Welfare Reform
Information on TANF Balances Gao ID: GAO-03-1094 September 8, 2003The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 made sweeping changes to the nation's key welfare program for needy families. It established the $16.5 billion Temporary Assistance for Needy Families (TANF) block grant, which provides to the states federal funds to support low-income families and help these families reduce their dependence on welfare. TANF provides states significant flexibility--within federal guidelines--to determine who is to be served and what services to provide. The welfare legislation also fundamentally changed how the federal government funds assistance for low-income families, shifting much of the fiscal risk for welfare programs to the states. Under TANF, states receive a fixed amount of TANF funds each year and, if costs rise, states must find a way of financing the additional costs. To better understand states' spending patterns for TANF funds as the Congress debates the program's reauthorization, the Chairman of the House Subcommittee on Human Resources, Committee on Ways and Means, asked us to provide information on (1) TANF balances, including the amount of funds transferred to states' child care and social services block grants, that remain unspent and (2) the extent to which these balances reflect reserves available for future use.
Based on spending through July 31, 2003--the most recent data available--GAO estimates that the TANF balance will be about $5.6 billion on September 30, 2003. While data were not readily available to project how much of the balance might be comprised of TANF transfers to the child care and social services block grants, we did estimate that unspent transfers represented about 30 percent of the TANF balance for fiscal year 2002. The information available on TANF balances is not sufficient to assess the availability of reserves to help states meet future needs. As a result, it is difficult to determine what portion of any reported balance is already committed or how much is reserved for future use on TANF-related expenditures. The importance of distinguishing between a committed balance and a real reserve becomes more apparent when comparing states. While many states had large balances, others did not. The variations suggest that, at the end of fiscal year 2002, some states may have been better positioned than others to meet current and future needs. While the fixed block grant structure creates opportunities for states to establish reserves for the future and/or expand programs or develop new services when welfare caseloads fall, states can face fiscal challenges when their caseloads or program costs rise. We recently reported that states are in one of the most challenging fiscal crises to confront them in years. Welfare reform ushered in a new fiscal partnership between the states and the federal government and sound fiscal management practices suggest that it would be prudent for states to develop some contingency plans--including establishing reserves from federal funds to meet the needs of their low-income families over time. However, the data currently required of states do not provide sufficient information to assess the adequacy of states' reserves. Reporting requirements should enable collection of data that will assist policymakers in their oversight responsibilities and, while care should be taken to avoid unnecessary reporting burdens on the grant recipients, comparable data on state obligations, expenditures, and reserves of federal funds are critical for effective oversight of federal programs.
GAO-03-1094, Welfare Reform: Information on TANF Balances
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Report to the Chairman, Subcommittee on Human Resources, Committee on
Ways and Means, House of Representatives:
United States General Accounting Office:
GAO:
September 2003:
Welfare Reform:
Information on TANF Balances:
GAO-03-1094:
Contents:
Letter:
Appendix I: Briefing Slides:
United States General Accounting Office:
Washington, DC 20548:
September 8, 2003:
The Honorable Wally Herger
Chairman, Subcommittee on Human Resources
Committee on Ways and Means House of Representatives:
Dear Mr. Chairman:
The Personal Responsibility and Work Opportunity Reconciliation Act of
1996 made sweeping changes to the nation's key welfare program for
needy families. It established the $16.5 billion Temporary Assistance
for Needy Families (TANF) block grant, which provides to the states
federal funds to support low-income families and help these families
reduce their dependence on welfare. TANF provides states significant
flexibility--within federal guidelines--to determine who is to be
served and what services to provide. States also have the flexibility
to transfer up to 30 percent of their TANF block grant each year to
their child care or social services block grants.[Footnote 1] Along
with this flexibility, states must meet federal requirements designed
to ensure that TANF assistance is transitional in nature and that
parents receiving aid take steps to become employed.
