TEMPORARY ASSISTANCE

FOR NEEDY FAMILIES

State Maintenance of Effort 

Requirements and Trends

Statement of Kay E. Brown, Director 

Education, Workforce, and Income Security

Testimony 

Before the Subcommittee on Human 

Resources, Committee on Ways and 

Means, House of Representatives

For Release on Delivery 

Expected at 2:00 p.m. EDT

Thursday, May 17, 2012

GAO-12-713T

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-12-713T, a testimony 

before the Subcommittee on Human 

Resources, Committee on Ways and Means, 

House of Representatives

May 17, 2012

TEMPORARY ASSISTANCE FOR NEEDY 

FAMILIES

State Maintenance of Effort Requirements and 

Trends

Why GAO Did This Study

The $16.5 billion TANF block grant, 

created in 1996, is one of the key 

federal funding streams targeted to 

assist low-income families. While the 

block grant provides states with a fixed 

amount of federal dollars annually, it 

also includes state MOE requirements, 

which require states to maintain a 

significant portion of their own historic 

financial commitment to welfare-related 

programs. Over the last 15 years, this 

federal-state partnership has seen 

multiple program and fiscal changes, 

including a dramatic drop in the 

number of families receiving monthly 

cash assistance, as well as two 

economic recessions. To provide 

information for its potential extension 

or reauthorization, this testimony draws

primarily on previous GAO work to 

focus on (1) the key features of the 

state MOE requirements and (2) how 

the role of state MOE spending has 

changed over time. To address these 

issues, GAO relied on its prior work on 

TANF block grant and state MOE 

spending issued between 2001 and 

2010, including the May 2010 report 

examining how state MOE spending 

affects state TANF programs’ work 

participation rates. To develop the 

spending-related findings in this body 

of work, GAO reviewed relevant 

federal laws, regulations, and 

guidance, state TANF data reported to 

the U.S. Department of Health and 

Human Services (HHS), and related 

financial data from selected states. 

GAO also interviewed relevant officials 

from HHS and selected states. 

What GAO Found

The Temporary Assistance for Needy Families (TANF) block grant’s 

maintenance of effort (MOE) provisions include specified state spending levels 

and general requirements on the use of funds. For example, these provisions 

generally require that each state spend at least 80 percent (75 percent if the 

state meets certain performance standards) of the amount it spent on welfare 

and related programs in fiscal year 1994, before TANF was created. If a state

does not meet its MOE requirements in any fiscal year, the federal government 

will reduce dollar-for-dollar the state’s federal TANF grant in the following year. In 

order to count state spending as MOE, funds must be spent on benefits and 

services to families with children that have incomes and resources below certain 

state-defined limits. Such benefits and services must generally further one of 

TANF’s purposes, which broadly focus on providing financial assistance to needy 

families; promoting job preparation, work, and marriage; reducing out-of-wedlock 

births; and encouraging the formation of two-parent families. Within these broad

goals, states have significant flexibility to design programs and spend their funds 

to meet families’ needs. 

Total MOE spending reported by states remained relatively stable around the 

required minimum spending level of $11 billion through fiscal year 2005, and then 

increased to about $4 billion higher than this minimum in fiscal years 2009 and 

2010. Several reasons likely accounted for these increases, including states’ 

reliance on MOE spending to help them meet TANF work participation rates. 

Work participation rates identify the proportion of families receiving monthly cash 

assistance that participate in allowable work activities for a specified number of 

hours each week. Federal law generally requires that at least 50 percent of 

families meet the work requirements; however, most states have engaged less 

than 50 percent of families in required activities in each year since TANF was 

created, according to HHS data. Various policy and funding options in federal law 

and regulations, including credit for state MOE expenditures that exceed required 

spending levels, have allowed most states to meet the rate requirements even 

with smaller percentages of families participating. States generally began relying 

on MOE spending to get credit toward meeting TANF work participation rates in 

fiscal year 2007 because of statutory changes to the rate requirements enacted 

in 2006. For example, for fiscal year 2009, the most recent data available, 16 of 

the 45 states that met the TANF work participation rate would not have done so 

without the credit they received for excess state MOE spending. 

The expanded role of MOE in state TANF programs highlights the importance of 

having reasonable assurance that MOE spending reflects the intended 

commitment to low-income families and efficient use of federal funds. GAO’s 

previous work makes clear that MOE provisions are often difficult to administer 

and oversee, but can be important tools for helping ensure that federal spending 

achieves its intended effect. This work also points out that with appropriate 

attention to design, implementation, and monitoring issues, such provisions are 

one way to help strike a balance between the potentially conflicting objectives of 

View GAO-12-713T. For more information, increasing state and local flexibility while attaining certain national objectives.

contact Kay E Brown at (202) 512-7215 or 

brownke@gao.gov.
 

