    [House Hearing, 112 Congress]
    [From the U.S. Government Publishing Office]

                     STATE TANF SPENDING AND ITS IMPACT ON
                               WORK REQUIREMENTS

    =======================================================================

                                    HEARING

                                   before the

                        SUBCOMMITTEE ON HUMAN RESOURCES

                                     of the

                          COMMITTEE ON WAYS AND MEANS
                         U.S. HOUSE OF REPRESENTATIVES

                          ONE HUNDRED TWELFTH CONGRESS

                                 SECOND SESSION

                                   __________

                                  MAY 17, 2012

                                   __________

                              Serial No. 112-HR13

                                   __________

             Printed for the use of the Committee on Ways and Means

                                   ----------
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    78-760 PDF                       WASHINGTON : 2013

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                          COMMITTEE ON WAYS AND MEANS

                         DAVE CAMP, Michigan, Chairman

    WALLY HERGER, California             SANDER M. LEVIN, Michigan
    SAM JOHNSON, Texas                   CHARLES B. RANGEL, New York
    KEVIN BRADY, Texas                   FORTNEY PETE STARK, California
    PAUL RYAN, Wisconsin                 JIM MCDERMOTT, Washington
    DEVIN NUNES, California              JOHN LEWIS, Georgia
    PATRICK J. TIBERI, Ohio              RICHARD E. NEAL, Massachusetts
    GEOFF DAVIS, Kentucky                XAVIER BECERRA, California
    DAVID G. REICHERT, Washington        LLOYD DOGGETT, Texas
    CHARLES W. BOUSTANY, JR., Louisiana  MIKE THOMPSON, California
    PETER J. ROSKAM, Illinois            JOHN B. LARSON, Connecticut
    JIM GERLACH, Pennsylvania            EARL BLUMENAUER, Oregon
    TOM PRICE, Georgia                   RON KIND, Wisconsin
    VERN BUCHANAN, Florida               BILL PASCRELL, JR., New Jersey
    ADRIAN SMITH, Nebraska               SHELLEY BERKLEY, Nevada
    AARON SCHOCK, Illinois               JOSEPH CROWLEY, New York
    LYNN JENKINS, Kansas
    ERIK PAULSEN, Minnesota
    KENNY MARCHANT, Texas
    RICK BERG, North Dakota
    DIANE BLACK, Tennessee
    TOM REED, New York

                       Jennifer Safavian, Staff Director

                       Janice Mays, Minority Chief Cousel

                                     ______

                        SUBCOMMITTEE ON HUMAN RESOURCES

                        GEOFF DAVIS, Kentucky, Chairman

    ERIK PAULSEN, Minnesota              LLOYD DOGGETT, Texas
    RICK BERG, North Dakota              JIM MCDERMOTT, Washington
    TOM REED, New York                   JOHN LEWIS, Georgia
    TOM PRICE, Georgia                   JOSEPH CROWLEY, New York
    DIANE BLACK, Tennessee
    CHARLES W. BOUSTANY, JR., Louisiana

                                C O N T E N T S

                                   __________

                                                                       Page

    Advisory of May 17, 2012, announcing the hearing.................     2

                                   WITNESSES

    Ms. Kay E. Brown, Director, Education, Workforce, and Income
      Security, U.S. Government Accountability Office, testimony.....     7
    Mr. Grant Collins, Senior Vice President for Workforce Services,
      ResCare, testimony.............................................    31
    Ms. Carol Cartledge, Director, Economic Assistance Policy
      Division, North Dakota Department of Human Services, testimony.    40
    Mr. Peter Palermino, TANF Administrator, Connecticut Department
      of Social Services, Representing the American Public Human
      Services Association, testimony................................    49
    Dr. LaDonna Pavetti, Ph.D., Vice President for Family Income
      Support Policy, Center on Budget and Policy Priorities,
      testimony......................................................    57

