TANF was designed to give states the flexibility to create programs that meet four broad goals: Providing assistance to needy families so that children may be cared for in their own homes or in the homes of relatives; Ending the dependence of needy parents on government benefits by promoting job preparation, work, and marriage; Preventing and reducing the incidence of out-of-wedlock pregnancies; and Encouraging the formation and maintenance of two-parent families. The amount of the TANF block grant was determined based on pre- PRWORA spending on (1) AFDC, a program that provided monthly cash payments to needy families; (2) Job Opportunities and Basic Skills (JOBS), a program to prepare AFDC recipients for employment; and (3) Emergency Assistance, a program designed to aid needy families in crisis situations. To meet the MOE requirement, states must spend 80 percent or 75 percent of their pre-PRWORA share of spending on AFDC, JOBS, Emergency Assistance, and AFDC-related child care programs. States have considerable flexibility in what they spend TANF and MOE funds on. In addition to spending on cash benefits--that is, monthly cash assistance payments to families to meet their ongoing basic needs--states can spend TANF/MOE funds on services for cash assistance recipients or other low-income families. States are allowed to transfer up to 30 percent of their TANF funds to the Child Care and Development Fund (CCDF) and the Social Services Block Grant (SSBG). TANF regulations require states to report to HHS data on families receiving "assistance" under the TANF program. These reported families are referred to as the TANF or welfare caseload. Typically, these families are receiving monthly cash payments. Therefore, families who receive TANF/MOE-funded services but do not receive monthly cash payments are typically not included in the reported TANF caseload. The states' implementation of more work-based programs, undertaken under conditions of strong economic growth, has been accompanied by a dramatic decline in the number of families receiving cash welfare. The number of families receiving welfare remained steady during the 1980s and then rose rapidly during the early 1990s to a peak in March 1994. The caseload decline began in 1994 and accelerated after passage of PRWORA, with a 53 percent decline in the number of families receiving cash welfare--from 4.4 million families in August 1996 to 2.1 million families in July 2001. Caseload reductions occurred in all states, ranging from 16 percent in Indiana to 89 percent in Wyoming. Between July and September 2001, however, the nationwide welfare caseload increased 1 percent. Between July and December 2001, the welfare caseload in many states increased, with a 5 percent average increase across 18 of 23 surveyed states. While economic changes and state welfare reforms have been cited as key factors to explain nationwide caseload changes, there is no consensus about the extent to which each factor has contributed to these changes. Given the large decline in the number of families receiving cash assistance in recent years, attention has been focused on learning how these families are faring. Studies show that most adults who left welfare had at least some attachment to the workforce. Our 1999 review on the status of former welfare recipients based on studies from seven states found that from 61 to 71 percent of adults were employed at the time they were surveyed. Studies measuring whether an adult in a family had ever been employed since leaving welfare reported employment rates from 63 to 87 percent. A 2001 review of state and local-level studies conducted by the Congressional Research Service (CRS) shows similar patterns. In addition, the Urban Institute, using data from its 1999 National Survey of America's Families (NSAF)--a nationally representative sample--finds that 64 percent of former recipients who did not return to TANF reported that they were working at the time of follow-up, while another 11 percent reported working at some point since leaving welfare. Studies also show that not all families who leave welfare remain off the rolls. For example, the Urban Institute study using 1999 NSAF data reported that 22 percent of those who had left the rolls were again receiving benefits at time of the survey follow-up. Although most adults in former welfare families were employed at some time after leaving welfare, many worked at low-wage jobs. Of those who left welfare, former recipients in the seven states we reviewed had average quarterly earnings that generally ranged from $2,378 to $3,786 or from $9,512 to $15,144 annually. This estimated annual earned income is greater than the maximum annual amount of cash assistance and food stamps that a three-person family with no other income could have received in these states. However, if these earnings were the only source of income for families after they leave welfare, many of them would remain below the federal poverty level. On the basis of additional information from the NSAF, a 2001 Urban Institute study estimated that about 41 percent of those who left the welfare rolls were below the federal poverty level, after including an estimate of the earned income tax credit and the cash value of food stamps and subtracting an estimate of payroll taxes. While some former welfare recipients are no longer poor, others can be considered among the working poor. Nationwide, about 16 percent of the nonelderly