Page 1 GAO-12-713T 

Chairman Davis, Ranking Member Doggett, and Members of the 

Subcommittee:

I am pleased to have the opportunity to participate in today’s discussion 

of state spending related to the Temporary Assistance for Needy Families 

(TANF) block grant, which is one of the key federal funding streams 

targeted to assist low-income families. State spending represents about 

40 percent of the $406 billion in total TANF and related state spending for 

the past 15 years since TANF was created in 1996. As you know, the 

federal government significantly changed federal welfare policy in 1996 

when it created TANF, a $16.5 billion annual block grant provided to 

states to operate their own welfare programs within federal guidelines. 

While the block grant provides states with a fixed amount of federal 

dollars annually, it also includes state maintenance-of-effort (MOE) 

requirements, which require states to maintain a significant portion of their 

historic financial commitment to welfare-related programs. At the same 

time, TANF gives states the authority and flexibility to make key decisions 

about how to design programs and allocate federal and state funds to 

assist low-income families. Over the last 15 years, this funding 

partnership has undergone multiple program and fiscal changes, 

including a dramatic drop in the number of families receiving monthly 

cash assistance benefits, as well as two economic recessions.

My remarks today are based primarily on our past work on state MOE 

spending, including our May 2010 report examining how state MOE 

spending affects state TANF programs’ work participation rates.1 I will 

focus on (1) the key features of the state MOE requirements and (2) how 

the role of state MOE spending has changed over time. To develop our 

MOE-related findings for our May 2010 report on work participation, we 

conducted our work from August 2009 to May 2010.2 In addition, in July 

2011, we obtained more recent data on MOE and work participation from 

the US Department of Health and Human Services (HHS), and we 

reported on those data in our September 2011 testimony before this 

subcommittee.3

 

1

GAO, Temporary Assistance for Needy Families: Implications of Recent Legislative and 

Economic Changes for State Programs and Work Participation Rates, 

For today’s statement we also drew on our prior reports 

GAO-10-525

(Washington, D.C.: May 28, 2010). 

2

For more information on our methodology, see appendix I of GAO-10-525. 

3

GAO, Temporary Assistance for Needy Families: Update on Families Served and Work 

Participation, GAO-11-880T (Washington, D.C.: Sept. 8, 2011).

 
 

Page 2 GAO-12-713T 

on TANF block grant spending issued between 2001 and 2006 as well as 

earlier reports on grant design and accountability generally. To develop 

findings for all of these reports, we used a variety of approaches, 

including interviewing officials from the HHS and selected states and 

reviewing state TANF data reported to HHS; related financial data from 

selected states; relevant federal laws, regulations, and guidance; and 

literature reviews. For more details on our methodologies, see the related 

reports cited throughout. We determined that these data were sufficiently 

reliable for the purposes of this testimony. We conducted our work in 

accordance with generally accepted government auditing standards. 

Those standards required that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

The TANF block grant was created by the Personal Responsibility and 

Work Opportunity Reconciliation Act of 1996 (PRWORA)4

In creating TANF, the federal government significantly changed its role in 

financing welfare programs in states. PRWORA ended low-income 

families’ entitlement to cash assistance by replacing the Aid to Families 

with Dependent Children (AFDC) program— for which the federal grant 

amount was based on the amount of state spending—with the TANF 

block grant, a $16.5 billion per year fixed federal funding stream to states. 

PRWORA coupled the block grant with an MOE provision, which requires 

and was 

designed to give states the flexibility to provide both traditional welfare 

cash assistance benefits as well as a variety of other benefits and 

services to meet the needs of low-income families and children. TANF 

has four broad goals: (1) provide assistance to needy families so that 

children may be cared for in their own homes or homes of relatives; (2) 

end dependence of needy parents on government benefits by promoting 

job preparation, work, and marriage; (3) prevent and reduce out-ofwedlock pregnancies; and (4) encourage two-parent families. Within 

these goals, states have responsibility for designing, implementing, and 

administering their welfare programs to comply with federal guidelines, as 

defined by federal law and HHS.

