PRWORA made sweeping changes to national welfare policy, creating TANF and ending the federal entitlement to assistance for eligible needy families with children under Aid to Families with Dependent Children (AFDC). The Department of Health and Human Services (HHS) administers the TANF block grant program, which provides states with up to $16.5 billion each year through fiscal year 2002. TANF was designed to help needy families reduce their dependence on welfare and move toward economic independence. The law also greatly increased the discretion states have in the design and operation of their welfare programs, allowing states to determine forms of aid and the categories of families eligible for aid. TANF establishes time limits and work requirements for adults receiving aid and requires states to sustain 75 to 80 percent of their historic level of welfare spending through a MOE requirement. In addition, TANF gives states funding flexibility, which allows states to exclude some families from federal time limits and work requirements. TANF establishes a 60 month time limit for families receiving aid. States have the option of establishing shorter time limits for families in their state. A state that does not comply with the TANF time limit can be penalized by a 5 percent reduction in its block grant. While the intent of TANF is to provide temporary, time-limited aid, federal time limits do not apply to all forms of aid or to all families receiving aid. First, states are only to count toward the 60 month time limit any month in which an individual receives a service or benefit considered “assistance,” which is defined in the TANF regulations as cash or other forms of benefits designed to meet a family’s ongoing basic needs. Second, time limits do not apply to the following types of cases: 1. Child-only cases in which the adult in the household does not receive cash assistance.2. Families who received assistance while living in Indian country or an Native Alaskan village where 50 percent of the adults are not employed. Third, all states have the option to use federal funds to extend assistance beyond the federal 60 month limit for reasons of hardship, as defined by the state. States can extend assistance for up to 20 percent of the average monthly number of families receiving assistance (“20 percent extension”).Finally, assistance that is provided solely through state MOE is not subject to the federal time limit. TANF also establishes work requirements for adults receiving aid. After 2 years of assistance, or sooner if the state determines the recipient is ready, TANF adults are generally required to be engaged in work as defined by the state. In addition, TANF establishes required work participation rates—a steadily rising specified minimum percentage of adult recipients who must participate in federally specified work or work-related activitieseach year for at least a minimum number of hours. States were required in federal fiscal year 2002 to meet a work participation rate of 50 percent for all TANF families with adult members—referred to as the rate for all families. States were also required to meet a much higher rate—90 percent—for two-parent families. States must meet these work participation rates to avoid financial penalties. While states have generally met the work participation rate for all families, many states have faced financial penalties due to failure to meet the two- parent required rate in recent years. HHS issued penalty notices to 19 states in fiscal year 1997, 14 in fiscal year 1998, 9 in fiscal year 1999, and 7 states in fiscal year 2000. In addition to establishing federal participation rate requirements, PRWORA specified that the required rates are to be reduced if a state’s TANF caseload declines. States are allowed caseload reduction credits, which reduce each state’s work participation requirement by 1 percentage point for each percentage point by which its average monthly caseload falls short of its fiscal year 1995 level (for reasons other than eligibility changes). While states are to meet federal participation requirements, they also have the flexibility to encourage and require TANF recipients to participate in any activity a state chooses or at any level of activity, although that activity or the hours of activity may not count toward the federal participation rates. In addition, federal time limits and work requirements may not apply in some states that were granted federal waivers to AFDC program rules in order to conduct demonstration programs to test state reforms. The Personal Responsibility, Work, and Family Promotion Act of 2002 passed by the House of Representatives (H.R. 4737) on May 16, 2002, reauthorizes the TANF block grant keeping in place key elements of TANF, such as time limits and work requirements. It also changes some aspects of TANF, including the participation rate requirements. It increases the federally mandated rate by 5 percent a year to 70 percent by 2007, revises the number of hours of participation and types of activities required, and made some alterations to the caseload reduction credit, among other changes. In addition, the act specifies that two-parent families would no longer be subject to a separate and higher work participation rate. The Senate is in the process of reauthorizing TANF as of June 2002. Previously, under AFDC, state funds accounted for 46 percent of total federal and state expenditures. Under PRWORA, the law requires states to sustain 