In response to the creation of TANF, states implemented more work- focused welfare programs, and research shows that these changes—in concert with other policy changes and economic conditions—contributed to raising the incomes of single parent families so that fewer were eligible for cash assistance. In designing and implementing their new TANF programs, states focused more than ever before on helping welfare recipients and other low-income parents find jobs. Many states implemented work-focused programs that stressed moving parents quickly into jobs and structured the benefits to allow more parents to combine welfare and work. States also imposed financial consequences, or sanctions, on families that did not comply with TANF work or other requirements, strengthening the incentives for TANF participants to comply with work requirements. Other concurrent policy changes contributed to an increase in the share of single parents in the labor force. These included an increase in the Earned Income Tax Credit (EITC) in the 1990s and increases in the minimum wage in 1996 and 1997, both of which contributed to an increase in the returns to work. Additional funds for federal and state work supports such as child care also made it easier for single parents to enter the labor force. Finally, the strong economy of the 1990s facilitated the move from welfare to work for many TANF recipients. A decline in the unemployment rate and strong economic growth contributed to the widespread availability of job openings for workers of all skill levels in many parts of the country. During this period, labor force participation increased among single mothers, the population most affected by TANF—from 58 percent in 1995—the year prior to the creation of TANF—to 71 percent in 2007, with most of this increase occurring immediately following the passage of welfare reform. Because the incomes of many single-parent families increased as a result of these policies, in total, 420,000 fewer families had incomes low enough to be eligible for cash assistance in 2005 compared to 1995, according to HHS data. At the same time that some families worked more and had higher incomes, others had income that left them still eligible for TANF cash assistance; however, many of these eligible families were not participating in the program. According to our estimates, the vast majority—87 percent—of the caseload decline can be explained by the decline in eligible families participating in the program, in part because of changes to state welfare programs. (See Fig. 1). These changes include mandatory work requirements, changes to application procedures, lower benefits, and policies such as lifetime limits on assistance, diversion policies, and sanctions for non-compliance, according to a review of the research. While mandatory work activities assisted some participants in getting jobs, according to a research synthesis conducted for HHS, these mandates may have led other families to choose not to apply rather than be expected to fulfill the requirement to work. Other families may have found it more difficult to apply for or continue to participate in the program, especially those with poor mental or physical health or other characteristics that make employment difficult. A decline in average cash benefits may also have contributed to the decline in participation. Average cash benefits under 2005 TANF rules were 17 percent lower than they were under 1995 AFDC rules, according to our TRIM3 estimates, as cash benefit levels in many states have not been updated or kept pace with inflation. Research also suggests that in response to lifetime limits on the amount of time a family can receive cash assistance eligible families may hold off on applying for cash assistance and “bank” their time, a practice that could contribute to the decline in families’ use of cash assistance. In addition, fewer families may have applied or completed applications for TANF cash assistance because of state policies and practices for diverting applicants from cash assistance; nearly all states have at least one type of diversion strategy, such as the use of one-time nonrecurring benefits instead of monthly cash assistance. Finally, some studies and researchers noted that full sanctions for families noncompliance—those that cut off all benefits for a period of time—are associated with declines in the number of families receiving cash assistance, although more research is needed to validate this association. During the recent economic recession, caseloads increased in some states but decreased in others, as circumstances in individual states as well as states’ responses to the economic conditions varied. Between December 2007 and September 2009, 37 states had increases in the number of families receiving TANF cash assistance while 13 states had decreases. However, the degree of change in families receiving TANF cash assistance varied significantly by state, as some states experienced caseload increases or decreases of over 25 percent while others experienced minimal changes of 0 to 5 percent. Nationwide, the total number of families receiving TANF cash assistance increased by 6 percent during this time period although the subset of two-parent families receiving such assistance increased by 57 percent. Initially few states reported reducing TANF-related spending on family and/or work supports in response to the recession, instead using funding sources such as the Emergency Contingency Fund created by the