United States Government Accountability Office 

Washington, DC 20548 

1 GAO-12-929R TANF Third Party Maintenance of Effort 

July 23, 2012 

The Honorable Geoff Davis 

Chairman 

Subcommittee on Human Resources 

Committee on Ways and Means 

House of Representatives 

Dear Mr. Chairman: 

Subject: Temporary Assistance for Needy Families: More States Counting Third Party 

Maintenance of Effort Spending 

 

Each year, the Temporary Assistance for Needy Families (TANF) block grant provides $16.5 

billion in federal funds to states to assist low-income families. While the block grant provides 

states with a fixed amount of federal dollars annually, it also includes a requirement that states 

maintain a significant portion of their own historic financial commitment, called maintenance-ofeffort, to welfare-related programs. In fiscal year 2011, states spent a total of $33 billion for 

TANF-related benefits and services—$18 billion in federal TANF funds and $15 billion in state 

MOE. This total includes any expenditures made by third parties, such as nonprofit 

organizations, that states counted toward their MOE requirement. Some concerns have been 

raised that counting third party nongovernmental expenditures towards a state’s MOE may not 

be in keeping with the intent of MOE requirements directed toward state and local governments. 

Concerns have also been expressed that this option may reduce the overall level of services 

available to low-income families in a state if, for example, that state counts services already 

provided by third parties while reducing its own spending. 

Consequently this report discusses the (1) extent to which states count third party 

nongovernmental expenditures toward their states’ MOE requirements, (2) types of third party 

nongovernmental benefits and services provided, and (3) the reasons states cited for counting 

third party nongovernmental MOE. To obtain this information, we developed a questionnaire 

and pre-tested it with three state TANF directors.1

 We then distributed it by e-mail to TANF 

directors for all 50 states and the District of Columbia2

 and received a 100 percent response 

rate. Where necessary, we followed up with states to clarify their responses. We also reviewed 

relevant federal laws and regulations, and spoke with officials from and reviewed relevant 

 

1

 In this questionnaire and report, third party nongovernmental MOE expenditures counted toward TANF MOE 

spending refers to (1) the value of in-kind contributions for allowable costs from nongovernmental third parties 

(including nonprofit organizations, corporations, or other private parties), or (2) cash donations by nongovernmental 

third-parties used by the state for a TANF allowable purpose. 2

 For the purposes of this report, we include the District of Columbia as a state. 
2 GAO-12-929R TANF Third Party Maintenance of Effort 

documents from the Department of Health and Human Services (HHS) that oversees states’ 

use of TANF block grant funds. 

We conducted this performance audit from June 2012 through July 2012 in accordance with 

generally accepted government auditing standards. Those standards require 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. 

Results in Brief 

The number of states that reported counting third party nongovernmental expenditures toward 

their state MOE spending increased over the past 5 years—from 3 states in fiscal year 2007 to 

13 states in fiscal year 2011. The largest number of states reported its use in fiscal years 2009 

and 2010, the years during which states accessed TANF Emergency Contingency Funds 

provided by the American Recovery and Reinvestment Act of 2009 (Recovery Act).3

 Third party 

nongovernmental MOE spending as a percentage of total MOE expenditures varied greatly 

among the 13 states that reported using it in fiscal year 2011 and ranged from less than one 

percent in several states to nearly half of one state’s overall MOE spending. Food assistance 

was the most commonly cited service provided by third party nongovernmental organizations 

that states counted towards MOE requirements. Other services included medical or dental 

services, employment assistance, and family stabilization services. States often reported that 

the option to count third party nongovernmental expenditures was an important tool to help them 

meet TANF MOE spending requirements as well as the TANF work participation requirements. 

A total of 17 states, most of those that used the option in fiscal year 2011 as well as 5 additional 

states, reported that they definitely or probably will count third party MOE spending in the near 

future. 