75 to 80 percent of their historic level of spending on welfare through a MOE requirement to receive their federal TANF block grant. The federal TANF funds and state MOE funds can be considered more like funding streams than a single program and states may use their MOE to assist needy families in state programs other than their TANF programs. In fact, states have flexibility to expend their MOE funds for cash assistance in up to three different ways, some of which allow states to exclude some families from time limits and work requirements. A state may use its state MOE funds in three different ways to provide cash assistance for needy families. Commingling: A state can provide TANF cash assistance by commingling its state MOE with federal funds within its TANF program. Segregating: A state can provide some TANF cash assistance with state MOE accounted for separately from its federal funds within its TANF program. Separating: A state can use its state MOE to provide cash assistance to needy families in any one or more non-TANF state programs, referred to as “separate state programs.” Each state may choose one or more of these options to provide cash assistance. In some cases, in this report, we refer to the second and third options as using “state-only” funds when the distinction between segregating and separating funds is not necessary. In addition, we focus only on cash assistance and not on other forms of aid or services, including, for example, child care and transportation, for which time limits and work requirements generally do not apply. (For more information on state funding choices, see app. I.) How a state structures its funds determines which TANF rules apply to the needy families being served. (See table 1.) When a state commingles funds, it must meet all TANF requirements. For example, states that commingle all their state MOE with federal funds are only able to exclude families from time limits through the 20 percent extension, cannot exclude families from counting toward the federal work participation rate, and cannot provide assistance to certain groups of legal immigrants. In addition, while not required by federal law, states may choose to apply work requirements or time limits on their state-funded assistance. States reported that in the fall of 2001, 2.1 million families received cash assistance funded with federal TANF or state MOE dollars. This includes about 110,000 families, or 5 percent, who were provided cash assistance through separate state programs funded by state MOE dollars. These families are not counted in the TANF caseload data reported by HHS. Twenty-six states used separate state programs to provide cash assistance, typically to legal immigrants and two-parent families. In most of these states, the separate state program caseload represented 5 percent or less of the total caseload. However, in four of these states, families served through separate state programs represented from 10 to 30 percent of the total cash assistance caseload. (For more information on the separate state program caseload by state and the populations served in the states’ programs, see app. II.) It is noteworthy that the separate state program caseload represents a more significant share in two of the nation’s most populous states— California and New York. More specifically, the number of families receiving cash assistance through separate state programs in California alone—nearly 50,000—is greater than the total cash assistance caseload in most states. HHS began requiring states in fiscal year 2000 to provide information on families provided assistance through separate state programs and reported on the separate state program caseload in their recently issued Fourth Annual Report to Congress. However, this caseload is not included in the TANF caseload data. Child-only cases, while not generally in separate state programs, account for an even more significant proportion of the cash assistance caseload. Of the 2.1 million families receiving aid, 736,045, or one-third, were composed of children only. Generally, child-only cases are not subject to work requirements or time limits. The percentage of child-only cash assistance cases varied greatly among the states, ranging from 13 percent in Hawaii to 73 percent in Wyoming. In addition, as shown in figure 1, the types of child-only cases vary and can include families in which the caregiver is a nonparent, such as grandparent or other relative; parent is receiving Social Security or Supplemental Security Income (SSI) and not eligible for TANF; parent is a noncitizen ineligible for federally funded TANF; and parent has not complied with TANF program requirements and so has been denied benefits, called a sanction.