Recovery Act to respond to rising caseloads and/or to establish or expand subsidized employment programs. However, through their comments on our national survey and during our site visits, state officials discussed how the economic recession has caused changes to local TANF service delivery in some states. A majority of state TANF officials nationwide, as well as TANF officials from all eight localities we visited, reported that they made changes in local offices’ TANF service delivery because of the economic recession. Specifically, of the 31 states reporting such changes through our survey, 22 had reduced the number of TANF staff, 11 had reduced work hours at offices, and 7 had reduced the number of offices. Officials in all three states we visited also reported that local TANF caseworkers are now managing an increased number of TANF cash assistance families per person. As a result of these increased caseloads, along with tightened resources, local officials in all three of the states we visited expressed their concerns that staff are less able to provide services to meet TANF cash assistance families’ needs and move them toward self-sufficiency. Research on how families are faring after welfare reform has shown that, like those who receive TANF cash assistance, families that have left welfare, either for work or for other reasons, tend to remain low income and most depend in part on other public benefits. As we noted in a 2005 report, most of the parents who left cash welfare found employment and some were better off than they were on welfare, but earnings were typically low and many worked in unstable, low-wage jobs with few benefits and advancement opportunities. There is evidence that some former TANF recipients have had better outcomes; for example, a 2009 study found that, in general, former TANF recipients in three cities, especially those who had left TANF prior to 2001, had higher employment rates and average income levels than they had while they were on TANF. However, even among working families, many rely on government supports such as the EITC, Medicaid, the Supplemental Nutrition Assistance Program (SNAP), formerly known as the Food Stamp Program, and other programs to help support their families and lift them out of poverty, as most parents who recently left welfare are not earning enough to be self-supporting. In addition, a considerable body of work has documented families who are often described as “disconnected” from the workforce. It is not yet known whether or to what extent the recession has led to an increase in the number of these families. A recent GAO analysis of the characteristics of low-income families several years post-welfare reform found that while families who were receiving TANF cash assistance in 2005 had low incomes, a third worked full-time and most received other public supports, according to the most recent data available. The median household income of families receiving TANF cash assistance was $9,606 per year, not including means-tested benefits. One third of families who received TANF cash assistance at some point during the year (33 percent) were engaged in full-time employment, while 44 percent were headed by an adult without earnings. About a fifth (18 percent) of these families were headed by an adult who had a work- limiting disability. The vast majority of families receiving TANF cash assistance—91 percent—also received at least one other public benefit, with most (88 percent) receiving benefits from the Supplemental Nutritional Assistance Program (SNAP), formerly known as the Food Stamp Program, and a smaller proportion receiving subsidized housing (22 percent), child care subsidized by the Child Care and Development Fund (CCDF) (11 percent), or Supplemental Security Income (SSI), a cash assistance program for low-income people with disabilities (22 percent). Only 16 percent of families receiving cash assistance included married couples, and even fewer—less than 10 percent—had income from an unmarried partner. Many TANF eligible families do not participate in the program, possibly because they left the program or because they did not apply. Our analysis found that on average, these families had higher incomes than TANF recipients, but median incomes remained low, a significant proportion did not work full time, and many received public supports other than TANF. Compared to TANF cash assistance recipients, eligible non-recipients had higher median incomes ($15,000 per year) and higher rates of full-time employment (44 percent). However, a significant proportion of TANF- eligible non-recipient families—41 percent—were headed by an adult without any earnings, and 11 percent had a work limiting disability. A somewhat lower percentage of those eligible but not receiving TANF cash assistance received other public benefits (66 percent received any benefit), but a majority lived in households that received SNAP (59 percent). Receipt of other benefits was also somewhat lower than among TANF recipients, with 13 percent receiving subsidized housing, 8 percent receiving CCDF-subsidized child care, and 18 percent receiving SSI. More eligible non-participating families were headed by married couples than participating families, but no more had income from an unmarried partner. A small subgroup of families eligible for but not receiving TANF cash assistance (732,000 families in 2005), did not work and did not receive SSI benefits and this group has lower incomes than TANF recipients and