                           SUBMISSIONS FOR THE RECORD

    The Honorable Erik Paulsen.......................................    77
    American Public Human Services Association.......................    85
    Boys and Girls Clubs of America, Brian Manderfield...............    88
    Center for Fiscal Equity.........................................    91
    Center for Law and Social Policy.................................    94
    Coalition of CA Welfare Rights Organizations.....................    99
    Washington State.................................................   104

            STATE TANF SPENDING AND ITS IMPACT ON WORK REQUIREMENTS

                                  ----------

                             THURSDAY, MAY 17, 2012

                 U.S. House of Representatives,
                           Committee on Ways and Means,
                               Subcommittee on Human Resources,
                                                        Washington, DC.
        The subcommittee met, pursuant to call, at 2:55 p.m., in
    Room 1100, Longworth House Office Building, the Honorable Geoff
    Davis [Chairman of the Subcommittee] presiding.
        [The advisory of the hearing follows:]

    HEARING ADVISORY

     Davis Announces Hearing on State TANF Spending and Its Impact on Work
                                  Requirements

    Thursday, May 17, 2012

        Congressman Geoff Davis (R-KY), Chairman of the Subcommittee on
    Human Resources of the Committee on Ways and Means, today announced
    that the Subcommittee will hold a hearing to review State spending
    requirements in the Temporary Assistance for Needy Families (TANF)
    program and their interaction with TANF work requirements. The hearing
    will take place on Thursday, May 17, 2012 in 1100 Longworth House
    Office Building, beginning at 2:00 P.M.

        In view of the limited time available to hear witnesses, oral
    testimony at this hearing will be from invited witnesses only.
    Witnesses will include a representative from the Government
    Accountability Office (GAO) as well as other public and private sector
    experts on State TANF spending policy and practice. However, any
    individual or organization not scheduled for an oral appearance may
    submit a written statement for consideration by the Committee and for
    inclusion in the printed record of the hearing.

    BACKGROUND:

        The Temporary Assistance for Needy Families (TANF) program is
    designed to end the dependence of needy families on government benefits
    by promoting work, marriage, and personal responsibility. Unlike its
    predecessor, Aid to Families with Dependent Children, which was
    primarily a cash welfare program for poor families with children, the
    1996 welfare reform law created TANF to fund a variety of services to
    help low-income parents get jobs and become self-sufficient.

        States are required to engage 50 percent of adults in TANF families
    in work activities such as employment, on-the-job training, job search,
    and vocational education. In addition, States are required to spend a
    certain amount of State money (based on past State spending on low-
    income programs) to receive full Federal TANF block grant funds, called
    the State ``maintenance of effort'' or MOE requirement. However, recent
    reports indicate a rising number of States appear to be counting other
    State program spending and even non-State third party spending as TANF
    MOE spending. For example, a number of States now count volunteer hours
    as TANF MOE by multiplying volunteer hours by an estimated wage rate
    and then reporting this as ``spending'' in the TANF program. This
    evolution has also resulted in some States reporting significant
    ``excess MOE'' spending, which under a 1999 regulation allows States to
    reduce the share of welfare recipients expected to work in exchange for
    TANF benefits.

        According to a September 2011 GAO report, in fiscal year 2009, 32
    states claimed at least some ``excess MOE credits.'' Of those 32
    states, 17 states would have failed to meet their work participation
    requirements without these credits, resulting in the loss of Federal
    TANF funds.

        The American Recovery and Reinvestment Act of 2009 (ARRA) created a
    new one-time $5 billion funding stream for States called the TANF
    Emergency Fund, available in FYs 2010 and 2011. Under the Emergency
    Fund, States received 80 percent reimbursement for their increased
    spending on cash assistance, subsidized employment, and one-time
    benefits provided to needy families. The availability of this new
    funding may have been one of the factors that spurred States to
    identify and report further increases in spending, a number of which
    relied on the counting of third-party expenditures as State MOE
    spending to qualify for this funding. Additional factors may have been
    States' desire to increase MOE spending in order to receive funding
    from the TANF contingency fund and to respond to changes in the Deficit
    Reduction Act.