(For more information on each state’s total cash assistance and child-only caseloads, see app. III.) Reduced federal participation rate requirements and states’ use of their MOE funds give states considerable flexibility in implementing work requirements. Almost all the states had more adults participating in work and work-related activities than they were required to, but the percentage of adults participating varied greatly among the states. Almost all of the families who received cash assistance through separate state programs were subject to state work requirements, even though federal work requirements did not apply. States faced greatly reduced federal participation rate requirements for fiscal year 2000, as caseload reduction credits were triggered by recent caseload declines. Welfare caseloads have declined dramatically, from 4.4 million in August 1996 to 2.1 million as of September 2001, marking a 52 percent decline in the number of families receiving cash welfare. As a result, the fiscal year 2000 participation rate requirement was adjusted downward from 40 percent to 0 in 31 states. (See table 2.) Even though most states faced relatively low or no participation rate requirements, about 30 percent of TANF adults were counted as meeting federal participation requirements nationwide. However, the federal participation rates varied greatly among the states, as shown in figure 2. Officials in one state told us that because the participation rate requirements are so low, states have more flexibility in choosing whether to enroll TANF recipients in work or in other types of activities or services, such as substance abuse treatment or mental health services, which do not count for purposes of the federal participation rate. State officials believe they can make such choices without fear of not meeting their federal work participation rates. In other cases, the lower participation rates give states more flexibility in exempting TANF recipients considered hard to employ from meeting work requirements. For more information on TANF and persons with disabilities, see our report entitled: U.S. General Accounting Office, Welfare Reform: More Coordinated Federal Effort Could Help States and Localities Move TANF Recipients with Impairments toward Employment, GAO-02-37 (Washington, D.C.: Oct. 31, 2002). of participation if allowed by a state. For example, in some states, this measure would include participation in mental health treatment activities. In addition, in one state we talked with, an adult working only 1 hour a week would be considered as participating in state-defined activities. In contrast, a minimum of 30 hours of work would generally be required to count as meeting the federal participation requirement. Using this state-defined rate, nationwide, about 56 percent of TANF adults were involved in work or work-related activities, based on the 47 states that provided data for fall 2001. The percentage of the adult caseload involved in work or work-related activities (as defined by the state) ranged from 6 percent to 93 percent. As shown in figure 3, the percentage of adults participating was 30 percent or less in 8 states, 31-50 percent in 20 states, and more than 50 percent in 19 states, according to state survey responses. (See app. IV for more specific data by state.) Providing cash assistance through separate state programs has offered states additional flexibility, as federal work requirements do not apply to families served through these programs. the 26 states with separate state programs, 16 states used these programs to provide cash assistance to two-parent families. Several state officials told us they provide aid in this way to avoid the risk of financial penalties for failing to meet the federal two-parent participation rate requirement. State officials told us that two- parent families often have as many or more challenges as single parents, making the higher participation rate for two-parent families difficult to meet. However, states that provided cash assistance through separate state programs typically imposed their own work requirements on families receiving aid. We found that approximately nine-tenths of the families receiving cash assistance in separate state programs are still subject to a state work requirement. While states generally imposed work requirements, about half of them also have policies in place to exclude families facing significant barriers to work from work requirements. For example, 13 states exclude families with an adult who is disabled and 13 states exclude families who care for someone with a disability. It is possible that states may rely more on separate state programs in the future to provide cash assistance free from federal work requirements as they take steps to meet state and local goals. H.R. 4737—the reauthorization bill passed by the House—eliminates the higher federal participation requirement for two-parent families that was often cited by states as a reason for using separate state programs. However, it also includes higher overall federal participation requirements for all families. States would still have the option to serve other families who they deem may have difficulty meeting higher federal requirements through separate state programs. With higher participation requirements for all families, the number of families that states may consider unable to meet higher federal work requirements could increase. Through the 20 percent federal extension and the use of state funds, states generally excluded the following types of families from federal and state time limits: families they considered “hard to employ,” families that were working but not earning enough to move off TANF, and families that were cooperating with program requirements but had not yet found employment. During fall 2001, states excluded from federal or state time limits 11 percent of the 1.4 million cash assistance families with adults. The number of families excluded from time limits may increase in the future because most families have not yet reached their federal or state- imposed cash assistance time limit. States targeted time limit exclusions to families they considered hard to employ, families who were working but not earning