 

4

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

Background 
 

Page 3 GAO-12-713T 

states to maintain a significant portion of their own historic financial 

commitment to their welfare programs as a condition of receiving their full 

federal TANF allotments. Importantly, with the fixed federal funding 

stream, states assume greater fiscal risks in the event of a recession or 

increased program costs. However, in acknowledgment of these risks, 

PRWORA also created a TANF Contingency Fund that states could 

access in times of economic distress.5 Similarly, during the recent 

economic recession, the federal government created a $5 billion 

Emergency Contingency Fund for state TANF programs through the 

American Recovery and Reinvestment Act of 2009, available in fiscal 

years 2009 and 2010.6

The most recent data available, for fiscal year 2010, show that the federal 

government and states spent almost $36 billion7 on benefits and services 

meeting one or more of the TANF goals. In that year, states provided, on 

average, about 1.9 million families per month with ongoing cash 

assistance,8 including about 800,000 families in which the children alone 

received benefits.9

 

5

Pub. L. No. 104-193, § 103(a)(1), 110 Stat. 2105, 2122.

This represents a significant drop from the more than 

3 million families receiving cash assistance when states implemented 

TANF in fiscal year 1997. In addition, states provide a broad range of 

services to other families in need not included in the welfare caseload 

data. The total number of families assisted is not known, as we have 

6

Pub. L. No. 111-5, § 2101(a)(1), 123 Stat. 115, 446.

7

Total federal and state TANF expenditures in fiscal year 2010 equaled $35.8 billion, of 

which about 58 percent was federal funds and 42 percent was state MOE funds. Federal 

funds spent in fiscal year 2010 included those provided through the TANF block grant, 

supplemental grants, the Contingency Fund, and the Emergency Contingency Fund. 

Supplemental grants refer to a capped amount of federal funds that have been available 

to several states each year if they meet certain criteria related to increased need in the 

state. 

8

The most recent data from HHS for fiscal year 2011 shows an average monthly caseload 

of 1.92 million families, which fell slightly to 1.89 million families in the first quarter of fiscal 

year 2012.

9

These cases are referred to as child-only cases, in which a parent or non-parent 

caregiver is not receiving TANF cash assistance for a variety of reasons. For more 

information, see GAO, TANF and Child Welfare Programs: Increased Data Sharing Could 

Improve Access to Benefits and Services, GAO-12-2 (Washington, D.C.: Oct. 7, 2011).
 

Page 4 GAO-12-713T 

noted in our previous work.10

Reducing dependence on government benefits through job preparation 

and employment is a key goal of TANF, and PRWORA identified the work 

participation rate as one of the federal measures of state TANF programs’ 

performance. This rate is generally calculated as the proportion of workeligible TANF cash assistance recipients engaged in allowable work 

activities.

These allowable services under TANF can 

generally include any spending reasonably deemed to meet one or more 

of the four broad goals of TANF, and can include one-time cash 

payments, work and training activities, work supports such as child care 

and transportation, efforts to promote two-parent families or marriage, 

and child welfare services, among others. When TANF began, cash 

assistance represented the largest spending category (73 percent in fiscal 

year 1997). In contrast, cash assistance spending in fiscal year 2010 

accounted for 30 percent of total TANF spending.

11 As a result, HHS is responsible for holding states accountable 

for ensuring that generally at least 50 percent of all families receiving 

TANF cash assistance benefits participate in one or more of the allowable 

work activities for a specified number of hours each week.12 TANF 

provisions include other features to help emphasize the importance of 

work and the temporary nature of assistance, such as 60-month time 

limits on the receipt of aid for many families.

 

10GAO, Welfare Reform: States Provide TANF-Funded Services to Many Low-Income 

Families Who Do Not Receive Cash Assistance, GAO-02-564 (Washington, D.C.: Apr.5, 

2002).

1142 U.S.C. § 607. The 12 work activities are: unsubsidized employment, subsidized 

private sector employment, subsidized public sector employment, work experience (if 

sufficient private sector employment is not available), on-the-job training, job search and 

job readiness assistance, community service programs, vocational educational training, 

job skills training directly related to employment, education directly related to employment 

(for recipients who have not received a high school diploma or certificate of high school 

equivalency), satisfactory attendance at secondary school or in a course of study leading 

to a certificate of general equivalence (for recipients who have not completed secondary 

school or received such a certificate), and the provision of child care services to an 

individual who is participating in a community service program. 42 U.S.C. § 607(d).

12Some families receiving cash assistance benefits are excluded from work requirements, 

with the most significant group being certain child-only cases.
 

Page 5 GAO-12-713T 

The preamble to the final rule issued by HHS in 1999 noted that the MOE 

cost-sharing arrangement reflected Congress’ recognition that state

financial participation is essential for the success of welfare reform.13 The 

preamble to this final rule also noted that Congress wanted states to be 

active partners in the welfare reform process.14 These requirements are 

an important element of TANF—if a state fails to meet its MOE 

requirement for any fiscal year, HHS is required by law to reduce dollarfor-dollar the amount of a state’s basic TANF grant for the following fiscal 

year.15

Maintenance of effort requirements are sometimes found in federal grant

programs to prevent states from substituting federal for state dollars. 

