Report to the Chairman and Ranking 

Minority Member, Committee on 

Finance, U. S. Senate 

United States General Accounting Office 

GAO 

July 2003 WELFARE REFORM

Information on 

Changing Labor 

Market and State 

Fiscal Conditions 

GAO-03-977 
Page i GAO-03-977 Welfare Reform 

Letter 1

Appendix I Briefing Slides 6 

Appendix II GAO Contacts and Staff Acknowledgments 37 

GAO Contacts 37

Staff Acknowledgments 37

Related GAO Products 38 

Abbreviations 

AFDC Aid to Families with Dependent Children 

HHS Department of Health and Human Services 

TANF Temporary Assistance for Needy Families 

Contents 

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Page 1 GAO-03-977 Welfare Reform 

July 15, 2003 

The Honorable Charles E. Grassley 

Chairman 

The Honorable Max Baucus 

Ranking Minority Member 

Committee on Finance 

United States Senate 

With the enactment of the Personal Responsibility and Work Opportunity 

Reconciliation Act of 1996 (PRWORA), the Congress made sweeping 

changes to federal policy for needy families. PRWORA ended the Aid to 

Families with Dependent Children (AFDC) program and created the 

Temporary Assistance for Needy Families (TANF) block grant to states. 

The Department of Health and Human Services (HHS) oversees the TANF 

block grant program, which provides grants to states totaling up to $16.5 

billion each year and requires states to maintain a historical level of state 

spending on welfare reform programs. Under TANF, states have greater 

flexibility and face greater uncertainty than they did under AFDC. States 

have greater flexibility to design, finance, and implement programs for 

low-income families, including determining who is to be served and what 

services to provide. TANF also emphasizes the transitional nature of 

assistance and the importance of employment for welfare recipients. 

Because the amount of the TANF block grant is fixed, as caseloads 

decline—as they did in all states through the late 1990s—states have had 

additional resources that they have used to expand their programs, 

achieve some budgetary savings, and create reserves; however, states bear 

most of their TANF program’s fiscal risks if their programs’ costs rise as a 

result of higher caseloads or other factors. 

Welfare reform was initially implemented in a time of economic growth, 

when there was a strong demand for labor and the fiscal situation of the 

states was favorable. More recently, the economy has slowed and welfare 

reform is being implemented in less favorable economic conditions. To 

obtain information on welfare reform under changing labor market and 

fiscal conditions, you asked us to determine (1) how labor market 

conditions have changed in recent years; (2) how cash public assistance 

caseloads and the employment activities of current and former welfare 

recipients have changed in recent years; (3) how the fiscal situation of 

United States General Accounting Office 

Washington, DC 20548 
Page 2 GAO-03-977 Welfare Reform 

states has changed in recent years; and (4) to what extent states have 

made changes to their welfare programs as a result of fiscal changes. 

To address your first and second questions, we obtained data on national 

and state unemployment rates and the national labor force participation 

rate, as well as qualitative information on recent economic conditions for 

five states, selected judgmentally to reflect variation in geographic 

location and welfare-to-work approaches (Arizona, Iowa, Montana, 

Pennsylvania, and Wisconsin). We also obtained data on cash public 

assistance caseload changes for the nation and the selected states, as well 

as qualitative information on caseload patterns and the ability of TANF 

recipients to enter employment from the selected states and three 

nongovernmental welfare-to-work organizations. To address your third 

and fourth questions, we obtained publicly available information on the 

current fiscal situation of the states from national organizations 

representing states and publicly available budget documents on state 

TANF programs and on proposals for changes to their TANF programs. In 

addition, we obtained information from budget officials in the selected 

states as well as TANF financial data submitted by states to HHS. We 

conducted our work from February to May 2003 in accordance with 

generally accepted government auditing standards. Data used in this 

analysis were those readily available as of April 30, 2003. 

On May 13, 2003, we presented your staff with this descriptive information 

on changing economic conditions and welfare reform. This report formally 

conveys the information provided during that briefing. In summary, we 

reported: 

The recent economic downturn is reflected in key national and state labor 

market statistics and in the reports of state officials. The national 

unemployment rate, for example, increased from 4.0 percent in January 

2000 to 5.8 percent in March 2003. Although changes in unemployment 

rates have varied across industrial sectors and for workers of different 

levels of educational attainment, unemployment rates have generally 

increased across sectors and education levels in recent years. 