enough to move off TANF, and families who were cooperating with program requirements. The majority of states excluded hard-to-employ families in which the parent had a disability or was caring for a child with a disability, families dealing with domestic violence, and families with a head of household of advanced age. (See fig. 4.) Some of these exclusions are granted on a temporary basis (such as for disabled recipients pending transfer to the Supplemental Security Income program), while others are granted for longer periods of time (such as for family heads of advanced age). Twenty-two states exclude working families or families participating in a work activity from time limits, either through the federal 20 percent extension or by using state-only funds. Maryland and Illinois, for example, “stop the clock” for families who are working or participating in a work activity by funding them with state-only dollars. Officials from both states told us that their states adopted this policy to reward working families for complying with program requirements. States that exclude families by using state-only funds use criteria similar to those used by states that rely solely on the federal 20 percent hardship extension. Using the 20 percent extension, states are able to extend time limits for a broad range of families, such as families cooperating with program requirements or making a “good faith effort” to find employment. For example, officials from Michigan, a state that commingles all of its state funds with federal funds, told us that they will use the 20 percent extension for all recipients following the rules of the program; if the number of families to whom they want to provide an extension begins to exceed 20 percent, they plan to continue providing assistance through state funds. Almost half of the states exclude families making a good faith effort to find employment. States have excluded from time limits 11 percent (about 154,000) of the approximately 1.4 million families with adults receiving federal- or state- funded cash assistance. (See app. V for the percent of exclusions by state.) As shown in figure 5, 45 percent of these families—mostly in Illinois, Massachusetts, and New York—were excluded through states use of state-only funds. An additional 43 percent of the families were excluded from time limits under federal waivers granted to states before welfare reform to conduct demonstration programs. Many of these waivers remain in effect. While states sometimes use state funds to exclude families from federal time limits, states are still applying a state time limit to a significant portion of state-funded families. Overall, 64 percent of families who receive cash assistance through separate state programs or segregated state funds are still subject to a state time limit. Twenty-six of the 33 states with state-funded families apply a state time limit to some or all of their state-funded families. (See app. VI for additional information on state choices regarding funding and time limits.) The percentage of the caseload that is excluded from time limits may increase because most families have not reached their time limit. In 22 states TANF had not been in effect long enough for families to reach either the federal or the state time limit by the time we conducted our survey.Even in those states where it was possible to have received 60 months of cash assistance, many families had not reached their time limit because they have cycled on and off welfare, slowing their accrual of time on assistance. State officials generally thought the 20 percent federal time- limit extension was adequate now, but were less sure about the future, given that many families have not yet reached the 60 month time limit. State officials we spoke with told us that they planned to rely more heavily on state MOE funds to continue assistance to significant numbers of families reaching the 60 month time limit. For example, California told us it estimated that over 100,000 families with adults would reach the federal time limit in the next year. California plans to use state-only funds to continue aid beyond 60 months to children by removing the adult from the case. California also plans to continue aid to families who are making a good faith effort to find employment and to families who are hard to employ because the adult is aged, disabled, caring for a disabled family member, or experiencing domestic violence. In addition, New York plans to continue assistance to families who reach the 60 month time limit through its separate state program. In December 2001, New York State had 44,027 families reach the 60 month federal time limit. Of these families, 28,781(65 percent) were transitioned to the state’s separate state program funded with state MOE, 9,873 (22 percent) received the 20 percent extension, and the remaining 5,393 (12 percent) were transitioned off assistance. These families were among the first to reach time limits with more families to follow. At the time of our survey, we found that only 15 states had begun to use the federal 20 percent hardship extension; overall, these states were applying it to less than 1 percent of their adult caseload. While it is difficult to estimate the extent to which states may use the 20 percent extension as more families reach the 60 month time limit, it is important to note that states’ child-only caseloads can result in significantly more than 20 percent of the adult TANF caseload receiving the