population lives in families in which adults work, on average, at least half of the time yet have incomes below 200 percent of the federal poverty level. Prior to welfare reform, states focused their welfare spending on providing monthly cash payments. However, since welfare reform, states are spending a smaller proportion of welfare dollars on monthly cash payments and a larger share of welfare funds on services. Rather than emphasizing income maintenance among welfare families, under TANF, states are focusing their welfare spending on work support services that help both welfare families and other low-income families find and maintain employment. In addition to using welfare dollars to support work, the flexibility of TANF also allows states to use these funds to provide other services designed to promote self-sufficiency among low-income families. As shown in figure 1, in fiscal year 1995, spending on AFDC--a program that primarily provided monthly cash payments--totaled 71 percent of welfare spending. In contrast, in fiscal year 2000, spending on cash assistance totaled only 43 percent of welfare spending. During that same period, the percent of total welfare dollars spent on other benefits and services increased from 18 percent to 48 percent. Overall, welfare spending declined from fiscal year 1995 to fiscal year 2000, in part because (1) states chose to leave part of their TANF block grant allotments for fiscal year 2000 as unspent reserves in the U.S. Treasury, as allowed under PRWORA and (2) MOE requirements for states are only 80 percent or 75 percent of states' pre-PRWORA share of welfare spending. Child care (State share) Note 1: Categories shown for fiscal year 2001 but not for fiscal year 1995 (such as tax credits) could have existed in fiscal year 1995 but been paid for with nonwelfare dollars not included in this chart. Note 2: The chart does not include the $8,625,779,575 (36%) of available TANF funding that was left unspent at the end of fiscal year 2000. Note 3: TANF funds transferred to the CCDF and SSBG may not have been expended in fiscal year 2000; rather, these funds may have been reserved in the CCDF and SSBG for future use. Also indicative of the shift from cash to service spending is that in fiscal year 1995, no state spent more than 50 percent of its welfare dollars on services or benefits other than monthly cash payments, compared to fiscal year 2000 when 26 states used more than 50 percent of their TANF/MOE expenditures for services. Nationwide, child care was the noncash service for which the greatest proportion of TANF/MOE funds were used. Overall, in fiscal year 2000, states spent 19.2 percent of their TANF/MOE funds on child care. Among all of the welfare service categories, 32 states spent the greatest proportion of TANF/MOE funds on child care. Unlike AFDC, which focused on income maintenance for welfare families, federal and state welfare policies under TANF have focused on helping welfare families secure and maintain employment. To achieve this objective, states have expanded and intensified their provision of work support services. Officials in all five of the states we visited said their states are providing employment services to more welfare families under their current TANF programs than they were under pre-welfare reform employment programs. The types of work-support services that many states provide for their welfare recipients include job search, job placement, and job readiness services; intensive case management services to assess individual clients' barriers to work and provide referrals for support services aimed at removing those barriers; and services to help clients obtain and maintain employment, including subsidized child care, transportation, and short-term loans for work-related supplies. Prior to welfare reform, welfare spending was generally focused on families receiving monthly cash payments. Since welfare reform, states have more flexibility in how and on whom they spend welfare dollars. As a result, states are providing more services to low-income families who are not on welfare, including those who have recently left welfare. For example: Most of the surveyed states use TANF/MOE funds to provide child care subsidies to the general low-income population. Wisconsin uses TANF/MOE funds to provide employment, education, and training services to low-income families not receiving cash assistance. Pennsylvania uses TANF/MOE funds to provide job retention, advancement, and rapid reemployment services to persons not receiving TANF cash assistance. The flexibility of TANF/MOE funds has also allowed states to establish services aimed at protecting and developing children, strengthening families, and promoting self-sufficiency. For example: Orange County, California, uses TANF dollars to help fund centers that provide after school activities, literacy programs, domestic violence services, and substance abuse prevention programs. Indiana uses TANF/MOE funds for child development programs and to subsidize textbook rental fees for low-income children. Texas uses TANF funds to provide high-risk parents with intensive services, beginning prior to the birth of a child, to prevent low birth-weight and child abuse and to promote school completion for teen parents. While states are using TANF/MOE dollars to provide services to many families who do not receive monthly cash assistance payments, these families are not included in the reported