Unemployment rates varied across the five selected states, ranging from 

4.0 percent in Iowa and Montana to 6.2 percent in Pennsylvania in 

February 2003. Despite these differences, officials in each state felt that 

their state has experienced an economic downturn. While the loss of jobs 

in manufacturing and the continued importance of service sector 

employment for TANF recipients were common features of the downturn 

across the five states, other important characteristics of the downturn 

differed. 
Page 3 GAO-03-977 Welfare Reform 

Changes in cash public assistance caseloads and the employment activities 

of welfare recipients also varied across the five states. Although the 

national welfare caseload declined from December 2000 to December 

2002, only one of the five states (Pennsylvania) experienced caseload 

declines in both years of this time period. Caseload patterns differed 

across the five states in terms of any geographic concentration of caseload 

changes or the length of time recipients stayed on cash assistance. 

Information on how the downturn has affected the employment prospects 

of TANF recipients also differed across the states and by the type of 

organization interviewed. Some reported that TANF recipients had greater 

difficulty finding jobs as a result of changing economic conditions, while 

others said that entry-level jobs—those most likely to employ TANF 

recipients—were still generally available. State officials in the five states 

reported that changes had not been made to state welfare-to-work 

programs in response to recent economic changes, but some states have 

had to curtail, or expect to curtail, services and/or cut cash benefits 

because of fiscal difficulties. 

States are facing one of their most challenging fiscal situations in years, in 

part, due to the economic downturn and state fiscal responses to this 

downturn. Most states are required to balance their budgets and since 

their revenues have been much lower than forecast, state officials have 

struggled to bring expenditures in line with available resources. A state’s 

need to cut spending or increase revenues during a downturn can be 

mitigated if it has accumulated surplus balances in reserve and states 

accumulated unprecedented reserves during the late 1990s. However, 

these reserves have dropped appreciably as states address their fiscal 

crises. 

For the TANF program specifically, we found that each of the five states in 

our review planned to use their reserves of unspent federal TANF funds1

 to 

maintain their TANF programs and they also planned to use the program’s 

flexibility to reallocate some resources to higher priority TANF needs. 

Nationwide, states reported that over $5.8 billion in federal TANF funds 

 1

States are allowed to keep unspent TANF funds without fiscal year limitation. They are 

required to report unspent balances as either an unobligated balance or an unliquidated 

obligation. While the latter implies that there is an underlying commitment on these funds, 

we reported in 2001 that it is difficult to tell from the states’ reports whether these funds 

have actually been committed or whether they might be available to use in the future. See 

U.S. General Accounting Office, Welfare Reform: Challenges Maintaining a Federal-State 

Fiscal Partnership, GAO-01-828 (Washington D.C.: Aug. 10, 2001). 
Page 4 GAO-03-977 Welfare Reform 

remained unspent at the end of federal fiscal year 2002. However, the 

levels of TANF reserves vary considerably among the 50 states. For 

example, 3 states’ reserves of unspent funds are equal to or greater than 

their annual grant amount whereas 3 other states have no reported 

reserves. Many states began to draw down some of their reserves in 

federal fiscal years 2001 and 2002, in part due to concerns that 

accumulating unspent balances might signal that these funds were not 

needed.2

 

In using reserve funds to augment the annual block grant, states assumed 

some risks. Because the amount of federal funding is fixed and does not 

vary based on the number of people served or changing program costs, 

states that used their reserves to augment their annual block grant would 

face challenges maintaining this level of funding if program costs rose as a 

result of higher caseloads or other factors. These risks are compounded by 

the current fiscal situations in the states that make it difficult for them to 

increase their own funding for these programs. Four of the 5 states we 

reviewed faced difficult budget challenges in their TANF programs this 

year. In Montana, for example, program budget officials said the state used 

most of its TANF reserves to fund short-term projects. When the fiscal 

situation worsened this year, program officials worked to terminate these 

programs early and reallocated the program funds to address shortfalls in 

other higher priority TANF-funded programs. In Pennsylvania, on the 

other hand, program budget officials said that the state’s TANF program is 

relatively well protected from the state budget crisis and that based on 

current expenditure rates the state’s TANF reserves could last through 

2006. 

We provided a draft of this briefing to officials at HHS for their technical 

comments and incorporated their comments where appropriate. 

We are sending copies of this report to relevant congressional committees 

and other interested parties and will make copies available to others upon 

request. This report will also be available on GAO’s Web site at 

http://www.gao.gov. If you or your staff have any questions about this 

 2

 For more information, see U.S. General Accounting Office, Welfare Reform: Challenges 

in Saving for a “Rainy Day,” GAO-01-674T (Washington, D.C.: Apr. 26, 2001). 
Page 5 GAO-03-977 Welfare Reform 

report, please contact Cynthia M. Fagnoni at (202) 512-7215 or Paul L. 

Posner at (202) 512-9573. Additional GAO contacts and acknowledgments 

are listed in appendix II. 