Such provisions can help ensure that federal block grant dollars are used 

for the broad program area intended by the Congress, in this case the 

four broad TANF purposes. Without such provisions, federal funds 

ostensibly provided for these broad areas could, in effect, be transformed 

into general fiscal relief for the states, as states could use some or all of 

their federal block grants to replace their own money invested in the 

program area. To the extent that this occurs, the ultimate impact of these 

federal dollars would be to increase state spending in other programs, 

reduce taxes, or some combination of both. A maintenance of effort 

requirement brings its own challenges—it can be complex to monitor and 

may lock states into meeting minimum spending levels that may no longer 

be warranted given changing conditions.16

Under TANF, while states have significant flexibility in how to spend their 

own money, several requirements guide the use of these state funds, 

including how much, for whom, and for what.

Each state’s amount of MOE is generally based on fiscal year 1994 state 

spending for a specific set of programs.17

 

1364 Fed. Reg. 17,720, 17,821.

The 1996 welfare reform law 

14Id. at 17,816.

15See 42 U.S.C. § 609(a)(7).

16For more information, see GAO, Block Grants: Issues in Designing Accountability 

Provisions, GAO/AIMD-95-226 (Washington, D.C.: September 1, 1995).

1742 U.S.C. § 609(a)(7).

MOE Provisions 

Include Specified 

State Spending Levels 

with Some Flexibility

How Much?
 

Page 6 GAO-12-713T 

consolidated and replaced programs under which the amount of federal 

spending was often based on state spending levels, and considerable 

state dollars contributed to these pre-TANF programs. Figure 1 shows the 

federal programs with related state spending that were included in 

establishing the fixed annual amount of the TANF block grant and state 

maintenance-of-effort level for each state.

Figure 1: Federal TANF Block Grant and State MOE Funding Levels Are Determined 

by Prior Year Expenditures for Several Terminated Programs

Note: The previous AFDC program provided ongoing monthly cash assistance, JOBS provided states 

funds for welfare-to-work activities for AFDC recipients; and EA provided states funds to help eligible 

families with emergency needs. Prior federal funding was also available for AFDC-related child care; 

federal funding targeted to child care for low-income families is now funded through the Child Care 

and Development Fund.

The required percentages of these previous state spending levels vary 

under different conditions:

• 80 percent—To receive its federal TANF funds, a state must generally 

spend state funds in an amount equal to at least 80 percent of the 

amount it spent on welfare and related programs in fiscal year 1994.18

• 75 percent—If a state meets its minimum work participation rate 

requirements, then it generally need expend only 75 percent of the 

amount it spent in fiscal year 1994.19

 

1842 U.S.C. § 609(a)(7).

19Id.
 

Page 7 GAO-12-713T 

• 100 percent—To receive contingency funds, a state must expend 100 

percent of that fiscal year 1994 amount.20

In addition to its own spending, a state may count toward its MOE certain 

in-kind or cash expenditures by third parties, such as nonprofit 

organizations, as long as the expenditures meet other MOE 

requirements, including those related to eligible families and allowable 

activities, discussed below.21 In addition, an agreement must exist 

between the state and the third party allowing the state to count the 

expenditures toward its MOE.

Generally, to count toward a state’s MOE, expenditures must be for 

“eligible families,” that is, families who:22

• include a child living with his or her custodial parent or other adult 

caretaker relative (or a pregnant woman); and

• meet the financial criteria, such as income and resources limits, 

established by a state for the particular service or assistance as 

described in its TANF plan. Each state is required to prepare and 

provide a biennial TANF plan describing its programs to HHS.

Generally, expenditures for eligible families in these areas may count 

toward MOE:23

• cash assistance;

• child care assistance;

• educational activities to increase self-sufficiency, job training and work 

(except for activities or services that a state makes generally available 

to its residents without cost and without regard to their income);

 

20See 45 C.F.R. § 264.72.

2145 C.F.R. § 263.2(e).

22Changes made by the Deficit Reduction Act of 2005 allowed states to count as MOE 

total expenditures related to TANF purposes three and four—the prevention and reduction 

of out-of wedlock pregnancies and the formation and maintenance of two-parent families. 

These expenditures did not need to be directed solely at “eligible families.” See 71 Fed. 

Reg. 37,454, 37,470. 

2345 C.F.R. §§ 263.2, 263.4.

For Whom?

For What?
 

Page 8 GAO-12-713T 

• certain administrative costs; and

• other activities considered in keeping with a TANF purpose.

