohio 802 928 16

Oklahoma 768 876 14

Oregon 1,375 1,748 27

Pennsylvania 1,385 1,003 –28

Rhode Island 1,274 1,182 –7

South Carolina 507 479 –6

South Dakota 810 749 –8

Tennessee 536 541 1

Texas 492 524 6

Utah 1,018 844 –17

Vermont 1,223 1,221 0

Virginia 873 1,145 31

Washington 1,541 1,215 –21

West Virginia 445 434 –2

Wisconsin 1,073 1,798 68

Wyoming 876 2,295 162

Total $1,125 $1,110 –1

Average $1,016 $1,047 6

Median $963 $973 –2

Source: GAO analysis based on data reported by states to HHS, Administration for Families and

Children. These data are reported by the states to HHS and have not been independently verified

by GAO.

Note: The “total percent difference” presented in this table represents the percent difference in

the nationwide totals. The “average percent difference” is a simple average of the percentage

differences across states, with each state having equal weight.

Combined Impact of

Caseloads, TANF

Grants, and MOE on

Total Budgetary

Resources

Another way to estimate the total resources available for welfare programs

is to compare total federal and state resources available under the block

grant with what comparable federal-state spending would have been for

1997 caseloads under AFDC. To estimate changes in total available

budgetary resources, we began by constructing a current-services baseline

for pre-reform spending. We constructed our baseline by adding actual

state and federal expenditures in federal fiscal year 1996 for the programs

Page 47 GAO/AIMD-98-137 Welfare Reform
Appendix II 

Estimating Additional Budgetary Resources

Available for States’ Welfare Programs

TANF replaced.8 We calculated total spending per recipient and then

adjusted all baseline components for inflation except cash assistance.9

Finally, to take recent caseload declines into account, we applied these

per recipient costs to 1997 caseloads.

Using a states’ total annual TANF grant, we calculated the federal

contribution to the total resources available.10 Since the federal

contribution is now a block grant, these funds are available, irrespective of

the needs in a state. Once again, we assumed that states would budget at

80 percent MOE. Since the MOE requirement establishes a minimum, or

floor, on state spending, a state can spend more than minimally required if

it chooses—raising the total levels of budgetary resources available.

Table II.6 presents our estimates of the total additional budgetary

resources available to states to design, finance, and implement their family

assistance programs due to TANF. These estimates represent the difference

between states’ post-reform total budgetary resources (TANF plus MOE) and

what they would have budgeted for their 1997 caseloads if they were still

using the pre-reform 1996 cost structure. That is, table II.6 shows

“additional resources” as the difference between states’ new total

budgetary resources and our construction of the current services baseline.

The analysis, which takes caseload declines into account, suggests an even

greater change in resources than merely looking at nominal changes in

federal and state resources. Combining the effects of the increased federal

resources and the act’s mandated floor on state spending, our analysis

indicates that 46 states will have more total—federal TANF and state

MOE—resources available than they would have had without reform. Our

estimates of these additional budgetary resources totaled about

$4.7 billion—or, on average, states will have 25 percent more in total

budgetary resources available for their welfare reform programs. As with

the other analyses, there is wide variation among states—ranging from

102 percent in additional resources for Wyoming to total fewer resources

in Delaware, Hawaii, Nebraska, and Pennsylvania.

8

We used federal fiscal year 1996 expenditure data because it captured spending in the last full federal

fiscal year of the categorical matching grant and was comparable across states. Our construction of

states’ baseline does not include state or federal spending on the three child care programs combined

in the CCDBG. In this analysis, we sought to compare the pre-PRWORA AFDC program with the

post-PRWORA TANF program and to minimize the effect of interactions between TANF and CCDBG.

9

We did not adjust cash assistance for inflation because nominal average cash benefits have been

declining in real terms since 1970. We used an inflation adjustment of 2.1 percent, based on the

increase in the GDP price index (chain weights) from federal fiscal years 1996 to 1997.

10States’ TANF allotments will remain unchanged for the 6 years of the grant.

Page 48 GAO/AIMD-98-137 Welfare Reform
Appendix II 

Estimating Additional Budgetary Resources

Available for States’ Welfare Programs

Table II.6: Total Additional Budgetary

Resources

State

Additional

budgetary resources

Additional budgetary

resources as a percent of

constructed current services

baseline

Alabama $49,625,502 40

Alaska 968,234 1

Arizona 69,179,824 22

Arkansas 7,860,157 10

California 548,805,296 8

Colorado 64,026,861 24

Connecticut 5,531,414 1

Delaware –931,459 –2

Florida 271,005,350 28

Georgia 178,444,087 35

Hawaii –40,945,164 –21

Idaho 29,518,102 58

Illinois 68,465,351 6

Indiana 179,169,795 88

Iowa 29,756,018 14

Kansas 64,178,595 42

Kentucky 29,900,372 11

Louisiana 87,381,046 48

Maine 21,349,748 18

Maryland 106,872,002 25

Massachusetts 243,326,902 33

Michigan 421,059,851 39

Minnesota 65,107,184 15

Mississippi 46,934,247 49

Missouri 68,048,494 19

Montana 15,712,420 26

Nebraska –10,305,381 –10

Nevada 14,185,455 17

New Hampshire 20,780,275 29

New Jersey 127,134,572 17

New Mexico 40,342,705 22

New York 364,994,597 8

North Carolina 25,539,979 5

North Dakota 5,111,369 13

Ohio 365,562,536 38

Oklahoma 80,850,010 41

(continued)