other eligible non-recipients. In addition, these families also had lower receipt of other public benefits compared to TANF recipients. Among families with no earned income that received neither TANF nor SSI, the median income from all sources was $7,020, an amount equal to about 45 percent of the federal poverty threshold for a family consisting of one adult and two children. Twelve percent of this group of families was headed by a parent who reported having a work-limiting disability. The extent to which these families received other public benefits was similar to that of other families eligible but not participating in TANF, with 66 percent receiving any benefit. Most (63 percent) received SNAP benefits while 18 percent received subsidized housing, and 4 percent received CCDF-subsidized child care. These more disadvantaged non-participants accounted for 11 percent of all families who were eligible for TANF cash assistance in 2005. Data on caseload trends, state policies, and how families are faring can provide important insight into how TANF programs are working. However, work participation rates—a key accountability feature of TANF, as currently measured and reported—do not appear to be achieving the intended purpose of encouraging states to engage specified proportions of TANF adults in work activities. In addition, as cash assistance caseloads fell, many states shifted their spending away from cash assistance toward work supports such as child care, highlighting information gaps at the federal level in how many families received TANF services and how states used federal and state MOE funds to meet TANF goals. To promote TANF’s focus on work, HHS measures state performance by the proportion of TANF participants engaged in allowable work activities. States are expected to ensure that at least 50 percent of all families receiving TANF cash assistance participate in one or more of 12 categories of work activities for an average of 30 hours per week. PRWORA established penalties for states that did not meet their required work participation rates and gave HHS the authority to make determinations regarding these penalties. However, states can take advantage of program options to make it easier to meet their required rates. For example, states can annually apply to HHS for a caseload reduction credit that generally decreased the state’s required work participation rates by the same percentage that the state’s caseload decreased since a specified year, established as 1995 in PRWORA. Because of the significant drop in caseload size, many states were able to reduce their required work participation rate. In fact, 18 states reported caseload reductions of at least 50 percent in fiscal year 2006, effectively reducing their required work participation rate to zero. In addition, states can modify the calculation of their work participation rates by funding certain families with state maintenance-of-effort (MOE) dollars rather than federal TANF block grant dollars. By using state MOE dollars rather than federal dollars, states are able to remove these families from the work participation rate calculation. Between 2001 and 2006, all but two states met the participation rate requirement, according to HHS data. However, nationally, between 31 and 34 percent of families receiving cash assistance met their work requirements during this time. In 2006, DRA reauthorized the TANF block grant through fiscal year 2010 and made several modifications that were generally expected to strengthen TANF work requirements intended to help more families attain self-sufficiency, and to improve data reliability. For example, DRA modified the caseload reduction credit by changing the base year from 1995 to 2005, and it mandated that families receiving cash assistance funded with state maintenance of effort dollars be included in the calculation of the work participation rates. It also directed HHS to issue regulations defining the 12 work activities and included new requirements to better ensure the reliability of work participation rate data. We found that the proportion of families receiving TANF cash assistance that met work participation requirements has changed little since DRA was enacted and is still below the 50 percent generally specified as the required rate. In fiscal years 2007 and 2008—the two years following DRA for which national data are available—between 29 and 30 percent of families receiving TANF cash assistance met their work requirements. In numbers of families, 243,000 of 816,000 families met their work requirements in fiscal year 2008. The small decrease in the proportion of families that met their requirements after DRA may be related, in part, to the federal work activity definitions and tightened work hour reporting and verification procedures states had to comply with after the act, as well as states’ ability to make the required changes. The types of work activities in which families receiving TANF cash assistance most frequently participated were similar before and after DRA. For example, among families that met their work requirements, the majority participated in unsubsidized employment in the years both before and after DRA. In all of the years analyzed, the next most frequent work activities were job search and job readiness assistance, vocational educational training, and work experience. Although the national rate did not change significantly, fewer states met the required work participation rates after DRA, according to HHS