        In announcing the hearing, Chairman Davis said, ``Welfare reform in
    the 1990s established a new partnership between States and the Federal
    Government to help families move from welfare to work. In exchange for
    flexibility in operating the program, States agreed to meet Federal
    requirements to engage families in work activities and to continue
    investing State dollars for this purpose. However, recent reports
    suggest that these two key principles of reform may not be working as
    intended. The hearing will review this issue to ensure the Federal-
    State partnership continues to work toward helping families become
    self-sufficient.''

    FOCUS OF THE HEARING:

        The hearing will focus on TANF State MOE spending requirements and
    their interaction with TANF work requirements.

    DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

        Please Note: Any person(s) and/or organization(s) wishing to submit
    for the hearing record must follow the appropriate link on the hearing
    page of the Committee website and complete the informational forms.
    From the Committee homepage, http://waysandmeans.house.gov, select
    ``Hearings.'' Select the hearing for which you would like to submit,
    and click on the link entitled, ``Click here to provide a submission
    for the record.'' Once you have followed the online instructions,
    submit all requested information. ATTACH your submission as a Word
    document, in compliance with the formatting requirements listed below,
    by the close of business on Thursday, May 31, 2012. Finally, please
    note that due to the change in House mail policy, the U.S. Capitol
    Police will refuse sealed-package deliveries to all House Office
    Buildings. For questions, or if you encounter technical problems,
    please call (202) 225-1721 or (202) 225-3625.

    FORMATTING REQUIREMENTS:

        The Committee relies on electronic submissions for printing the
    official hearing record. As always, submissions will be included in the
    record according to the discretion of the Committee. The Committee will
    not alter the content of your submission, but we reserve the right to
    format it according to our guidelines. Any submission provided to the
    Committee by a witness, any supplementary materials submitted for the
    printed record, and any written comments in response to a request for
    written comments must conform to the guidelines listed below. Any
    submission or supplementary item not in compliance with these
    guidelines will not be printed, but will be maintained in the Committee
    files for review and use by the Committee.

        1. All submissions and supplementary materials must be provided in
    Word format and MUST NOT exceed a total of 10 pages, including
    attachments. Witnesses and submitters are advised that the Committee
    relies on electronic submissions for printing the official hearing
    record.

        2. Copies of whole documents submitted as exhibit material will not
    be accepted for printing. Instead, exhibit material should be
    referenced and quoted or paraphrased. All exhibit materials not meeting
    these specifications will be maintained in the Committee files for
    review and use by the Committee.

        3. All submissions must include a list of all clients, persons,
    and/or organizations on whose behalf the witness appears. A
    supplemental sheet must accompany each submission listing the name,
    company, address, telephone, and fax numbers of each witness.

        The Committee seeks to make its facilities accessible to persons
    with disabilities. If you are in need of special accommodations, please
    call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four
    business days notice is requested). Questions with regard to special
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    materials in alternative formats) may be directed to the Committee as
    noted above.

        Note: All Committee advisories and news releases are available on
    the World Wide Web at http://www.waysandmeans.house.gov/.