The welfare legislation also fundamentally changed how the federal
government funds assistance for low-income families, shifting much of
the fiscal risk for welfare programs to the states. Before welfare
reform, any increased costs for states' welfare programs were shared by
the federal government and the states. Under TANF, however, states
receive a fixed amount of TANF funds each year and, if costs rise,
states must find a way of financing the additional costs. To manage
these fiscal risks, states may, in any given year, set aside or reserve
some of their annual TANF block grant funds for times when the annual
grants are insufficient to cover current spending needs.[Footnote 2]
To better understand states' spending patterns for TANF funds as the
Congress debates the program's reauthorization,[Footnote 3] you asked
us to provide information on (1) TANF balances, including the amount of
funds transferred to states' child care and social services block
grants, that remain unspent and (2) the extent to which these balances
reflect reserves available for future use. To address these questions,
we interviewed program and finance officials at the Department of
Health and Human Services (HHS), which oversees the TANF, child
care,[Footnote 4] and the social services block grants. We reviewed
U.S. Treasury balance reports as of July 31, 2003, the most recent
available, and used this information to estimate TANF balances through
September 30, 2003 (the end of fiscal year 2003). While states can save
some of their federal funds each year, they are not allowed to draw
those funds from the U.S. Treasury until they actually spend those
funds.[Footnote 5] While balances recorded by Treasury provide some
information on the level of unspent TANF funds, they do not distinguish
TANF funds transferred to the other block grants from those that
remained within the TANF program.
To determine the amount of unspent TANF transfers, we reviewed the data
states reported to HHS on their annual financial reports for each of
the three block grants for the fiscal year ending September 30, 2002,
the most recent state reports available. Although state reports on the
child care and social service block grant balances do not identify the
TANF transfers, per se, we were able to estimate them, based on the
assumption that states were likely to use the more restricted child
care and social service dollars before spending the more flexible TANF
funds.[Footnote 6] The fiscal year 2002 reports also provided
information on the range of balances among the states, which was not
readily available from the more recent Treasury balance reports. We
conducted this review in accordance with generally accepted government
auditing standards from July 2003 through August 2003.
On September 2, 2003, we briefed you on the results of our analysis.
This report formally conveys the information provided during that
briefing. In summary, we found the following:
Based on spending through July 31, 2003--the most recent data
available--we estimate that the TANF balance will be about $5.6 billion
on September 30, 2003. While data were not readily available to project
how much of the balance might be comprised of TANF transfers to the
child care and social services block grants, we did estimate that
unspent transfers represented about 30 percent of the TANF balance for
fiscal year 2002.
The information available on TANF balances is not sufficient to assess
the availability of reserves to help states meet future needs. We found
that the current reporting requirements do not provide reliable,
consistent information regarding states' plans for their
balances.[Footnote 7] As a result, it is difficult to determine what
portion of any reported balance is already committed or how much is
reserved for future use on TANF-related expenditures. The importance of
distinguishing between a committed balance and a real reserve becomes
more apparent when comparing states. Although we cannot tell from state
reports how much of their balance is committed, when we analyzed state
TANF balances as of September 30, 2002, including our estimates of
unspent TANF transfers, we found they varied considerably. While many
states had large balances, others did not. The variations suggest that,
at the end of fiscal year 2002, some states may have been better
positioned than others to meet current and future needs.
While the fixed block grant structure creates opportunities for states
to establish reserves for the future and/or expand programs or develop
new services when welfare caseloads fall, states can face fiscal
challenges when their caseloads or program costs rise.[Footnote 8] We
recently reported that states are in one of the most challenging fiscal
crises to confront them in years.[Footnote 9] In a limited review of
five states--Arizona, Iowa, Montana, Pennsylvania, and Wisconsin--we
reported that each of the five planned to dip into some of their
unspent TANF balances to fund their programs during the next fiscal
year.
Welfare reform ushered in a new fiscal partnership between the states
and the federal government in supporting the nation's low-income
families and helping them avoid welfare dependence. In this new fiscal
partnership, sound fiscal management practices suggest that it would be
prudent for states to develop some contingency plans--including
establishing reserves from federal funds to meet the needs of their
low-income families over time. However, the data currently required of
states do not provide sufficient information to help the Congress and
federal oversight officials assess the adequacy of states' reserves.