Cynthia M. Fagnoni, Managing Director 

Education, Workforce, and Income Security Issues 

Paul L. Posner, Managing Director 

Federal Budget Issues and Intergovernmental Relations 
Appendix I: Briefing Slides 

Page 6 GAO-03-977 Welfare Reform 

Appendix I: Briefing Slides 

1

Welfare Reform: Changing Labor 

Market and Fiscal Conditions 

Briefing to the Staff of the Senate 

Committee on Finance

May 13, 2003
Appendix I: Briefing Slides 

Page 7 GAO-03-977 Welfare Reform 

2

Introduction: States Have Both Greater Flexibility 

and Greater Uncertainty under Welfare Reform

• States have greater programmatic flexibility to design, finance, and 

implement programs that serve the needs of low-income families 

living in their states.

• Welfare reform moved public assistance from a system that focused 

on income support to one that emphasizes the goal of economic 

independence.

• Under Temporary Assistance to Needy Families (TANF), the 

emphasis on employment is greater than under Aid to Families 

with Dependent Children (AFDC). 

• States bear most of their program’s fiscal risks.

• Before 1996, under AFDC, any increased costs were shared by 

the federal government and the states. 

• TANF is a fixed block grant and if costs rise states face most of 

the burden of financing the unexpected costs.
Appendix I: Briefing Slides 

Page 8 GAO-03-977 Welfare Reform 

3

Introduction (cont.)

• Previous research has shown that the relationship between 

economic conditions and welfare reform outcomes is complex. The 

strong economy, changes in welfare policies, and other policy 

changes affecting low-wage workers were all found to contribute to 

the increase in work among low-income single mothers and the 

decline in welfare caseloads following welfare reform in 1996.

• Research also suggests that state program choices—such as those 

regarding benefit levels, earnings disregards, sanctions, and time 

limits—affect the work incentives embodied in welfare programs.
Appendix I: Briefing Slides 

Page 9 GAO-03-977 Welfare Reform 

4

Key Questions

You asked us to determine the following: 

(1) How labor market conditions have changed in recent years.

(2) How cash public assistance caseloads and the employment 

activities of current and former welfare recipients have changed

in recent years.

(3) How the fiscal situation of states has changed in recent years.

(4) To what extent states have made changes to their welfare 

program as a result of fiscal changes. 
Appendix I: Briefing Slides 

Page 10 GAO-03-977 Welfare Reform 

5

Scope and Methodology

• To examine recent labor market changes, changes in welfare 

caseloads, and the employment prospects of TANF recipients, we 

obtained

• data on unemployment rates and labor force participation for the

nation;

• unemployment rates and qualitative information on recent economic 

conditions for five states selected judgmentally to reflect variation in 

geographic location and welfare-to-work approaches (Arizona, Iowa, 

Montana, Pennsylvania, and Wisconsin), as well as unemployment 

rates for selected counties;

• data on cash public assistance caseload changes for the nation and 

the selected states and counties; and

• qualitative information on caseload patterns and the ability of TANF 

recipients to enter employment from the selected states and three 

nongovernmental welfare-to-work organizations.
Appendix I: Briefing Slides 

Page 11 GAO-03-977 Welfare Reform 

6

Scope and Methodology (cont.)

• To examine recent changes in the states’ fiscal situation and the extent 

to which they have made changes to their welfare programs as a result 

of fiscal changes, we 

• reviewed publicly available information on states’ current fiscal 

situation from national organizations representing states;

• reviewed research papers on causes and effects of the current state 

fiscal crisis;

• reviewed publicly available budget documents on state TANF 

programs;

• interviewed budget officials from Arizona, Iowa, Montana, 

Pennsylvania, and Wisconsin;

• reviewed TANF financial data states submitted to the Department of 

Health and Human Services.
Appendix I: Briefing Slides 

Page 12 GAO-03-977 Welfare Reform 

7

Selected Features of the Five States’ TANF 

Programs

Up to None Partial 60 months 75 11

$673

Wisconsin

Pennsylvania $421 50 percent Mixed 60 months 11 92

44 17 b Montana $494 $200 and 25 percent Partial 60 months

20 percent and 50 Full 60 months 41 94

percent of the rest

Iowa $426

24 months in 60 33 81

months

Arizona $347 $90 and 30 percent Partial

Percentage of these adult 

TANF recipients meeting the 

participation requirement that 

were in unsubsidized 

employment (U.S. = 65 

percent)

Percentage of adult 

TANF recipients 

meeting the federal 

participation 

requirement (fiscal 

year 2001)a

Time limits on 

receipt of cash 

assistance

Sanction 

policy

Amount of earnings 

not taken into 

account when 

determining monthly 

benefits

Monthly 

benefit 

for 3-

person 

family in 

State Jan. 2002

Source: Temporary Assistance for Needy Families Program: Fifth Annual Report to Congress, U.S. Department of Health and Human Services, Administration for Children and 