data. As before DRA, states used a variety of options and strategies to meet their required work participation rate. For example: States continued to request caseload reduction credits to help lower their required work participation rates; however, the credits were significantly smaller after DRA, since caseloads went down less after 2005. Some states lowered their required rates by spending state MOE dollars in excess of what is required under federal law on TANF-related programs – a practice we found enabled 22 states to meet their rates in 2007 and 14 states in 2008. Total state MOE expenditures increased by almost $2 billion between fiscal years 2006 and 2008, which appears to be related to state spending on programs and services such as preventing and reducing out-of-wedlock pregnancies. Some states used policies to ensure that families complying with their individual work requirements were included in the work participation rate calculation by, for example providing monthly cash assistance to working families previously on TANF or about to lose TANF eligibility because their working incomes placed them just above eligibility thresholds. 18 states have implemented such programs since DRA. In contrast, after DRA required that state maintenance of effort dollars be included in the calculation of the work participation rates, some states removed certain nonworking families from the calculation of their rates by funding cash assistance for these families with state dollars unconnected to the TANF program – a practice we found in 29 states. We learned that states often use these state-funded programs to provide cash assistance to families that typically have the most difficulty meeting the TANF work requirements, such as families with a disabled member or recent immigrants and refugees. In short, because of the various factors that affect the calculation of states’ work participation rates, the rate’s usefulness as an indicator of a state’s effort to help participants achieve self-sufficiency is limited. Moreover, the rate does not allow for clear comparisons across state TANF programs or comparisons of individual state programs over time. This is the same conclusion we reached in our 2005 report that triggered some of the DRA changes to improve this measure of states’ performance. Further, our 2005 review before DRA changes as well as the one we just completed in May of this year indicate that the TANF work rate requirements as enacted, in combination with the flexibility provided, may not serve as an incentive for states to engage more families or to work with families with complex needs. Many states have cited challenges in meeting work performance standards under DRA, such as new requirements to verify participants’ actual activity hours and certain limitations on the types and timing of activities that count toward meeting the requirements. The TANF work rate requirements—as established in the original legislation and revised in the Deficit Reduction Act—may not yet have achieved the appropriate balance between flexibility for states and accountability for federal TANF goals. The substantial decline in traditional cash assistance caseloads combined with state spending flexibilities under the TANF block grant allowed states to broaden their use of TANF funds. As a result, TANF and MOE dollars played an increasing role in state budgets outside of traditional cash assistance payments. In our 2006 report that reviewed state budgets in nine states, we found that in the decade since Congress created TANF, the states used their federal and state TANF-related funds throughout their budgets for low-income individuals, supporting a wide range of state priorities, such as refundable state earned income credits for the working poor, prekindergarten, child welfare services, mental health, and substance abuse services, among others. While some of this spending, such as that for child care assistance, relates directly to helping cash assistance recipients leave and stay off the welfare rolls, other spending is directed to a broader population that did not necessarily ever receive welfare payments.. This is in keeping with the broad purposes of TANF specified in the law: 1. providing assistance so that children could be cared for in their own homes or in the homes of relatives; 2. ending families’ dependence on government benefits by promoting job preparation, work, and marriage; 3. preventing and reducing the incidence of out-of-wedlock pregnancies; 4. encouraging the formation and maintenance of two-parent families. More recent data indicated that this trend has continued, even under recessionary conditions. In fiscal year 2009, federal TANF and state MOE expenditures for purposes other than cash assistance totaled 70 percent of all expenditures compared with 27 percent in fiscal year 1997, when states first implemented TANF, as shown in figure 2. In addition, of the 21 states we surveyed for our February 2010 report, few reported that they had reduced federal TANF and MOE spending for other purposes, such as child care and subsidized employment programs, to offset increased expenditures for growth in their cash assistance caseloads. States that increased spending on cash assistance while maintaining or increasing spending for other purposes did so by spending reserve funds, accessing the TANF Contingency Fund, accessing the TANF Emergency Contingency Fund created by the Recovery Act, or a combination of the three. This shift in