Page 49 GAO/AIMD-98-137 Welfare Reform
Appendix II 

Estimating Additional Budgetary Resources

Available for States’ Welfare Programs

State

Additional

budgetary resources

Additional budgetary

resources as a percent of

constructed current services

baseline

Oregon 109,551,976 43

Pennsylvania –13,898,411 –1

Rhode Island 21,404,178 14

South Carolina 36,150,049 23

South Dakota 7,012,126 21

Tennessee 94,180,795 31

Texas 239,221,315 32

Utah 23,115,769 22

Vermont 12,842,716 18

Virginia 106,414,336 41

Washington 24,360,705 3

West Virginia 37,688,797 29

Wisconsin 270,604,114 65

Wyoming 24,380,113 102

Total $4,657,574,920 16

Average $93,151,498 25

Median $43,638,476 22

Source: GAO analysis based on data reported by states to HHS, Administration for Children and

Families. These data are reported by the states to HHS and have not been independently verified

by GAO.

Notes:

1. Differences between our estimates of additional budgetary resources and those presented in

state budget documents are the result of a variety of factors including: (1) differences between

the state fiscal year and the federal fiscal year, (2) the difference between a state’s total TANF

grant and the amount it was eligible to receive in federal fiscal year 1997, and (3) assumptions

made by state budget analysts about the effects of program reforms in the state’s baseline that

might not have been included in the expenditure data and assumptions used in our estimates.

2. The “total” presented in this table represents the percent difference in the nationwide totals.

The “average” is a simple average of the percentage differences across states, with each state

having equal weight.

Page 50 GAO/AIMD-98-137 Welfare Reform
Appendix III 

Comments From the Department of Health

and Human Services

Note: GAO comments

supplementing those in the

report text appear at the

end of this appendix.

Page 51 GAO/AIMD-98-137 Welfare Reform
Appendix III 

Comments From the Department of Health

and Human Services

See comment 1.

Page 52 GAO/AIMD-98-137 Welfare Reform
Appendix III 

Comments From the Department of Health

and Human Services

Now on p. 3.

See comment 2.

See comment 3.

Now on p. 8.

See comment 4.

Now on p. 24.

See comment 5.

Now on p. 25.

See comment 6.

Page 53 GAO/AIMD-98-137 Welfare Reform
Appendix III 

Comments From the Department of Health

and Human Services

The following are GAO’s comments on the Department of Health and

Human Services’ letter dated July 23, 1998.

GAO Comments 1. See “Agency Comments” section of the report.

2. Text (now on page 3) amended.

3. Text of Table 1 of page 18 changed to reflect that figures represent state

reserves and are distinct from the Federal Contingency Fund for State

Welfare Programs.

4. HHS refers to §409 (a)(7)(B)(i) to suggest that state MOE funds may only

be used on 4 designated activities; (aa) cash assistance, (bb) child care

assistance, (cc) educational activities designed to increase self-sufficiency,

job training, and work . . . , (dd) and administrative costs in connection

with the matters described in items (aa), (bb), (cc), and (ee) . . .” HHS omits

(ee) from its list of qualified state expenditures. This part allows states to

spend their own funds in any manner that is reasonably calculated to

accomplish the purpose of TANF.

In its proposed rule (see §273.2), HHS interprets §409(a)(7)(B)(i) to mean

that a state may count as MOE its expenditures under all state programs,

i.e., the state’s TANF program as well as any separate state program that

assists “eligible families” and provides appropriate services or benefits.

Thus, while MOE funds must be used on eligible families (as defined by the

state) and on activities that can reasonably be calculated to accomplish

the goals of TANF, they can be used to provide support to certain categories

of clients that are prohibited from receiving federal TANF assistance. If

states choose to operate separate state programs, they have more

flexibility in the use of state funds than they have in the use of federal

funds. We continue to believe that these differences will have an impact on

the choices states make with regard to their programs, specifically the mix

of services they can offer and the people they can serve.

5. Text (now on page 24) changed to reflect that HHS concurs with CBO that

allowing states to count the same expenditures toward both the TANF MOE

and the Contingency MOE would increase the costs of the Contingency

Fund in budget scoring terms and could be subject to a challenge under

the budget rules unless offsets were found.

6. Text (now on page 25) amended to reflect new information.

Page 54 GAO/AIMD-98-137 Welfare Reform
Appendix IV 

Major Contributors to This Report

Accounting and

Information

Management Division,

Washington, D.C.

Thomas M. James, Assistant Director

Bill J. Keller, Evaluator-In-Charge

Linda F. Baker, Senior Evaluator

San Francisco Field

Office

Raymond G. Hendren, Senior Auditor

(935235) Page 55 GAO/AIMD-98-137 Welfare Reform
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