Families, Office of Family Assistance, February 2003 and TANF Benefits and Earnings Limits, Vee Burke, Congressional Research Service, updated March 3, 2003. 

aActual “all-family” rates states achieved as reported by HHS. To avoid financial penalties, states were to meet a minimum 45 percent participation standard. However, after 

taking into account the caseload reduction credit allowed by law, these five states faced adjusted standards of 1 percent or less. Activities that count for federal participation 

requirement purposes include unsubsidized and subsidized employment, work experience programs, on-the-job training, community services, providing child care for other TANF 

recipients, job search, and (under certain circumstances) education and training.

bThis rate reflects activities that count toward the federal work participation rate under Montana’s waiver of existing TANF rules. Without taking into account the waiver, 

Montana’s actual participation rate was 27 percent. 
Appendix I: Briefing Slides 

Page 13 GAO-03-977 Welfare Reform 

8

Changing National Labor Market Conditions

Question One

The national unemployment rate 

rose from 4.0 percent in January 

2000 to 5.8 percent in March 2003. 

The national labor force participation 

rate declined from 67.3 percent in 

January 2000 to 66.2 percent in 

March 2003.

Source: Bureau of Labor Statistics.

0

1

2

3

4

5

6

7

Jan-00

Apr-00

July-00

Oct-00

Jan-01

Apr-01

July-01

Oct-01

Jan-02

Apr-02

July-02

Oct-02

Jan-03

66

66.2

66.4

66.6

66.8

67

67.2

67.4

67.6

Jan-00

Apr-00

July-00

Oct-00

Jan-01

Apr-01

July-01

Oct-01

Jan-02Apr-02

July-02

Oct-02

Jan-03

National Unemployment Rate

Percent

National Labor Force Participation Rate

Percent
Appendix I: Briefing Slides 

Page 14 GAO-03-977 Welfare Reform 

9

Unemployment Rates Varied across Industries

0

2

4

6

8

10

12

Question One

Source: Bureau of Labor Statistics.

In March 2003, 

unemployment rates 

were highest for the 

mining, construction, 

business services and 

leisure/hospitality 

industries. 

Unemployment Rates by Industry, March 2000 to

March 2003

Percent

Mining

Construction

Durable goods

Nondurable goods

Wholesale/retail trade

Trans./utilities

Information

Finance

Business services

Edu./health

Leisure/hospitality

Other services

Mar-00 Mar-01 Mar-02 Mar-03
Appendix I: Briefing Slides 

Page 15 GAO-03-977 Welfare Reform 

10

Unemployment Rates Rose for Every Educational 

Attainment Level

Question One

The unemployment rate for the 

“less than high school degree” 

category consistently is higher 

than the unemployment rates for 

other levels of educational 

attainment. The percent increase 

is smallest for the “less than high 

school degree” category. 

Source: Bureau of Labor Statistics.

Unemployment Rates by Educational

Attainment

Percent

0

1

2

3

4

5

6

7

8

9

10

Less than high school degree High school graduate only

Some college College graduate

Jan-00

Apr-00

July-00

Oct-00

Jan-01

Apr-01

July-01

Oct-01

Jan-02

Apr-02

July-02

Oct-02

Jan-03
Appendix I: Briefing Slides 

Page 16 GAO-03-977 Welfare Reform 

11

0

1

2

3

4

5

6

7

Changing State Labor Market Conditions

Question One

The unemployment rates vary 

across states. 

• States begin and end this 

time period with 

unemployment rates at 

different levels.

• While unemployment rates 

increased in four of the five 

states, the pattern of change 

differs across states. 

Source: Bureau of Labor Statistics.

State Unemployment Rates from 

February 2000 to February 2003

Percent

Feb-00 Feb-01 Feb-02 Feb-03

United States

Arizona

Iowa

Montana

Pennsylvania

Wisconsin
Appendix I: Briefing Slides 

Page 17 GAO-03-977 Welfare Reform 

12

States and the Economic Downturn 

• Despite differences in unemployment rates and changes in 

unemployment rates across the five states, officials in each state felt 

that their state has experienced an economic downturn.

• State officials and documents provided in each of the five states 

indicated that job losses in manufacturing industries are one of

the common features of the downturn. Other features of the 

downturn—such as other industries or regions particularly 

affected—differ somewhat across states. 

• The service sector is a major employer of TANF recipients 

across the five states. 

Question One
Appendix I: Briefing Slides 

Page 18 GAO-03-977 Welfare Reform 

13

States and the Economic Downturn (cont.) 

• Other characteristics of the economic downturn emphasized by state 

officials: 

• Pennsylvania—The state’s unemployment rate in February was the 

highest since 1994.