spending left gaps in the information gathered at the federal level to ensure state accountability. Because existing oversight mechanisms focus on cash assistance, which no longer accounts for the majority of TANF and MOE spending, we may be missing important information on the total numbers served and how states use TANF funds to help families to achieve program goals in ways beyond their welfare-to- work programs. For example, states have used significant portions of their TANF funds to augment their child care subsidy programs, which often serve non-TANF families, yet we do not know how many children are served or what role these subsidies play in helping low-income families avoid welfare dependency, a key TANF goal. Further, many states use TANF funds to fund a significant portion of their child welfare programs. In effect, there is little information on the numbers of people served by TANF-funded programs other than cash assistance, and there is no real measure of workload or of how services supported by TANF and MOE funds meet the goals of welfare reform. Another implication of changing caseloads relates to their changing composition, with about half of the families receiving cash assistance composed of cases with no adult receiving assistance in fiscal year 2008 compared with less than one-quarter in fiscal year 1998 (see fig. 3). There are four main categories of “child-only” cases: (1) the parent is disabled and receiving SSI; (2) the parent is a noncitizen and therefore ineligible; (3) the child is living with a nonparent relative; and (4) the parent has been sanctioned and removed from cash assistance for failing to comply with program requirements, and the family’s benefit has been correspondingly reduced. These families, with parents or guardians not receiving TANF cash assistance and generally not subject to work requirements, have not been the focus of efforts to help families achieve self-sufficiency. Nearly 15 years after the creation of TANF, the expected upcoming reauthorization of the program has brought renewed interest to efforts to assess how well the program is meeting the needs of low income families with children—most headed by women—and putting them on a path to self-sufficiency. While the dramatic decline in the TANF caseload following welfare reform and the increase in employment among single mothers has been cited as evidence for the program’s success, questions have been raised about its effect on families. Many who left the rolls transitioned to low wage, unstable jobs, and research has shown that a small subset of families who neither receive TANF nor earn income may have been left behind. Following the recent economic recession, poverty among children has climbed to its highest level in years. A central feature of the TANF block grant is the flexibility it provides to states to design and implement welfare programs tailored to address their own circumstances, but this flexibility must be balanced with mechanisms to ensure state programs are held accountable for meeting program goals. Over time we have learned that states’ success in engaging TANF cash assistance recipients in the type, hours, and levels of work activities specified in the law has, in many cases, been limited, though they have met the required targets using the flexibility allowed. Although the DRA changes to TANF work requirements were expected to strengthen the work participation rate as a performance measure and move more families toward self-sufficiency, the proportion of TANF recipients engaged in work activities remains unchanged. States’ use of the modifications allowed in federal law and regulations, as well as states’ policy choices, have diminished the rates’ usefulness as the national performance measure for TANF, and shown it to be limited as an incentive for states to engage more families or work with families with complex needs. Furthermore, while states have devoted significant amounts of the block grant funds as well as state funds to other activities, little is known about use of these funds. Lack of information on how states use these funds to aid families and to meet TANF goals hinders decision makers in considering the success of TANF and what trade offs might be involved in any changes to TANF when it is reauthorized. We provided a draft of the reports we drew on for this testimony to HHS for its review, and copies of the agency’s written responses can be found in the appendices of the relevant reports. In its comments, HHS generally said that the reports were informative and did not disagree with our findings. Mr. Chairman, this concludes my statement. I would be pleased to respond to any questions you or other Members of the Committee may have. For questions about this statement, please contact me at (202) 512-7215 or brownke@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals who made key contributions to this testimony include Hedieh Rahmanou Fusfield, Rachel Frisk, Alexander G. Galuten, Gale C. Harris, Kathryn A. Larin, and Deborah A. Signer. Temporary Assistance for Needy Families: Implications of Recent Legislative and Economic Changes for State Programs and Work Participation Rates, GAO-10-525. Washington, D.C.: May 28, 2010. Temporary Assistance for Needy Families: Implications of Changes in Participation Rates, GAO-10-495T. Washington, D.C.: March 11, 2010. Temporary Assistance for Needy Families: Fewer Eligible Families Have Received Cash Assistance Since the 1990s, and the Recession’s Impact