Background 

The TANF block grant was created by the Personal Responsibility and Work Opportunity 

Reconciliation Act of 1996 (PRWORA)4

 and was designed to give states the flexibility to provide 

both traditional welfare cash assistance benefits as well as a variety of other benefits and 

services to meet the needs of low-income families and children. TANF has four broad goals: (1) 

provide assistance to needy families so that children may be cared for in their own homes or 

homes of relatives; (2) end dependence of needy parents on government benefits by promoting 

job preparation, work, and marriage; (3) prevent and reduce out-of-wedlock pregnancies; and 

(4) encourage the formation and maintenance of two-parent families. Within these goals, states 

have responsibility for designing, implementing, and administering their welfare programs to 

comply with federal guidelines, as defined by federal law and HHS. 

In creating TANF, Congress significantly changed the federal government’s 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 with the 

TANF block grant for a fixed grant amount each year. Each state’s TANF block grant amount 

was generally based on the amount of the state’s spending under AFDC. With the fixed federal 

funding stream, states assume greater fiscal risks in the event of an economic recession or 

 

3

See Pub. L. No. 111-5, § 2101(a)(1), 123 Stat. 115, 446. Generally, in order to access these Recovery Act funds, 

states were required to have increased caseloads or increased certain types of expenditures compared with an 

earlier base year. 

4

 Pub. L. No. 104-193, § 103(a)(1), 110 Stat. 2105, 2112. 
3 GAO-12-929R TANF Third Party Maintenance of Effort 

increased program costs. 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 recession, the federal government created a $5 billion Emergency Contingency Fund for 

state TANF programs through the Recovery Act, available in fiscal years 2009 and 2010.6

PRWORA coupled the block grant with an MOE provision, which requires 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.7

 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.8

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

MOE certain in-kind or cash expenditures by third parties—such as nongovernmental 

organizations—as long as the expenditures meet other MOE requirements, including those 

related to eligible families and allowable activities.9

 In addition, an agreement must exist 

between the state and the third party allowing the state to count the expenditures toward its 

MOE.10 HHS described this option in a 2004 TANF policy announcement for states.11

In the early years of TANF, HHS noted in its preamble to the final rule for TANF issued in 1999 

that the MOE cost-sharing arrangement reflected Congress’ recognition that state financial 

participation is essential for the success of welfare reform.12 It also noted that Congress wanted 

states to be active partners in the welfare reform process.13 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 dollar-for-dollar the amount of a state’s basic TANF grant for 

the following fiscal year.14

States’ overall MOE spending has increased in recent years for several reasons. Many states 

(20) accessed TANF Contingency Funds between fiscal years 2007 and 2010 and to do so 

these states had to meet a higher MOE spending requirement. In addition, almost all states 

accessed the Emergency Contingency Fund in fiscal years 2009 and 2010, which required them 

to have had increases in caseload for basic assistance, or increases in expenditures for shortterm, nonrecurrent benefits or subsidized employment, above an earlier base year. Moreover, 

many states claimed additional MOE to help them meet work participation rate requirements. 

Specifically, in recent years, policymakers have focused attention on states’ use of MOE 

spending above required levels to help them meet TANF work participation rates. Generally, 

states are held accountable for ensuring that at least 50 percent of all families with a workeligible individual receiving TANF assistance participate in work activities for a specified number 

 

5

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

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

7 See 42 U.S.C. § 609(a)(7). 8

 Id. The TANF block grant is not adjusted for inflation and these requirements are expressed in nominal dollars. 