        Chairman DAVIS. Good afternoon. Before we get started, I
    want to thank all of our witnesses and our guests for your
    patience. The voting schedule is not always coordinated with
    the Human Resources Subcommittee, and we had a little bit of a
    delay in the last vote series, so thank you for your
    flexibility. Or, as we used to say in the Army, parroting that
    Marine motto, Semper Gumby.
        Our hearing today reviews a key provision of welfare
    reform: State spending requirements and their impact on work
    requirements. As part of welfare reform in 1996, States were
    given a Federal block grant for the Temporary Assistance for
    Needy Families, or TANF, program, which maintains Federal
    spending on welfare--or maintained record Federal spending on
    welfare. At the same time, States were allowed to reduce State
    spending to as little as 75 percent of prior levels under
    maintenance of effort, or MOE, requirements. This requirement
    was meant to ensure continued Federal-State partnership in
    helping families move from welfare to work. But now there is
    cause for concern that in some States, this financial
    partnership is becoming a more one-sided proposition, with
    States no longer matching Federal spending reliably as they
    once did.
        Ironically, recent official data from the Department of
    Health and Human Services, including fiscal year 2011 data
    published yesterday, appears to suggest States have been
    increasing their own TANF spending rapidly. As this graph shows
    on the monitors, since 2005, States have reported spending
    almost one-third more on TANF, including during and after the
    Great Recession; however, what appears to be behind this growth
    is not actual increases in State TANF spending, but rather
    increased State reporting of TANF spending, including spending
    by third parties that States are now claiming as their own.
        Why would States choose to start reporting more TANF
    spending? There are several reasons. First, under 1999
    regulations, States can reduce the share of adults they must
    engage in work if they spend more than required. These, quote,
    ``excess MOE credits,'' closed quote, have attracted greater
    State interests since work requirements were strengthened in
    the Deficit Reduction Act signed into law in early 2006.
        The most recent data suggests 16 States used excess MOE
    credits to satisfy work requirements, effectively reducing the
    share of adults on TANF that are expected to work or train in
    order to maintain TANF benefits.
        Second, other sources of Federal TANF spending, the ongoing
    contingency fund and the one-time welfare emergency fund
    created in the 2009 stimulus law, require increased levels of
    State spending. So to get more Federal funds, States had to
    spend more State dollars, or at least report that they were
    doing so.
        This slide, taken from a presentation given to State TANF
    Directors at a December 2006 conference, illustrates how the
    hunt for MOE has been on, and it appears to be behind some
    reported increases in State TANF spending.
        Many States have scoured their budgets to find other
    current spending programs, such as for pre-K, child care, and
    after-school programs, that they could report as TANF spending.
    This went further to, if you will, the salesman working the
    plan to gain maximum advantage within the context, if outside
    the spirit, of the regulation law. Others began counting third-
    party spending such as assistance offered by food banks and
    Boys and Girls Clubs as TANF spending. One State even
    apparently found a way to count the value of volunteer hours by
    Girl Scout troop leaders as State TANF spending.
        I want to be clear that this is not illegal, but that
    doesn't make it right. States' ability to claim such a broad
    range of items as TANF spending, as well as the availability of
    excess MOE credits when they do so, have eroded key features of
    the Federal-State partnership in place since 1996.
        Today's hearing will review these issues and consider
    whether the law should be adjusted to ensure TANF continues to
    meet its goal helping low-income parents find and keep jobs.
        We have an excellent panel of witnesses joining us today to
    review these issues, which are colleagues on both sides of the
    aisle. I look forward to working with all of our colleagues and
    invited guests on this as we consider TANF reauthorization
    later this year.
        Chairman DAVIS. With that, I would like to yield to my
    friend and ranking member, Mr. Doggett from Texas, for 5
    minutes.
        Mr. DOGGETT. Thank you, Mr. Chairman.
        As one who supported the 1996 welfare reform legislation, I
    welcome this opportunity to examine how well the States have
    been fulfilling their obligations under that legislation.
    Having seen more than a few examples of mismanagement of
    Federal tax dollars by State officials in my home State of
    Texas, I fully appreciate the value and the necessity of strong
    oversight.