Moreover, we have previously reported on state officials' concerns that
leaving large TANF balances--without any way to identify the amount of
funds set aside as reserves--might signal that these funds were not
needed and, as a result, state officials felt pressures to spend down
their balances quickly.
In our earlier work, we provided your committee with options, including
improving reporting requirements, that might provide states with more
incentives to save.[Footnote 10] We are reiterating our recommendation
that the Secretary of HHS work with the states to provide for more
transparent reporting of their plans for their unspent balances.
Reporting requirements should enable collection of data that will
assist policymakers in their oversight responsibilities and, while care
should be taken to avoid unnecessary reporting burdens on the grant
recipients, comparable data on state obligations, expenditures, and
reserves of federal funds are critical for effective oversight of
federal programs.
We provided a draft of this briefing to officials at HHS for their
technical comments and incorporated their comments where appropriate.
We are sending copies of this report to relevant congressional
committees and other interested parties and will make copies available
to others upon request. This report will also be available at no charge
on GAO's Web site at http://www.gao.gov. If you or your staff have any
questions please contact Cynthia M. Fagnoni at (202) 512-7215 or Paul
L. Posner at (202) 512-9573. Gale C. Harris and Bill J. Keller also
made key contributions.
Cynthia M. Fagnoni, Managing Director Education, Workforce, and Income
Security Issues:
Paul L. Posner, Managing Director Federal Budget Issues and
Intergovernmental Relations:
Signed by Cynthia M. Fagnoni and Paul L. Posner:
[End of section]
Appendix I: Briefing Slides:
[See PDF for image]
[End of figure]
[End of section]
FOOTNOTES
[1] Maximum transfers to the Social Services Block Grant (SSBG) have
been set at 10 percent of federal TANF funds since 1997.
[2] Reserved funds must be used to provide ongoing, basic aid (such as
cash assistance) to needy families, and therefore lose some of their
flexibility.
[3] Since October 1, 2002, the TANF program has been operating under
extensions. On June 30, 2003, the President signed a bill that extended
TANF and other related programs, on fiscal year 2002 terms, through
September 30, 2003. (P.L. 108-40).
[4] This block grant represents only one of the funding streams
considered part of the Child Care and Development Fund that provides
states federal funds to subsidize child care for low-and moderate-
income families and to promote child care quality.
[5] This provision is in accordance with the Cash Management
Improvement Act of 1990. This act settled a long-standing dispute
between the federal government and the states over disbursement of
funds for federal programs administered by the states. The act helps to
ensure that neither party incurs unnecessary interest costs in the
course of federal government disbursements. See U.S. General Accounting
Office, Financial Management: Implementation of the Cash Management
Improvement Act, GAO/AIMD-96-4 (Washington, D.C.: Jan. 8, 1996).
[6] Once TANF funds are transferred to the Child Care and Development
Block Grant (CCDBG) and SSBG they cannot be saved indefinitely; each
grant has specific and different rules governing the time frame within
which states must obligate and spend any transferred funds. However, as
established in program guidance, states can transfer funds back to
TANF, within specific time frames, to avoid losing access to those
funds.
[7] See U.S. General Accounting Office, Welfare Reform: Challenges in
Maintaining a Federal-State Fiscal Partnership, GAO-01-828
(Washington, D.C.: Aug. 10, 2001).
[8] In contrast to the federal government that can run budget deficits,
states face limitations--including legislative restrictions,
constitutional balanced budget mandates, or conditions imposed by the
bond market--on their ability to increase spending, especially in times
of fiscal stress.
[9] U.S. General Accounting Office, Welfare Reform: Information on
Changing Labor Market and State Fiscal Conditions, GAO-03-977
(Washington, D.C.: July 15, 2003).
[10] U.S. General Accounting Office, Welfare Reform: Challenges in
Saving for a "Rainy Day" GAO-01-674T (Washington, D.C.: Apr. 26, 2001).
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