These expenditures may be made on behalf of families in a state’s cash 

welfare program or for other eligible families through other state programs 

or initiatives.24 However, state-funded benefits, services, and activities 

that were not a part of the pre-reform programs generally may count as 

MOE only to the extent that they exceed the fiscal year 1995 level of 

expenditures in the programs.25 This is referred to as the “new spending” 

test. For example, if a state has currently spent its own funds on eligible 

families on an allowable activity, such as a refundable earned income tax 

credit, it may count toward its MOE only the current amount that exceeds 

that program’s expenditures in fiscal year 1995.

State MOE levels remained stable for many years and then increased 

more recently for several reasons. As shown in figure 2, until fiscal year 

2006, MOE levels remained relatively stable, hovering around the 80 

percent required minimum or the reduced rate of 75 percent for states 

that met their work participation rates. From fiscal years 2006 through 

2009, they increased each year.

 

2445 C.F.R. § 263.2.

2545 C.F.R. § 263.5.

MOE Spending Has 

Increased 

Significantly, But the 

Extent to Which It 

Represents Increased 

Service Levels Is 

Unclear 

MOE Levels Have 

Increased in Recent Years
 

Page 9 GAO-12-713T 

Figure 2: State MOE Expenditures, Fiscal Years 1997 through 2010

In a 2001 report, we examined issues related to the new federal-state 

fiscal partnership under TANF, noting several issues related to TANF and 

MOE spending rules.26 We found at that time that the MOE requirement, 

in many cases, limited the extent to which states used their federal funds 

to replace state funds—an intended role for MOE.27

 

26GAO, Welfare Reform: Challenges in Maintaining a Federal-State Fiscal 

Partnership,

It also led to a 

situation in which many state officials said they were spending more than 

GAO-01-828 (Washington, D.C.: Aug. 10, 2001). In this report, we conducted 

an in-depth analysis of 10 states.

27TANF does not include a provision that prohibits states from using federal TANF funds 

to replace state funds. However, if states used TANF funds to replace state funds, they 

may have had to increase their own spending on other low-income programs to satisfy the 

MOE requirement. For example, a state could withdraw its own funds from a state 

refundable earned income tax credit for low-income families, and use federal TANF dollars 

instead. However, it would need to have enough other state spending to count toward its 

MOE. If it had enough state spending to cover its MOE and had still freed up state dollars, 

those dollars could be use for unrelated programs or for tax relief. 
 

Page 10 GAO-12-713T 

might be expected in the face of the large caseload drop in the earliest 

years of TANF.28

However, states have additional flexibility in making spending decisions. 

While states must meet MOE requirements, federal TANF funds may be 

“saved for a rainy day,” providing states additional flexibility in their 

budget decisions.29 In fact, many states had some TANF reserves that 

they drew down to meet increasing needs in the recent economic 

downturn.30

Nationwide, the amount of MOE spending started to increase in fiscal 

year 2006 and reached its peak in fiscal year 2009. Several reasons 

account for this increase:

Moreover, states have flexibility to provide a wide variety of 

services—as long as they are in keeping with the four broad purposes of 

TANF—to those on the cash welfare rolls and to other eligible families.

• Many states (20) accessed TANF Contingency Funds between fiscal 

years 2007 and 2010—when the fund was depleted—which required 

them to meet a 100 percent MOE requirement. Further, almost all 

states accessed the Emergency Contingency Fund in fiscal years 

2009 and 2010, which required them to have had increases in one of 

two specific types of expenditures—short-term, nonrecurrent benefits 

or subsidized employment—or in the number of families receiving 

cash assistance.

• Following the Deficit Reduction Act of 2005, an interim rule 

temporarily broadened the types of activities on which states could 

spend state funds and be countable for MOE purposes. Between 

fiscal years 2006 and 2008, total state MOE expenditures increased 

 

28In calendar year 1994, which generally served as the base year for establishing the 

TANF block grant and MOE amounts, AFDC caseloads had reached their highest levels 

ever, totaling 5 million families in an average month. This number had dropped to 2.3 

million families in calendar year 2000, a period covered by the prior studies on which this 

testimony is based. 

2942 U.S.C. § 604(e). Each year, a state may in effect reserve some of its federal TANF 

funds to help it meet increased needs and costs in later years. A state’s unspent funds 

can “accumulate” as a type of “rainy day fund” for its future use. Since TANF was created 

in 1996, states have been permitted to spend prior year TANF block grant funds on 

assistance—a category that includes cash benefits and supportive services for families 

receiving these benefits. However, the Recovery Act increased states’ flexibility to spend 

prior year TANF block grant funds on all TANF-allowable benefits and services. 