on Caseloads Varies by State, GAO-10-164. Washington, D.C.: February 23, 2010. Poverty in America: Consequences for Individuals and the Economy. GAO-07-343T. Washington, D.C.: January 24, 2007. Welfare Reform: Better Information Needed to Understand Trends in States’ Uses of the TANF Block Grant. GAO-06-414. Washington, D.C.: March 3, 2006. Welfare Reform: More Information Needed to Assess Promising Strategies to Increase Parents’ Incomes. GAO-06-108. Washington, D.C.: December 2, 2005. Welfare Reform: HHS Should Exercise Oversight to Help Ensure TANF Work Participation Is Measured Consistently across States. GAO-05-821. Washington, D.C.: August 19, 2005. TANF AND SSI: Opportunities Exist to Help People with Impairments Become More Self-Sufficient. GAO-04-878. Washington, D.C.: September 15, 2004. Welfare Reform: Information on Changing Labor Market and State Fiscal Conditions. GAO-03-977. Washington, D.C.: July 15, 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: 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 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: Progress in Meeting Work-Focused TANF Goals. GAO-01-522T. Washington, D.C.: March 15, 2001. Welfare Reform: Moving Hard-to-Employ Recipients into the Workforce. GAO-01-368. 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Summary: The Temporary Assistance for Needy Families (TANF) program, created in 1996, is one of the key federal funding streams provided to states to assist women and children in poverty. A critical aspect of TANF has been its focus on employment and self-sufficiency, and the primary means to measure state efforts in this area has been TANF's work participation rate requirements. Legislative changes in 2005 were generally expected to strengthen these work requirements. Given changes in the number of families participating in TANF over time and questions about whether the program is achieving its goals, this testimony draws on previous GAO work to focus on 1) key changes to state welfare programs made in response to TANF and other legislation and their effect on caseload trends; 2) how low-income single-parent families are faring; and 3) how recent developments in state programs and the economy may affect federal monitoring of TANF. To address these issues, in previous work conducted from November 2008 to May 2010, GAO analyzed state data reported to the Department of Health and Human Services; used microsimulation analyses; surveyed state TANF administrators in 50 states and the District of Columbia; interviewed officials in 21 states selected to represent a range of economic conditions and TANF policy decisions; conducted site visits to Florida, Ohio, and Oregon; and reviewed relevant federal laws, regulations, and research. Changes states made to their welfare programs as they implemented TANF contributed to a significant decline in program participation, but caseloads are starting to increase in many states. The strong economy of the 1990s, TANF's focus on work, and other factors contributed to increased family incomes and a decline in the number of families poor enough to be eligible for cash assistance. However, research shows that state policies--including TANF work requirements, time limits, and sanction and diversion policies--also contributed to the caseload decline, as fewer eligible families participated in the program. In recent years, states have varied in their response to changes in economic conditions, with caseloads rising in 37 states and falling in 13 states between December 2007 and September 2009, the latest data available when we did our work. Like TANF recipients, families who left TANF, as well as those who qualified for the program but who did not participate, had low incomes and continued to rely on other government supports. In the years following welfare reform, many of the parents who left cash assistance found employment, and some were better off than they were on welfare, but earnings were typically low and many worked in unstable, low-wage jobs with few benefits. Among eligible families who did not participate, a small subset did not work and had very low incomes. Efforts to measure states' engagement of TANF recipients in work activities and to monitor states' use of all TANF funds have been of limited use in ensuring accountability for meeting federal TANF goals, according to our analysis. Work participation rates--a key performance measure for TANF, as currently measured and reported, do not appear to be achieving the intended purpose of encouraging states to engage specified proportions of TANF recipients in work activities. In addition, states' decisions to shift their spending from cash assistance to other programs and work supports such as childcare have highlighted gaps in the information available at the federal level on how many families received TANF services and how states used funds to meet TANF goals. A central feature of the TANF block grant is the flexibility it provides to states to design and implement welfare programs tailored to address their own circumstances, but this flexibility must be balanced with mechanisms to ensure state programs are held accountable for meeting program goals. The limited usefulness of current measures of work participation and the lack of information on how states use funds to aid families and to meet TANF goals hinders decision makers in considering the success of TANF and what trade offs might be involved in any changes to TANF when it is reauthorized.