• Wisconsin—The manufacturing industry, located primarily in the 

southeast quadrant of the state, has been hit the hardest.

• Arizona—The decrease in tourism and job losses in urban areas have 

negatively impacted the economy.

• Iowa—The state is experiencing an economic downturn, but the 

unemployment rate is still low relative to the rest of the nation.

• Montana—The state has a decreasing unemployment rate, but is still 

experiencing economic difficulties, in part because the state did not 

experience as great an economic boom as other states in the mid1990s. 

Question One
Appendix I: Briefing Slides 

Page 19 GAO-03-977 Welfare Reform 

14

Changing TANF Caseloads

-5

0

5

10

15

20

Question Two

The national caseload continued 

to decline over the December 

2000 to December 2002 time 

period. 

The state caseload increased 

over both time periods in three of 

the five states and declined over 

both time periods in only one 

state.

Source: Center for Law and Social Policy (CLASP).

Note: Data available from HHS were not as current as data available from CLASP.

Percent change in TANF caseloads

December 2000 to December 2002 

Percent change

Dec 00 to Dec 01 Dec 01 to Dec 02

United States

Arizona

Iowa

Montana

Pennsylvania

Wisconsin
Appendix I: Briefing Slides 

Page 20 GAO-03-977 Welfare Reform 

15

TANF Caseload Patterns

• In Arizona, Montana, and Wisconsin, state program officials report 

that recipients are staying on cash assistance programs longer. 

• Caseloads are becoming more concentrated in urban areas in 

Arizona. In Montana, caseloads are increasing across the state, 

and in Wisconsin, changes in caseloads vary across the state.

• In Iowa, state program officials report that recipients are leaving the 

program more quickly.

• In Pennsylvania, state program officials report that an increasing 

share of recipients live in urban areas. The program also is serving 

more recipients with multiple barriers to employment. 

Question Two
Appendix I: Briefing Slides 

Page 21 GAO-03-977 Welfare Reform 

16

TANF Recipients’ Employment

• In each of the five states, state officials and local program administrators 

for Goodwill, a nonprofit organization that provides employment and 

training services, told us TANF recipients typically find work in the service 

sector.

• Wisconsin—Recipients mostly find work in the service (particularly 

health care) and retail industries.

• Arizona—Recipients largely find work in the service sector 

(particularly tourism).

• Montana—Recipients tend to work in the service or health-related 

industries.

• Iowa—Many recipients work in labor intensive jobs and in the service 

industry.

• Pennsylvania—A majority of recipients find work in service industries 

(particularly retail, telemarketing, restaurant, and personal care). 

Question Two
Appendix I: Briefing Slides 

Page 22 GAO-03-977 Welfare Reform 

17

TANF Recipients’ Ability to Get Jobs 

• State officials and Goodwill program administrators in each of the 

five states told us the impacts of the downturn on the employment 

prospects of TANF recipients vary across the five states. 

• Wisconsin—The impact of the recession has been to make it 

more difficult to find employment as service sector growth has 

slowed.

• Arizona—The economic downturn has made it more difficult for 

recipients to find jobs, particularly in urban areas. Low wage jobs 

continue to be scarce in rural areas. 

Question Two
Appendix I: Briefing Slides 

Page 23 GAO-03-977 Welfare Reform 

18

TANF Recipients’ Ability to Get Jobs (cont.)

• Montana—Recipients are having a particularly difficult time 

finding or keeping employment because of child care constraints.

TANF recipients also face more competition for low wage jobs as 

more skilled workers lose jobs.

• Iowa—While the economic downturn has had some impact, 

entry-level jobs still are available. TANF recipients do not yet 

face more competition for jobs from more skilled workers. 

• Pennsylvania—In general, entry-level jobs still are available for 

work-ready recipients. 

Question Two
Appendix I: Briefing Slides 

Page 24 GAO-03-977 Welfare Reform 

19

TANF Recipients’ Ability to Get Jobs (cont.) 

• Goodwill program administrators in six other states (Colorado, 

Indiana, Massachusetts, Nebraska, Ohio, and Virginia) told us 

recent economic conditions have made it more difficult for recipients 

to get jobs, in part, because it has been taking more time for 

recipients to find jobs. 

• According to a recent survey of 150 business leaders conducted by 

the Welfare-to-Work Partnership, an employer group, over threequarters of those who hire disadvantaged workers say they will 

continue to hire them in the coming year. 

• America Works (Baltimore), a for-profit placement agency that 

works with job-ready recipients, does not report increased difficulty 

in recipients getting jobs. 

Question Two
Appendix I: Briefing Slides 

Page 25 GAO-03-977 Welfare Reform 

20

Program Changes and Challenges

• State officials reported that changes had not been made to state

welfare-to-work programs in response to the economic downturn. 