9

 45 C.F.R. § 263.2(e). 

10 Id. 11 Department of Health and Human Services, Administration for Children and Families, Temporary Assistance for 

Needy Families Policy Announcement No. TANF-ACF-PA-2004-01, (Washington, D.C.: December 1, 2004). 12 Temporary Assistance for Needy Families Program (TANF). 64 Fed. Reg. 17,720, 17,821. 13 Id. At 17,816. 14 See 42 U.S.C. § 609(a)(7). 
4 GAO-12-929R TANF Third Party Maintenance of Effort 

of average hours per week over the month.15 Various policy options, however, assist states in 

meeting these rates. 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, which 

essentially lowers the states’ required work participation rate from 50 percent.16 In addition, 

under federal regulations, if states spend in excess of their required MOE amount, they are 

allowed to increase their caseload reduction credits and thereby lower the work participation 

rates they must meet.17 Our previous work18 found that in fiscal year 2009, the most recent year 

for which data are available, 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.19

More States Have Counted Third Party Nongovernmental Expenditures Toward MOE 

Spending in Recent Years 

In fiscal year 2007, 3 states reported counting third party nongovernmental expenditures toward 

their state MOE spending while 13 states reported its use in fiscal year 2011 (see figure 1). In 

addition, during these 5 years, about half of all the states reported counting third party 

nongovernmental expenditures toward MOE in at least one year. The largest number of states 

reported its use in fiscal years 2009 and 2010, when states could access TANF Emergency 

Contingency Funds provided by the Recovery Act. Ten states reported counting third party 

nongovernmental expenditures toward MOE to access TANF Emergency Contingency Funds in 

fiscal year 2009, and 17 states reported doing so in fiscal year 2010. 

 

15 To be counted as engaging in work for a month, most TANF families are required to participate in federally-defined 

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 (in which the adult caretaker is not included in the benefit calculation) 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. 16 42 U.S.C. § 607(b)(3). However, under federal TANF law, the credit calculation excludes caseload reductions 

resulting from changes in states’ eligibility criteria. 

17 45 C.F.R. § 261.43. When calculating the caseload reduction credit, federal regulations allow a state that spent in 

excess of its required amount in the year preceding the current one to include only the pro rata share—in its overall 

caseload number—of the total number of families receiving state-funded 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. 

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

GAO-12-713T (Washington, D.C.: May 17, 2012). 19 We did not determine whether these increases reflect new state spending or spending that had been occurring 

before but was not reported as state MOE spending at that time. 
5 GAO-12-929R TANF Third Party Maintenance of Effort 

Figure 1: Number of States Reporting Counting TANF Third Party Nongovernmental Expenditures Toward 

MOE Spending in Fiscal Years 2007 through 2011 

Third party nongovernmental MOE expenditures as a percentage of total MOE expenditures 

varied greatly among the 13 states that reported counting it in fiscal year 2011. Two of these 

states reported that third party nongovernmental expenditures accounted for nearly half of their 

overall MOE spending. Four states reported that third party nongovernmental MOE spending 

accounted for roughly 10 to 20 percent of their overall MOE expenditures, and for the remaining 

seven states, the percentage was about seven percent or less of their overall MOE spending in 

fiscal year 2011(see figure 2). The 13 states all reported counting third party nongovernmental 

expenditures toward their total MOE spending for at least 2 years from 2007 through 2011, and 

for 5 years in two states. 
6 GAO-12-929R TANF Third Party Maintenance of Effort 

Figure 2: Third Party Nongovernmental Expenditures as a Percentage of Total MOE Spending for Each State 

That Reported Counting Such Expenditures in Fiscal Year 2011 

States Most Often Reported Food Assistance as Third Party-Provided Service 

According to our survey of the states, food assistance was the most commonly cited service 

provided by third party nongovernmental organizations that states counted towards their MOE 

expenditures. Other services included medical or dental services, employment assistance, and 

family stabilization services. For example, in Georgia, the Atlanta Community Food Bank 

provides food support for TANF clients and at-risk families. Also, the YMCA of Metro Atlanta 

provides after-school and out-of-school enrichment activities. In Hawaii, the Shriner’s Hospital 

for Children provides medical services for disabled children. In another example, Colorado’s 

Mile High United Way provides various services, including a parent support program, child care 

services, housing assistance, job skills and education training, and legal services for victims of 

domestic violence. In each of these cases, states are to have an agreement with the 

organization in place and count toward MOE only the value of the organization’s services in 

keeping with allowable TANF purposes and for eligible populations, as determined by the state. 

