Welfare Reform

Welfare reform has left most states with more resources for assistance than they would have received under the old program because the Temporary Assistance for Needy Families (TANF) Block Grant is fixed and most caseloads have fallen. Some states are banking the extra dollars for use in times of economic downturn or growth in caseload. Others are using these resources to promote self-sufficiency. In their budget choices, states have struck a balance between investing in today's caseload and saving for tomorrow. At the outset, five of the 10 states GAO visited planned to use all available TANF funds to invest in programs to promote self-sufficiency with expectations that this would reduce future caseload growth. Four of the other states, however, set aside a portion of their federal and state resources to cover potential future caseload increases and costs. Most states, including seven of the 10 GAO visited, also "rainy day" funds that could be used to augment program spending during an economic downturn, but welfare programs would have to compete for these resources with other state funding priorities. As of September 1997, states had about $1.2 billion in unspent balances in their accounts with the U.S. Treasury, or about nine percent of the total grant. However, this may be less an indication of state contingency planning and more a reflection of the transitional nature of states' first year with welfare reform.

GAO noted that: (1) more federal and state resources are available for states' low-income family assistance programs since welfare reform passed in 1996 than would have been available under the previous system of financing welfare programs consolidated in the TANF block grant; (2) GAO's estimates showed that, taking caseload declines into account, 46 states would have more total resources--both state and federal--for their low-income family assistance programs than they would have had under the previous welfare programs; (3) states are transforming the nation's welfare system into a work-focused, temporary assistance program for needy families and generally chose to spend these resources to expand programs and benefits by shifting the emphasis from entitlement to self-sufficiency, enhancing support services, and increasing work participation rates; (4) states also have achieved budgetary savings by reducing state funds to the statutory maintenance-of-effort level of 75 or 80 percent of previous state spending levels; (5) while states have gained greater resources under the block grant, they also take greater responsibilities for fiscal risks should program costs increase in the future; (6) most states, including 7 of the 10 GAO visited, also have a general fund budget stabilization or rainy day funds that could be used to augment program spending during an economic downturn, but welfare programs would have to compete for these resources with other state funding priorities; (7) the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) includes features that could provide federal funding to cover future increases in program needs; (8) states can carry forward unused TANF funds without fiscal year limitation; (9) as of September 30, 1997, states had left about $1.2 billion in unspent balances in their accounts with the U.S Treasury, or about 9 percent of the total grant; (10) it is unclear whether these balances will remain, shrink, or increase as states gain experience with the problem; (11) PRWORA also creates two federal safety-net mechanisms--the Contingency Fund and the Loan Fund--that were designed to provide states with access to additional funds during times of economic downturn or fiscal stress; (12) as of February 1998, neither the Contingency nor the Loan Funds had been used by any state; (13) officials in states GAO visited said they did not view the Contingency Fund as a viable source of additional resources; and (14) officials in many states GAO visited indicated they did not believe their states would borrow from the Loan Fund during an economic downturn.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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