30For more information on this issue, see GAO-10-525. 
 

Page 11 GAO-12-713T 

by almost $2 billion, and much of the increase in expenditures was in 

areas that had temporarily been broadened.31

• Many states claimed additional MOE to help them meet the work 

participation rates, as discussed in the next section.

In recent years, some states have used their MOE spending to help them 

meet TANF work participation rates. Generally, states are held 

accountable for ensuring that at least 50 percent of all families receiving 

TANF cash assistance and considered work-eligible participate in one or 

more of the federally defined work activities for a specified number of 

hours each week.32

 

31Between the interim rule issued in 2006 and the final rule issued in 2008, HHS allowed 

states to claim total expenditures related to TANF purposes three and four—the 

prevention and reduction of out-of wedlock pregnancies and the formation and 

maintenance of two-parent families. These expenditures did not need to be directed solely 

at “eligible families,” and states had significant flexibility to determine allowable 

expenditures in those areas. The final rule issued in 2008 limited the types of expenditures 

that states may count in these areas for individuals that do not meet the “eligible families” 

definition to those “healthy marriage” and “responsible fatherhood” activities specified in 

federal law. 

However, most states have not engaged that many 

recipients in work activities on an annual basis. For example, in fiscal 

year 2009, the most recent year for which data are available, less than 50 

percent of TANF cash assistance families participated in work activities 

for the specified number of hours each week in 44 states, according to 

HHS. However, various policy and funding options in federal law and 

regulations allowed most of these states to meet their work participation 

rates. Factors that influenced states’ abilities to meet the work 

participation rates included not only the number of families receiving 

TANF cash assistance who participated in work activities, but also 

decreases in the number of families receiving TANF cash assistance, and 

state MOE spending beyond what is required, for example.

32To be counted as engaging in work for a month, TANF families are required to 

participate in work activities for an average of 30 hours per week in that month. 42 U.S.C. 

§ 607(c). However, federal law sets different weekly work hour requirements for teen 

parents attending school, single parents of children under age 6, and two-parent families. 

Further, certain families are not included in the calculation of state work participation rates, 

such as child-only families and, at state option, single parents of children under age 1. 

See 42 U.S.C. § 607(b)(5) and 45 C.F.R. § 261.2(n). In fiscal year 2009, about 130,000 

families were excluded from the calculation of the all families work participation rate. 

MOE Spending Helped 

Some States Meet Work 

Rates
 

Page 12 GAO-12-713T 

Since TANF was created, the factor that states have commonly relied on 

to help them meet their required work participation rates is the caseload 

reduction credit. Specifically, decreases in the numbers of families 

receiving TANF cash assistance over a specified period are accounted for 

in each state’s caseload reduction credit, which essentially lowers the 

states’ required work participation rate from 50 percent.33 For example, if 

a state’s caseload decreases by 20 percent during the relevant time 

period, the state receives a caseload reduction credit equal to 20 

percentage points, which results in the state work participation rate 

requirement being adjusted from 50 to 30 percent. In each year since 

TANF was created, many states have used caseload declines to help 

them lower the required work participation rates. For example, in fiscal 

year 2009, 38 of the 45 states that met their required work participation 

rates for all TANF families did so in part because of their caseload 

decreases (see fig. 3).34

However, in recent years, the Congress updated the base year for 

assessing the caseload reduction credit,35

 

3342 U.S.C. § 607(b)(3). However, under federal TANF statutes, the credit calculation 

excludes caseload reductions resulting from changes in states’ eligibility criteria. 

and as a result, some states 

also began to rely on state MOE expenditures to increase their caseload 

reduction credit, which lowers their required work participation rates. 

Under federal regulations, if states spend in excess of their required MOE 

amount, they are allowed to correspondingly increase their caseload 

34The caseload reduction credit is generally calculated by determining the change in the 

state’s caseload—or the average number of families receiving TANF cash assistance in 

each state—between a federally-defined base year and the year preceding the current 

one. However, the Recovery Act modified the credit calculation for fiscal years 2009-2011 

by generally allowing states the option of comparing the base year to the state’s caseload 

in fiscal year 2007, 2008, or the year preceding the current one. This option gives states 

that experienced caseload increases in more recent years potentially greater caseload 

reduction credits. 

35In fiscal year 2006, the Deficit Reduction Act of 2005 reauthorized the TANF block grant 

and made several modifications that were generally expected to strengthen TANF work 

requirements and improve the reliability of work participation data and program integrity. 