States Frequently Reported that Counting Third Party Nongovernmental Expenditures 

Helps Them Meet TANF Requirements 

States that had counted third party nongovernmental expenditures toward their MOE spending 

or expressed interest in doing so in the future generally reported that the option was an 

important tool to help them meet TANF MOE spending requirements as well as the TANF work 

participation requirements. One-third of states (17) reported they definitely or probably will count 

third party nongovernmental expenditures toward MOE spending in the near future (see figure 
7 GAO-12-929R TANF Third Party Maintenance of Effort 

3). This includes 12 states that reported counting third party nongovernmental expenditures in 

fiscal year 2011 as well as 5 other states. Of these five states, two reported using the option 

earlier than fiscal year 2011 and three reported not using it before. 

Figure 3: States’ Views on Likelihood of Counting Third Party Nongovernmental Expenditures Toward TANF 

MOE in Fiscal Year 2012 or 2013 

These 17 states identified several important reasons for having used the option, or planning to 

use it in the future, related to meeting TANF requirements and facilitating public-private 

partnerships (see figure 4). More specifically, one state that had previously used this option 

said that if the state had not been permitted to count its third-party nongovernmental 

expenditures in fiscal year 2009, then it would not have met the TANF Contingency Fund MOE 

requirements and therefore gained access to additional federal funds for client benefits and 

services. In addition, a few states noted that poor economic conditions have affected state 

budgets and employment opportunities for TANF clients. Tight state budgets may result in state 

and local governments cutting back in their own spending for TANF related benefits and 

services, making it more difficult for states to meet their required MOE spending levels. 

Reaching out to third parties such as nonprofits to claim the value of some of their services can 

help a state meet its MOE requirement. In addition, one state expressed concerns about 

meeting the required work participation rates with generally fewer employment opportunities 

available. Counting third party nongovernmental expenditures as the state’s MOE spending to 

exceed their required MOE levels can serve as an important way to meet their work participation 

rates and avoid financial penalties for failing to meet the rates.20 One state that had not used the 

option before replied that it planned to develop a partnership for MOE purposes with a food 

bank in its state. 

 

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

GAO-11-880T (Washington, D.C.: Sept. 8, 2011).
8 GAO-12-929R TANF Third Party Maintenance of Effort 

Figure 4: States Reported the Importance of Reasons They Have Already or May in the Future Count Third 

Party Nongovernmental Expenditures Toward MOE Spending

Note: One state reported not knowing or not being sure about the importance of developing public-private 

partnerships, and two did not know or were not sure about the importance of applying for the TANF Contingency 

Fund. 

Agency Comments 

We provided a draft of this report to HHS for its review and comment. It provided technical 

comments, which we have incorporated as appropriate. 

As agreed with your office, unless you publicly announce the contents of this report earlier, we 

plan no further distribution until 30 days from the report date. At that time, we will send copies of 

this report to the Secretary of Health and Human Services, appropriate congressional 

committees, and other interested parties. The report also is available at no charge on the GAO 

website at http://www.gao.gov. 

 
9 GAO-12-929R TANF Third Party Maintenance of Effort 

If you or your staff members have any questions about this report, please contact me 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 report. GAO staff members who made key 

contributions to this report are listed in enclosure I. 

Sincerely yours, 

Kay E. Brown 

Director, Education, Workforce, 

 and Income Security Issues 

Enclosure
10 GAO-12-929R TANF Third Party Maintenance of Effort 

Enclosure I 

GAO Contact and Staff Acknowledgments 

GAO Contact: Kay E. Brown, (202) 512-7215, brownke@gao.gov

Contributors to this report include Gale C. Harris, Assistant Director; Julianne Hartman Cutts 

and Kate Blumenreich, Analysts-in-Charge; and James Bennett, Alex Galuten, Miriam Hill, Jean 

McSween, Cady Panetta, Carl Ramirez, and Terry Richardson. 

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