However, some states have had to curtail—or expect to curtail—

services (such as non-TANF, low-income child care) and/or cut cash 

benefits.1

• State officials in Montana and Iowa emphasized that, as rural states, 

both child care and transportation posed particular challenges for their 

TANF programs. Officials in Arizona also emphasized transportation 

problems.

• State officials in Pennsylvania emphasized that, while not caused by 

changing economic conditions, they have made program changes to 

better serve people that have greater barriers to employment, such as 

domestic violence and drug-related issues, than those considered more 

job ready.

Question Two

1U.S. General Accounting Office, Child Care: Recent State Policy Changes Affecting the Availability of Assistance for Low-Income Families, 

GAO-03-588 (Washington, D.C.: May 5, 2003). 
Appendix I: Briefing Slides 

Page 26 GAO-03-977 Welfare Reform 

21

300

350

400

450

500

550

Forecast Actual

States Face Challenging Fiscal Situation

• State budgets are cyclical, with revenues 

rising during prosperous times and falling 

when the economy slows. 

• Unlike the federal government most states 

cannot run deficits.

• A deficit—or budget gap—arises when there 

is a mismatch between the level of revenues 

expected (budgeted) and the level of revenues 

received (actuals).

• The current budget crisis may also be the 

result of other longer-term pressures that are 

more structural in nature:

• Medicaid,

• eroding tax bases; and

• new fiscal pressures, such as Homeland 

Security.

Source: National Association of State Budget Officers (NASBO).

Question Three

aestimate

State Revenues for 50 States: Budgeted vs. Actual

(in 2002 dollars)

Dollars (in billions)

1995

1996

1997

1998

1999

2000

2001

2002

2003a
Appendix I: Briefing Slides 

Page 27 GAO-03-977 Welfare Reform 

22

0

10

20

30

40

50

60

1995 1996 1997 1998 1999 2000 2001 2002 2003

States Face Tough Choices Addressing the Crisis

• States’ choices in how they address the fiscal 

crisis are limited by constitutional or statutory 

balanced budget requirements, pressures 

from the bond markets, and other limitations.

• States do, however, have the ability to save 

revenues during prosperous times in a “rainy 

day” account that they can use to help 

address some of the shortfalls that can occur 

during an economic downturn. 

• During any sort of fiscal crisis, a state’s need 

to cut spending or increase revenues can be 

alleviated if it has accumulated surplus 

balances in reserve funds.

• During the 1990s states accumulated 

significant reserves.

• However, reserve balances are being depleted 

and the fiscal crisis does not appear to be 

abating.

Source: NASBO.

Question Three

State Reserve Fund Balances

(in 2002 dollars)

Dollars (in billions)
Appendix I: Briefing Slides 

Page 28 GAO-03-977 Welfare Reform 

23

0

1

2

3

4

5

6

7

8

9

10

1997 1998 1999 2000 2001 2002

TANF Reserves

• TANF funds are provided to states without 

fiscal year limitation; this provides states 

with opportunities to save some federal 

funds for contingencies like fiscal crises.

• States accumulated large reserves of TANF 

funds through fiscal year 2000, but by 2001 had 

begun to draw more heavily on these balances 

to fund various programs for low-income 

families.

• In 2001, we reporteda that state officials told us 

that they had concerns that accumulating 

unspent TANF balances might signal that these 

funds were not needed and as a result they 

were under considerable pressure to spend 

their funds more quickly.

• Reliable data on the adequacy of state 

TANF reserves are not available

• States do not report data on unspent balances 

in a consistent manner

• Therefore, no information is available on how 

much of these reserves are truly uncommitted 

and available for future contingencies.

Unspent TANF Funds

Source: HHS’s 2002 ACF-196 data as reported by states

a

U.S. General Accounting Office, Welfare Reform: Challenges in Saving for a “Rainy 

Day”, GAO-01-674T (Washington, D.C.: Apr. 26, 2001)..

Question Four

Dollars (in billions)

Unliquidated obligations Unobligated balances
Appendix I: Briefing Slides 

Page 29 GAO-03-977 Welfare Reform 

24

Question Four

Source: HHS’s 2002 ACF-196 data as reported by states.

Note: TANF Reserves include both unobligated balances and unliquidated obligations. Includes states’ Supplemental Grant for Population Increases.

>100% 3 states

50-100% 13 states

25-50% 15 states

10-25% 10 states

5-10% 5 states

0-5% 2 states

0% 3 states

TANF Reserves* as of September 30, 2002, as a 

Percent of a State’s Annual Block Grant
Appendix I: Briefing Slides 

Page 30 GAO-03-977 Welfare Reform 

25

Effect of State Fiscal Crisis on Welfare Programs

0

2

4

6

8

10

12

14

16

18

20

1997 1998 1999 2000 2001 2002

• Many states used their TANF reserves 

to augment some programs and 

services; those states will face 

challenges maintaining this level of 

funding as the surpluses are being 

depleted.