For example, the act changed the caseload reduction credit by moving the base year for 

measuring caseload declines from 1995 to 2005. Because of this change, the dramatic 

declines in the numbers of families receiving cash assistance that immediately followed 

TANF implementation were no longer factored into state caseload reduction credits 

beginning with fiscal year 2007. 
 

Page 13 GAO-12-713T 

reduction credits.36 By doing so, a state reduces its required work 

participation rate. In fiscal year 2009, 32 of the 45 states that met their 

required work participation rates for all TANF families claimed excess 

state MOE spending toward their caseload reduction credits.37

 

3645 C.F.R. § 261.43. When calculating the caseload reduction credit, federal regulations 

allow a state that spent in excess of its required amount in the year preceding the current 

one to include only the pro rata share—in its overall caseload number—of the total 

number of families receiving state-funded cash assistance required to meet the state’s 

basic requirement. This means that in the calculation of a state’s caseload reduction 

credit, its total caseload number is reduced by a number equal to an estimate of the 

number of assistance cases the excess MOE spending would have supported.

Sixteen of 

these states would not have met their rates without claiming these 

expenditures (see fig. 3). Among the states that needed to rely on excess 

state MOE spending to meet their work participation rates, most relied on 

these expenditures to add between 1 and 20 percentage points to their 

caseload reduction credits (see fig. 4).

37We did not determine whether these increases reflect new state spending or spending 

that had been occurring before but was not reported as state MOE spending at that time.
 

Page 14 GAO-12-713T 

Figure 3: Factors that Helped States That Met Their Work Participation Rates for All 

TANF Families in Fiscal Years 2007 through 2009

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

Page 15 GAO-12-713T 

Figure 4: Extent to Which States’ Caseload Reduction Credits Increased because of 

State Spending beyond What Is Required (for those States That Relied on Such 

Spending to Meet Their Work Participation Rates for All TANF Families)

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

MOE is now playing an expanded role in TANF programs, as many 

states’ excess MOE spending has helped them meet work participation 

rates. While one state had used MOE expenditures toward its caseload 

reduction credit before fiscal year 2007, over half of the states (27) relied 

on these expenditures to increase their credits and help them meet their 

required work participation rates in one or more years between fiscal 

years 2007 and 2009.

States may be making programmatic and budgetary decisions to use 

excess MOE to help them avoid penalties for failure to meet participation 

rates and possibly losing funds. In our previous work, states have cited 

Increased MOE Role

Highlights Importance of 

Monitoring and Oversight
 

Page 16 GAO-12-713T 

concerns about difficulties in engaging a sufficient number of cash 

recipients in required activities for the required number of hours for 

several reasons, including limits on the types of activities that count, 

limited resources for developing and providing appropriate work activities, 

a lack of jobs particularly during tough economic times, and the 

characteristics of some cash assistance recipients that make it difficult for 

them to engage in countable work activities.

However, this greater emphasis on the use of MOE increases the 

importance of understanding whether effective accountability measures 

are in place to ensure MOE funds are in keeping with requirements. In 

our 2001 report, some states expressed concerns that this MOE provision 

could become difficult to enforce. In doing that work, we spoke to many 

auditors who were in the midst of developing audit plans to address 

compliance with the new spending test. Several told us that developing 

these plans was relatively straightforward: the auditor should simply be 

able to establish a baseline for all the MOE expenditures the state was 

using and then trace those programs back to 1995 and certify that 

spending used for MOE was indeed new spending. However, we also 

noted that these plans could become more complex if states frequently 

changed the expenditures they were counting from one year to the next 

(i.e., changed the programs for which they needed baselines). In one 

state at that time, we were told that all expenditure data were archived 

after 5 years, and that auditing the annual certification would be 

especially difficult and time consuming if the state changes the programs 

it uses to meet its MOE requirement from year to year. We expect that 

several factors, such as changes in what MOE expenditures states may 

count, growth in some particular spending areas, as well as the growth in 

MOE spending overall may have greatly increased the complexities 

involved in tracking MOE.

In its final rule published in 1999,38

 

3864 Fed. Reg. 17,720.

HHS provided information related to 

its plans for monitoring state MOE and noted that states recognize that 

they are ultimately accountable for their expenditure claims. HHS stated 

that states are audited annually or biennially and compliance with the 
 

Page 17 GAO-12-713T 

basic MOE provisions is part of the audit.39

We have not reviewed existing efforts to monitor MOE and cannot 

comment on their effectiveness. However, the extent to which states have 

relied on these expenditures to help them meet work participation rates 

as well as meeting MOE generally highlights the importance of having 

reasonable assurances that current oversight is working. If MOE claims 

do not actually reflect maintaining or increasing service levels, lowincome families and children may not be getting the assistance they need 

in the current environment and federal funds may not be used in the most 

efficient manner.