extension. As discussed earlier, TANF allows each state to extend the 60 month time limit for up to 20 percent of the average monthly number of families receiving TANF assistance funded in whole or part with federal TANF funds. In each state, the maximum number of families who may receive extensions is equal to 20 percent of the total number of TANF families, including child-only cases. This results in a higher number of adults who can receive the extension than if the calculation were based on 20 percent of TANF families with adults. We estimated that the maximum percentage of adults who may receive the federal extension ranges from 77 percent in Wyoming to 24 percent in Vermont and New Mexico, based on our analysis of survey data for fall 2001. (For more on this analysis, see app. VII). Although states have had TANF programs in place for 5 years now, their experiences with key elements of TANF are still evolving. The dramatic caseload decline that greatly reduced the federally required participation rates gave states great flexibility in implementing work requirements. With this flexibility, the extent of involvement of TANF adults in federally or state-required activities varied greatly among the states. On the one hand, this means states have adapted their programs to meet state and local goals and needs. On the other hand, it means states with relatively low participation rates have more limited experience than other states in involving welfare recipients in work activities. This may affect their ability to meet federal participation rate requirements in the future. In addition, many states have used the flexibility allowed them in using state MOE to exclude families from or to extend federal time limits. In this way, states could ensure a safety net for families that state TANF program officials had determined needed more time to become self-sufficient or were unable to support themselves. Because so many families have not yet reached their time limits, much remains unknown about choices states will make in enforcing time limits and whether an appropriate balance will be struck between ensuring a safety net for families in need and creating a transitional aid system that promotes work and personal responsibility. Two issues that warrant attention in the future include wider implementation of the 20 percent federal time limit extension and states’ use of separate state programs to provide cash assistance. First, as we reported, the 20 percent time limit extension, when applied to adults, represents a larger and varying share of adults among the states than when applied to all families, including child-only cases. As this extension policy is more widely used in the years ahead, it will be important to understand whether the 20 percent extension as currently calculated affords all states the access needed to support families experiencing hardship as well as supporting the federal goal of reducing welfare dependence. Second, with the use of state MOE through separate state programs, a not insignificant number of families—and potentially more in the years to come—receive cash assistance although they are not counted in welfare caseload data routinely reported by HHS. With continuing attention focused on the number of families receiving cash assistance and whether PRWORA has successfully reduced dependence on welfare, it is important that program administrators and policymakers have information on the size of the separate state program caseload. These data should be more regularly available to consider along with TANF caseload data as HHS has recently begun to collect and report information on states’ separate state programs. In commenting on a draft of this report, HHS said that it agreed with the findings. HHS’ s written comments are included in appendix VIII. We are sending copies of this report to the secretary of Health and Human Services and other interested parties. We will also make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. If you have any questions about this report, please contact me at (202) 512-7215 or Gale Harris at (202) 512-7235. Other contacts and acknowledgments are listed in appendix IX. Most states use some form of state maintenance-of-effort (MOE) funding to provide cash assistance to families. Eighteen states relied solely on federal or commingled federal and state funds in their Temporary Assistance for Needy Families (TANF) programs to provide cash assistance, as shown in figure 6. The other 33 states used at least one of the state MOE funding options in addition to commingled funds: 7 had segregated state funds; 17 had separate state programs; and 9 had both segregated funds and separate state programs. States across the nation have opted to use state MOE funds to provide cash assistance. (See table 3.) States with larger caseloads are more likely to use segregated funds or separate state programs than smaller states; similarly, states with the smallest caseloads are more likely to commingle all of their state and federal funds. Even though two-thirds of the states have opted to use segregated funds, separate state programs, or both to provide cash assistance, only 11 percent of the total number of families receiving cash assistance is funded with these funds. States most often used separate state programs to serve two populations— legal aliens and two-parent families—and applied their own state work requirements on these two populations. (See table 4.) Other examples of populations