• However, due to the fixed nature of the 

TANF funding streams funding for basic 

TANF programs is more stable than it is 

for program that relied on TANF 

reserves.

• TANF is a dedicated federal funding stream 

and, to the extent it cannot be used to supplant 

state funds; that is, diverted for other purposes, 

a state cannot achieve “savings” from 

reductions in the level of federal funds it 

expends.

• States’ maintenance of effort (MOE) is fixed. If 

states were to reduce their own required level of 

effort, they would face severe fiscal penalties. 

This also serves to protect some state spending 

from budget cuts. Source: HHS’s 2002 ACF-196 data as reported by states.

Question Four

TANF Expenditures (FY 1997-2002)

Dollars (in billions)

Total expenditures

Transferred to Social Services Block Grant

Transferred to Child Care and Development Fund

$16.5
Appendix I: Briefing Slides 

Page 31 GAO-03-977 Welfare Reform 

26

States Have Flexibility to Address TANF-Related 

Budget Issues 

38%

10% 19%

33%

Fiscal Year 2002 Combined State and 

Federal TANF Expenditures in All States

Source: HHS’s 2002 ACF-196 data as reported by states.

• As states have reformed their welfare 

programs, they have used the flexibility 

provided under TANF to

• provide more services to recipients and

• provide some benefits and services to lowincome families even if they do not qualify for 

traditional cash assistance payments.

• In 2002, about a third of total TANF/MOE 

expenditures were for cash assistance 

payments while the rest were spent on child 

care, training, and other services

• Other services include transportation subsidies, 

2-parent family formation and maintenance 

programs, pregnancy prevention, and 

refundable tax credits.

• We found, in our review of these five states, 

that each used this flexibility to address 

current needs in their states by drawing on 

their reserves and by reallocating resources 

within their TANF budgets.

Question Four

Cash assistance

Employment/training

Child care

Other
Appendix I: Briefing Slides 

Page 32 GAO-03-977 Welfare Reform 

27

Arizona

• TANF budget faces shortfalls between 

current spending and valuable resources. 

The executive branch and the legislature 

differ in how to address the shortfall.

• Current program expenditures exceed TANF 

revenues (i.e., block grant and maintenance of 

effort (MOE) funds).

• Funding child care programs presents 

significant challenges to maintain current 

spending levels.

Question Four

Source: GAO analysis of 1997-2002 ACF-196 reports.

aGAO analysis of state’s estimated expenditures for 2003 and 2004 executive budget proposals. bTotal block grant, supplemental grants, and 75% MOE levels.

0

50

100

150

200

250

300

350

400

1997 1998 1999 2000 2001 2002 2003 2004

State TANF/MOE Expenditures

Dollars (in millions)

Cash assistance

Employment/training

Child care

Other

$313b

a a
Appendix I: Briefing Slides 

Page 33 GAO-03-977 Welfare Reform 

28

0

50

100

150

200

250

1997 1998 1999 2000 2001 2002 2003 2004

State TANF/MOE Expenditures

Dollars (in millions)

Cash assistance

Employment/training

Child care

Other

$193b

a a

Iowa

• Unspent TANF funds will be used to offset 

increases in the cash assistance portion of 

the TANF budget.

• These increases reflect both a recent rise in 

caseloads and in cost per case.

• Other offsets were found by reducing or 

eliminating funding for other programs.

• Funding for an increase in child care 

subsidies was not approved.

• State could not support using surplus TANF 

funds to raise eligibility levels or increase 

subsidy rates because officials said these levels 

were unsustainable.

Question Four

Source: GAO analysis of 1997-2002 ACF-196 reports.

aGAO analysis of state’s estimated expenditures for 2003 and 2004 executive budget proposals. bTotal block grant, supplemental grants, and 75% MOE levels.
Appendix I: Briefing Slides 

Page 34 GAO-03-977 Welfare Reform 

29

0

10

20

30

40

50

60

70

80

1997 1998 1999 2000 2001 2002 2003 2004

Montana

• Unspent TANF funds were used to provide a 

variety of other TANF-related services in 

2002-03 budget. 

• Decision makers feared that unspent funds 

would be taken back if not spent quickly.

• These services were terminated early and 

unspent funds shifted to finance basic TANF 

programs and child care.

• State legislature approved a reduction in the 

monthly TANF grant in order to finance the 

additional child care subsidies.

Question Four

Source: GAO analysis of 1997-2002 ACF-196 reports.

aGAO analysis of state’s estimated expenditures for 2003 and 2004 executive budget proposals. bTotal block grant, supplemental grants, and 75% MOE levels.