TANF caseload, and the actual number of these families is unknown. Based on our survey of 25 states, we estimate that at least 46 percent more families than are in the reported TANF caseload are receiving TANF/MOE-funded services. Data available from most states give an incomplete picture of the number of families served with TANF/MOE dollars, and state officials raised concerns about the possibility of additional TANF reporting requirements being imposed to provide more complete data on these families. As shown in figure 2, we found that in addition to the approximately 1.8 million families counted in the TANF caseload for 25 surveyed states, at least another approximately 830,000 families were receiving a TANF/MOE-funded service but were not included in the reported TANF caseload. These approximately 830,000 families are not included in the reported TANF assistance caseload because they do not receive monthly cash assistance payments and the services they receive do not fall under the definition of assistance in the TANF regulations. Our estimate likely understates the number of families receiving TANF/MOE-funded services that are not part of the reported TANF caseload. For most states, our estimate only takes into consideration a single TANF/MOE-funded service being provided to low-income families who are not included in the TANF caseload. Usually, this single service is child care because states have extensive data on child care, and because child care is often the TANF/MOE-funded service that serves the most families not receiving cash assistance. Our estimate does not take into consideration many of the services offered by states to low-income families who are not in the TANF caseload because the states could not provide the type of data on those services that we needed to include them in our estimate. For additional information on how we developed our estimate and on data obtained from states, see appendixes I and II. Many of the families included in the counts of "other low-income families" in figure 2 are receiving a service that is only partially funded with TANF/MOE dollars. This is because states often mix TANF/MOE funds with funds from other sources to provide a single service. Although TANF/MOE dollars may not have paid for 100 percent of the cost of providing a service, the TANF/MOE portion of the cost can be significant. For example, for states included in our review, the TANF/MOE portion of monthly child care subsidies averaged approximately $266 per family out of a total average subsidy of $499 per family. The average child care subsidy per month per family compares to an average cash benefit per month per family of $407. Two of the 25 states we surveyed--Indiana and Wisconsin--had more comprehensive data than could be provided by other states on the number of low-income recipients being served with TANF/MOE dollars. Indiana and Wisconsin had these data because they have information systems that can sort through recipients of subsidized child care and other TANF/MOE-funded services to produce one unduplicated count of recipients across several services. As shown in figure 3, Indiana and Wisconsin found that at least 100 percent more families than are in the states' reported TANF caseloads received TANF/MOE-funded services. The data that are available from most states we surveyed give an incomplete picture of the number of families being served with TANF/MOE dollars. TANF reporting requirements have focused on families who are receiving monthly cash assistance, that is, families in the TANF caseload. Therefore, most states we surveyed have not developed data on families receiving TANF/MOE-funded services who are not in the TANF caseload. During our review, some state officials raised concerns about the possibility of additional TANF reporting requirements being imposed on states to collect information on families not included in the TANF caseload. These concerns included that (1) states lack the information systems that would be needed to fulfill additional requirements, (2) fulfilling additional requirements will increase administrative costs, (3) additional data collection requirements could deter states and service providers from offering services because they would not want the administrative burden associated with them, and (4) requiring all service recipients to provide personal identifying information for every service may deter some people from accessing services because of the stigma associated with welfare. Since the Congress passed welfare reform legislation in 1996, states have taken steps to implement a work-based, temporary assistance program for needy families. As cash assistance caseloads declined in recent years, freeing up resources for other uses, states used some of these funds to involve increasing numbers of welfare families in welfare-to-work activities and to provide services to other low-income families in keeping with the goals of TANF. The increased emphasis on work support and other services for recipients of cash assistance and those not receiving cash assistance represents a significant departure from previous welfare policy that focused on providing monthly cash payments. While the goals and target populations of welfare spending have changed, the key measure of the number of people served remains focused solely on families receiving monthly cash assistance. Although this measure provides important information for administrators