HHS added that it would use 

the results of the audits, together with its own analysis of state-provided 

data—required state quarterly expenditure reports and annual descriptive 

reports on MOE activities—to assess states’ compliance. It also said it 

might undertake additional state reviews based on complaints that arise 

or requests from the Congress.

MOE provisions are important but not without implementation and 

oversight challenges. Based on our previous work on federal grant design 

as well as more recent work on some MOE provisions under the 

Recovery Act, it is clear that such provisions are important mechanisms 

for helping ensure that federal spending achieves its intended effect. With 

TANF, what is at stake are billions of federal and state dollars that 

together represent a federal-state partnership to help needy families 

provide for their children and take steps toward economic independence. 

The work also points to administrative, fiscal, and accountability 

challenges in implementing MOE provisions, both from federal and state 

perspectives. While MOE provisions may be imperfect tools, with 

appropriate attention to design, implementation, and monitoring issues, 

such provisions are one way to help strike a balance between the 

potentially conflicting objectives of increasing state and local flexibility 

while attaining certain national objectives, including efficient use of federal 

resources in today’s fiscal environment.

 

39Compliance with federal financial requirements is generally assessed annually through 

the state’s single audit. Rather than being a detailed review of individual grants or 

programs, a single audit is an organizationwide financial and compliance audit that 

focuses on accounting and administrative controls. A single audit is designed to advise 

federal oversight officials and program managers on whether an organization’s financial 

statements are fairly presented and to provide reasonable assurance that federal financial 

assistance programs are managed in accordance with applicable laws and regulations. 

Observations 
 

Page 18 GAO-12-713T 

We provided drafts of the reports we drew on for this testimony to HHS 

for its review, and copies of the agency’s written responses can be found 

in the appendixes of the relevant reports. We also provided HHS a draft 

of this testimony, and officials provided technical comments that we 

incorporated as appropriate. 

Chairman Davis, Ranking Member Doggett, and Members of the 

Subcommittee, this concludes my statement. I would be pleased to 

respond to any questions you may have.

For questions about this statement, please contact Kay E. Brown at (202) 

512-7215 or brownke@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this statement. Individuals who made key contributions to this 

statement include James Bennett, Robert Campbell, Rachel Frisk, Alex 

Galuten, Gale Harris, Tom James, Jean McSween, Ronni Schwartz, and 

Michelle Loutoo Wilson.

GAO Contact and 

Staff 

Acknowledgments 

(131180)
This is a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

copyrighted images or other material, permission from the copyright holder may be 

necessary if you wish to reproduce this material separately.
The Government Accountability Office, the audit, evaluation, and 

investigative arm of Congress, exists to support Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

accountability of the federal government for the American people. GAO 

examines the use of public funds; evaluates federal programs and 

policies; and provides analyses, recommendations, and other assistance 

to help Congress make informed oversight, policy, and funding decisions. 

GAO’s commitment to good government is reflected in its core values of 

accountability, integrity, and reliability.

The fastest and easiest way to obtain copies of GAO documents at no 

cost is through GAO’s website (www.gao.gov). Each weekday afternoon, 

GAO posts on its website newly released reports, testimony, and 

correspondence. To have GAO e-mail you a list of newly posted products, 

go to www.gao.gov and select “E-mail Updates.”

The price of each GAO publication reflects GAO’s actual cost of 

production and distribution and depends on the number of pages in the 

publication and whether the publication is printed in color or black and 

white. Pricing and ordering information is posted on GAO’s website, 

http://www.gao.gov/ordering.htm. 

Place orders by calling (202) 512-6000, toll free (866) 801-7077, or 

TDD (202) 512-2537. 

Orders may be paid for using American Express, Discover Card, 

MasterCard, Visa, check, or money order. Call for additional information.

Connect with GAO on Facebook, Flickr, Twitter, and YouTube. 

Subscribe to our RSS Feeds or E-mail Updates. Listen to our Podcasts. 

Visit GAO on the web at www.gao.gov. 

Contact:

Website: www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470

Katherine Siggerud, Managing Director, siggerudk@gao.gov, (202) 512-

4400, U.S. Government Accountability Office, 441 G Street NW, Room 

7125, Washington, DC 20548

Chuck Young, Managing Director, youngc1@gao.gov, (202) 512-4800

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, DC 20548

GAO’s Mission

Obtaining Copies of 

GAO Reports and 

Testimony 

Order by Phone

Connect with GAO

To Report Fraud, 

Waste, and Abuse in 

Federal Programs

Congressional 

Relations 

Public Affairs

Please Print on Recycled Paper.