State TANF/MOE Expenditures

Dollars (in millions)

Cash assistance

Employment/training

Child care

Other

$58.9b

a a
Appendix I: Briefing Slides 

Page 35 GAO-03-977 Welfare Reform 

30

0

200

400

600

800

1,000

1,200

1,400

1997 1998 1999 2000 2001 2002 2003 2004

Pennsylvania

• Budget is relatively well protected from state 

budget crisis, state maintains significant 

reserves.

• Budget officials see few changes in this 

year’s TANF/MOE budget.

• However, TANF reserves will be depleted 

more rapidly than previously assumed due 

to greater than expected use of supportive 

services—such as transportation subsidies 

and child care. 

Question Four

Source: GAO analysis of 1997-2002 ACF-196 reports.

aGAO analysis of state’s estimated expenditures for 2003 and 2004 executive budget proposals. bTotal block grant, supplemental grants, and 75% MOE levels.

State TANF/MOE Expenditures

Dollars (in millions)

Cash assistance

Employment/training

Child care

Other

a a

$1,127b
Appendix I: Briefing Slides 

Page 36 GAO-03-977 Welfare Reform 

31

0

100

200

300

400

500

600

700

1997 1998 1999 2000 2001 2002 2003 2004

State TANF/MOE Expenditures

Dollars (in millions)

Cash assistance

Employment/training

Child care

Other

$485b

a a

Wisconsin

• State TANF budget shortfall is about $100 

million per year; the governor’s proposal seeks 

to reduce program deficit by about $50 million 

per year. 

• It will fill this 2004-05 gap with unspent TANF 

funds.

• However, proposal leaves the program facing 

continued deficits in 2006-07 and no reserve 

funds.

• Policy changes

• New mothers can stay home longer and a new 

subsidized wage program will be implemented by 

the state.

• Direct services—that is, cash assistance 

payments, child care subsidies, and the Earned 

Income Tax Credit were not cut in governor’s 

budget proposal. 

• Many other services and activities—training 

programs, pregnancy prevention programs, 

etcetera—were cut or eliminated.

Question Four

Source: GAO analysis of 1997-2002 ACF-196 reports.

aGAO analysis of state’s estimated expenditures for 2003 and 2004 executive budget proposals. bTotal block grant, supplemental grants, and 75% MOE levels.
Appendix II: GAO Contacts and Staff 

Acknowledgments 

Page 37 GAO-03-977 Welfare Reform 

Gale Harris (202) 512-7235 or harrisg@gao.gov 

Tom James (202) 512-2996 or Jamest@gao.gov 

In addition to those named above, Elspeth Grindstaff, Bill Keller, Leah 

Nash, and Janice Peterson made key contributions to this report. 

Appendix II: GAO Contacts and Staff 

Acknowledgments 

GAO Contacts 

Staff 

Acknowledgments 
Related GAO Products 

Page 38 GAO-03-977 Welfare Reform 

Child Care: Recent State Policy Changes Affecting the Availability of 

Assistance for Low-Income Families. GAO-03-588. Washington, D.C.: May 

5, 2003. 

Welfare Reform: Former TANF Recipients with Impairments Less Likely 

to Be Employed and More Likely to Receive Federal Supports. GAO-03-

210. Washington, D.C.: December 6, 2002. 

Welfare Reform: With TANF Flexibility, States Vary in How They 

Implement Work Requirements and Time Limits. GAO-02-770. 

Washington, D.C.: July 5, 2002. 

Welfare Reform: Federal Oversight of State and Local Contracting Can 

Be Strengthened. GAO-02-661. Washington, D.C.: June 11, 2002. 

Welfare Reform: States Provide TANF-Funded Work Support Services to 

Many Low-Income Families Who Do Not Receive Cash Assistance. GAO02-615T. Washington, D.C.: April 10, 2002. 

Welfare Reform: States Are Using TANF Flexibility to Adapt Work 

Requirements and Time Limits to Meet State and Local Needs. GAO-02-

501T. Washington, D.C.: March 7, 2002. 

Welfare Reform: Moving Hard-to-Employ Recipients Into the Workforce. 

GAO-01-368. Washington, D.C.: March 15, 2001. 

Welfare Reform: Challenges in Maintaining a Federal-State Fiscal 

Partnership. GAO-01-828. Washington, D.C.: August 10, 2001. 

Welfare Reform: Challenges in Saving for a Rainy Day. GAO-01-674T. 

Washington, D.C.: April 26, 2001. 

Welfare Reform: Early Fiscal Effects of the TANF Block Grant. 

AIMD-98-137. Washington, D.C.: August 18, 1998. 

Related GAO Products 

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