        But we also need to focus on how decisions made here in
    Washington are affecting all of the programs that vulnerable
    Americans depend upon, whether we have a safety net that is so
    frayed that it is all hole and no net.
        TANF is supposed to be a partnership between the Federal
    Government and the States. Unfortunately, both ends of that
    partnership seem to be fraying and, along with it, the
    protection that millions of poor families rely upon.
        Last year, the House Republicans targeted the 17 mostly
    high-poverty States for cuts in TANF by refusing to extend,
    without any justification I ever heard, the so-called
    Supplemental Grant Program. That includes my home State of
    Texas, which already had one of the lowest amounts of Federal
    TANF funding in the entire country relative to the number of
    poor children. The end of these grants amount to a loss of
    about $53 million every year. According to the Center for
    Public Policy Priorities in East Austin, this has meant fewer
    funds were available in Texas for preventing high school
    dropouts and child abuse and neglect.
        All of the Texas miracle stuff that we have heard so much
    about has done very little to those who are caught in poverty.
    Only last week House Republicans enacted from--approved here in
    the House a highly partisan bill that would completely
    eliminate the Social Services Block Grant. That is the loss of
    another $137 million to assist low-income families and protect
    vulnerable children in Texas, as well as senior citizens.
        Today, we are likely to hear that some States also may be
    withdrawing their support. I am sure Texas will withdraw as
    much as it possibly can rather than continue to spend State
    funds to meet TANF maintenance-of-effort requirements.
        Some States do seem to be increasingly counting spending
    that is done from nonprofit insurable organizations. One report
    indicates that nearly half of the funds that one State,
    Georgia, declares as meeting its spending requirement actually
    comes from non-State private sources.
        While we should certainly encourage the tremendous work of
    charitable organizations across the country, allowing States to
    reduce their funding for services for needy families by
    counting existing spending by hard-pressed nonprofits threatens
    to reduce the total amount of support for our poorest children.
        As the chairman just pointed out, changes in how the States
    count spending also impacts work participation rates that the
    States are required to comply with under TANF. I firmly believe
    we should expect States to diligently work with folks to help
    them find meaningful employment. To ensure this outcome, we
    need standards that meet our bottom-line goal of helping
    jobless parents find real work so they can support themselves
    and support their children.
        We will likely hear some concerns today that the current
    work participation standard is too focused on how many TANF
    recipients are in certain activities, rather than on how many
    people are actually moving into real jobs.
        The current performance measure does not account for how
    many jobless parents a State is really helping. For example, a
    State that has 104 unemployed mothers, but only provides
    assistance to 2 of them, that State would meet the current
    Federal work participation if just 1 person was in a work
    activity. If that scenario sounds rather extreme and
    hypothetical, consider the fact that my State of Texas provides
    TANF assistance to only about 5 out of every 100 children that
    are living in poverty today.
        Mr. Chairman, if the Federal Government and the States
    reduce their commitment to our poorest citizens once again, the
    path out of poverty will become even harder and longer for
    millions of our youngest Americans. I stand ready to work with
    you to ensure that both the Congress and the policymakers in
    the State meet their obligations to help these struggling
    families, and I look forward to hearing from all of our
    witnesses today, and thank each one of them for participating.
        Thank you.
        Chairman DAVIS. Thank you very much, Mr. Doggett.
        I would like to remind our witness to limit their oral
    testimony to 5 minutes; however, without objection, all the
    written testimony will be made part of the permanent record.
        On our panel this afternoon, we will be hearing from five
    distinguished individuals: Ms. Kay Brown, Director of
    Education, Workforce, and Income Security with the U.S.
    Government Accountability Office; Mr. Grant Collins, Senior
    Vice President for Workforce Services at ResCare; Ms. Carol
    Cartledge, Director of Economic Assistance Policy Division,
    North Dakota Department of Human Services. Mr. Peter Palermino,
    TANF Administrator, Connecticut Department of Social Services;
    and Dr. LaDonna Pavetti, Vice President for Family Income
    Support Policy with the Center on Budget and Policy Priorities.
        Ms. Brown, please proceed with your testimony.