and policymakers, it does not provide a complete picture of the number of people receiving benefits or services funded at least in part with TANF/MOE funds. While a more complete accounting of people receiving services could be helpful to understanding how states are using TANF/MOE dollars, requiring states to provide a more complete accounting raises concerns from state officials, including concerns about creating a reporting burden and discouraging people from accessing services. Mr. Chairman, this concludes my prepared statement. I will be happy to respond to any questions you or other Members of the Committee may have. For future contacts regarding this testimony, please call Cynthia M. Fagnoni at (202) 512-7215 or Gale Harris at (202) 512-7235. Individuals making key contributions to this testimony included Kathy Peyman, Kristy Brown, and Rachel Weber. To be included in our estimate of the number of low-income families receiving TANF/MOE-funded services who were not in the TANF caseload, a service or the data on the service had to meet each of the following criteria: Service had to be funded with at least 30 percent TANF/MOE dollars--If a service was funded with at least 30 percent TANF/MOE dollars (and the other criteria were met for our estimate), we included all service recipients not receiving monthly cash payments. Data could distinguish between cash and non-cash families--We only included counts of families who were not receiving monthly cash assistance payments and were not on the TANF caseload. Data represented an unduplicated count of recipients--If counts for different services could not be combined without ensuring that families receiving more than one service were only counted once, we used the count for the largest single service. If a state had information systems that could sort through recipients of various services and develop an unduplicated count of recipients across those services, we used that count for our estimate. Other aspects of our estimate include the following: Number of families--We used data on the average number of children per family receiving subsidized child care in each state to convert data on child care recipients into estimates of the number of families receiving subsidized child care. When services were determined to have only adult recipients, data for these services were treated as family counts. Time period--We used the most recent available data on service recipients from each state. These were either for a month in 2001 or a monthly average for 2001. For our comparison with TANF caseload, we used the TANF caseload count for the same time period covered by the data on service recipients. The surveyed states varied in their ability to provide data on low-income families receiving TANF/MOE-funded services. States were able to provide these data for families receiving subsidized child care. However, only 11 states were able to provide these data for at least one TANF/MOE-funded service other than child care. Figure 4 shows the data we obtained from states on child care. To show how the number of these families compares to the TANF caseload, each state's count is shown as a percentage of the state's TANF caseload. Although officials from all surveyed states said the states were providing TANF/MOE-funded services other than child care to low-income families who are not in the TANF caseload, they usually did not have data on the number of these families. Only 11 states were able to provide data on at least one service other than child care. Figure 5 shows the data we obtained from states. To show how the number of these families compares to the TANF caseload, each state's count is shown as a percentage of the state's TANF caseload. Table 2 shows the services included for each state in figure 5.

Summary:
The Temporary Assistance for Needy Families (TANF) block grant makes $16.5 billion available to states each year, regardless of changes in the number of people receiving benefits. To qualify for their full TANF allotments, states must spend a certain amount of state money, referred to as maintenance-of-effort funds. As states implemented work-focused reforms during the strong economy of the 1990s, welfare caseloads dropped by more than 50 percent. GAO found that most former welfare recipients were employed at some point after leaving welfare, typically with earnings that did not raise them above the poverty level. Under welfare reform, spending shifted from monthly cash payments to services, such as child care and transportation. This shift reflects two key features of reform. First, many states have increased spending to engage more welfare families in work-related activities and to provide more intensive services. Second, many states have increased their efforts to provide services to low-income families not receiving welfare. Services for these families include child care, case management, and job retention and advancement services for families who have recently left welfare for employment as well as other low-income working families. Although states have the flexibility under TANF to use their federal and state welfare-related funds to provide services to families not receiving monthly cash assistance, these families are not reflected in caseload data reported to the Department of Health and Human Services. As a result, caseload data do not provide a complete picture of the number of families receiving benefits and services through TANF.