served by some states in their separate state programs include parents completing education or training (four states), parents or caretakers with a physical impairment (four states), families caring for a young child (three states). Not available. Percentage of TANF adults involved in work (as defined by state) 52 62 26 22 30 93 Not available. Four states were unable to provide us with information on the percent of adults participating in a state-defined work-activity. Delaware was not able to provide us with data on families excluded from time limits. Delaware was not able to provide data on their use of the federal 20 percent extension. The Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) specifies that up to 20 percent of families receiving TANF assistance in each state can receive an extension to the 60 month federal time limit. Based on our analysis of survey data, we estimated that the maximum percentage of adults who could receive extensions ranged from 24 to 77 percent among the states, depending on the size of each state’s child-only caseload. For example, Wyoming may extend time limits for up to 92 families, which represents 20 percent of the 458 TANF families in Wyoming. However, because almost three-fourths of its TANF families are child-only, only 119 families with adults would have time limits in place. This means that the state could provide extensions to 92 of the 119 TANF families with adults; this represents 77 percent rather than 20 percent of TANF families with adults. In contrast, in New Mexico, with its much smaller percentage of child-only families (15 percent), the maximum percentage of time-limit extensions that may be provided to families with adults is 24 percent rather than 20 percent. In addition to those named above, the following individuals made important contributions to this report: Elisabeth Anderson, Kara Kramer, and Kim Reniero. Patrick DiBattista and Beverly Ross also provided key technical assistance. Welfare Reform: States Provide TANF-Funded Work Support Services to Many Low-Income Families Who Do Not Receive Cash Assistance. GAO-02-615T. Washington, D.C.: April 10, 2002. Welfare Reform: States Provide TANF-Funded Services to Many Low- Income Families Who Do Not Receive Cash Assistance. GAO-02-564. Washington, D.C.: April 5, 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: More Coordinated Federal Efforts Could Help States and Localities Move TANF Recipients with Impairments Toward Employment. GAO-02-37. Washington, D.C.: October 31, 2001. Welfare Reform: Challenges in Maintaining a Federal-State Fiscal Partnership. GAO-01-828. Washington, D.C.: August 10, 2001. Welfare Reform: Moving Hard-to-Employ Recipients Into the Workforce. GAO-01-368. Washington, D.C.: March 15, 2001. Welfare Reform: Work-Site-Based Activities Can Play an Important Role in TANF Programs. GAO/HEHS-00-122. Washington, D.C.: July 28, 2000. Welfare Reform: Improving State Automated Systems Requires Coordinated Federal Effort. GAO/HEHS-00-48. Washington, D.C.: April 27, 2000. Welfare Reform: State Sanction Policies and Number of Families Affected. GAO/HEHS-00-44. Washington, D.C.: March 31, 2000. Welfare Reform: Assessing the Effectiveness of Various Welfare-to-Work Approaches. GAO/HEHS-99-179. Washington, D.C.: September 7, 1999. Welfare Reform: Information on Former Recipients’ Status. GAO/HEHS- 99-48. Washington, D.C.: April 28, 1999. Welfare Reform: States’ Experiences in Providing Employment Assistance to TANF Clients. GAO/HEHS-99-22. Washington, D.C.: February 26, 1999.

Summary: Congress created the Temporary Assistance for Needy Families (TANF) block grant to replace the previous welfare program and help welfare recipients transition into employment. To this end, states are required to enforce work requirements, and face financial penalties if a minimum percentage of adults receiving cash assistance do not participate in work or work-related activities each year. This federal participation rate requirement has increased each year, reaching 50 percent for all families in fiscal year 2002, but it can be adjusted if caseload declines. In addition to work requirements, TANF places a 60 month lifetime limit on the amount of time families with adults can receive cash assistance. To receive TANF block grants, each state must also spend a specified amount of its own funds, referred to as state maintenance-of-effort (MOE) funds. The law allows states considerable flexibility to exclude families from work requirements and time limits. In addition, states may provide cash assistance to families and exempt them from work requirements and time limits by using state MOE in specified ways. States provided cash assistance funded by federal TANF or state MOE dollars to 2.1 million families in 2001. For 736,000 of these families, only the children in the family received assistance. When only children receive the benefits, it is typically because they are cared for by someone who is not their parent or because their parents are noncitizens. The percentage of adults in work or work-related activities varied greatly among the states because of the flexibility allowed. Most states met or exceeded their adjusted required rate in fiscal year 2000. However, the fiscal year 2000 federal participation rates varied, ranging from 6 percent to more than 70 percent. States excluded 154,000 families from federal or state time limits, or 11 percent of the 1.4 million families with an adult receiving cash assistance.