    STATEMENT OF KAY E. BROWN, DIRECTOR, EDUCATION, WORKFORCE, AND
         INCOME SECURITY, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

        Ms. BROWN. Chairman Davis, Ranking Member Doggett and
    Members of the Subcommittee, I am pleased to be here today to
    discuss our work on State spending requirements for the TANF
    program. My remarks are based on several previously issued GAO
    reports and will focus on two points: the key features of State
    MOE requirements and changes in the role of State MOE spending
    over time.
        First on the MOE requirements. When Congress designed the
    TANF program, it coupled the $16.5 billion block grant with
    what was viewed as strong MOE requirements. This was to ensure
    that States remained solid fiscal partners. States continued to
    be expected to spend a minimum of 75 to 80 percent of the
    amount they spent on welfare-related programs before TANF was
    created. Over the past 15 years, this has amounted to about 40
    percent of the $406 billion in total program spending.
        MOE provisions help ensure that State spending supports
    Federal goals, and that States are limited in the extent to
    which they can replace State funds with Federal funds. To count
    towards MOE, State funds generally must be spent on families
    that meet financial eligibility criteria, be used for
    activities that support one of the four broad TANF goals, and
    be above the prereform spending levels if spent outside
    traditional welfare programs.
        In addition to its own spending, though, a State can count
    towards its MOE certain in-kind or cash expenditures by third
    parties, such as nonprofit organizations that support program
    goal and serve eligible families.
        Turning to changes in the role of MOE spending, during
    2005, State MOE levels remained stable, hovering around the
    required minimum. When States experienced a significant drop in
    caseloads following reform, the MOE provisions facilitated a
    shift away from cash assistance to a broader range of services,
    such as child care, transportation, and child welfare services,
    as long as these services supported TANF goals.
        Then in 2006, the MOE spending levels began to increase
    until they exceeded the minimum requirements by about $4
    billion in fiscal years 2009 and 2010. These increases were
    likely the result of several factors. For example, additional
    Federal funds were made available during the recent recession;
    however, to access these funds, States had to increase their
    MOE spending.
        States also have increased the use of MOE to help meet
    their required work participation rate. States' performance is
    measured in large part by their success in engaging at least 50
    percent of work-related families in allowable activities.
    However, States can turn to certain options instead. For
    example, when States spend in excess of the required MOE
    amount, this spending can be used to help lower their required
    participation rates.
        When Congress tightened these requirements in 2005, some
    States found it difficult to meet them and began to claim this
    excess MOE, an allowable option that had rarely been used
    before. For fiscal year 2009, 32 of the 45 States that met
    their rate claimed excess MOE spending, and 16 would not have
    met their rates without claiming MOE expenditures.
        In conclusion, MOE is now playing an expanded role in TANF
    programs. Some States may be making programmatic decisions and
    budgetary decisions to claim excess MOEs in order to avoid
    penalties for not meeting their work participation
    requirements. It is important to ensure that MOE spending
    reflects the commitment to serve low-income families and
    supports the Federal program goals.
        While we, GAO, have not reviewed HHS's existing efforts to
    monitor MOE, and we do not know how effective they are, we know
    that MOE provisions can be difficult to administer and oversee.
    Yet with appropriate attention to design, implementation and
    monitoring, MOE provisions can be a useful tool to help strike
    a balance between heightened State flexibility and ensuring a
    focus on certain national objectives.
        This concludes my prepared statement. I am happy to answer
    any questions you may have.
        [The prepared statement of Ms. Brown follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman DAVIS. That was actually precisely 5 minutes and
    zero seconds. Thank you for your precision.
        Ms. BROWN. You are welcome.
        Chairman DAVIS. I would like to now introduce Mr. Grant
    Collins, senior vice president for workforce services at
    ResCare, which is based in my home State, the Commonwealth of
    Kentucky. ResCare provides workforce services for individuals
    with barriers to employment, as well as residential and support
    services for people with disabilities.
        Grant was previously the Deputy Director of the Office of
    Family Assistance at HHS, which is the office responsible for
    administering the TANF program at the Federal level. He was
    involved with the drafting of TANF regulations as a result of
    the passage of the Deficit Reduction Act in 2006, and because
    of his involvement, he is very familiar with the issues that we
    are discussing today. He has previously worked on welfare
    reform in both Wisconsin and New York City, and I am very
    pleased that he can join us today.
        Mr. Collins, would you proceed with your testimony.

    STATEMENT OF GRANT COLLINS, SENIOR VICE PRESIDENT FOR WORKFORCE
                           SERVICES, RESCARE

        Mr. COLLINS. Good afternoon, Chairman Davis, Ranking Member
    Doggett, and distinguished Members of the Subcommittee. Thank
    you for inviting me to testify on the impact of State TANF
    spending and TANF work requirements.
        I am currently the senior vice president of ResCare
    Workforce Services. ResCare is a human service company
    dedicated to helping people achieve their highest levels of
    self-sufficiency. However, today I also wish to offer a few
    insights from my role as former Deputy Director of the Office
    Family Assistance, the Federal agency that oversees the
    Temporary Assistance for Needy Families program.
        In particular, I am here to discuss a few specific TANF
    provisions: State spending requirements, known as maintenance-
    of-effort, or MOE requirements; the counting of State and
    third-party spending towards MOE requirements; and the impact
    of that State spending on work participation rates.
        Work requirements were a key part of welfare reform in
    1996. States must keep at least 50 percent of adults
    participating in activities like employment, job search, or
    vocational training. States receive credit toward meeting the
    50 percent work rate if they reduce caseloads over time.
        Another key provision of welfare reform is what is called
    maintenance-of-effort, or MOE, requirements. That makes sure
    States continue to invest their own money in the program. The
    goals of the work and MOE requirements were to well ensure that
    the program continued to be a Federal-State partnership, and
    that both parties were financially invested in helping families
    become self-sufficient.
        After welfare reform became law, child poverty declined,
    unmarried birth rates fell, and many recipients went to work.
    As a result caseloads fell dramatically. Because States
    received credit for their work requirements if caseloads
    dropped, it also meant the 50 percent work requirement was near
    zero or near zero in many States.
        To strengthen the work requirement, Congress passed the
    Deficit Reduction Act of 2005. As a result many States
    increased their efforts to find people work. However, States
    also found other ways to meet the Federal requirements, one of
    which became known as ``excess MOE.'' The excess MOE provision
    allows States to reduce their work requirement if they spend
    more than is required. Only one State used excess MOE prior to
    DRA, but today dozens of States report spending more than is
    required.
        This chart shows how spending reported annually by States
    appears to have increased dramatically in the years since the
    DRA was passed. The post-DRA years are shaded in red.
        Why would States begin reporting increases in spending
    during that time? One reason is because excess MOE meant that
    they could reduce their work requirement by reporting
    additional spending. So even though the DRA was intended to
    strengthen work requirements, as there were 19 jurisdictions at
    the time with no work requirements, now there are more, 22,
    that have no work requirement partially due to excess MOE.
        Because of the excess MOE credit, States began looking at
    spending in other departments throughout government that could
    be claimed in the TANF program, as is allowed under current
    program rules. So a State may begin counting new child-care
    programs, prekindergarten classes, or earned income tax credits
    as TANF spending. The State may even count volunteer hours as
    MOE by multiplying the hours by an estimated wage and reporting
    this as TANF spending. States can also report spending by third
    parties as MOE. For example, a State may count the value of
    food given out at food banks as TANF spending.
        In closing, I want to point out that none of these
    practices are illegal. None of them are questionable according
    to current policy. States cannot be blamed for working within
    rules and regulations to meet Federal requirements. However,
    based on my experience as overseeing the TANF program and
    implementing the Deficit Reduction Act regulations, I believe
    that this combination of factors has resulted in weaker work
    requirements, less investment in TANF families, and fewer
    families becoming self-sufficient.
        I appreciate the subcommittee's interest in this issue, and
    I hope that the members of this subcommittee and this panel can
    work together to ensure that TANF is working as intended. I
    look forward to answering any questions that you might have.
        Chairman DAVIS. Thank you very much, Mr. Collins.
        [The prepared statement of Mr. Collins follows:]

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        Chairman DAVIS. I would like to recognize Mr. Berg from
    North Dakota to introduce the witness from his own State, Mr.
    Cartledge.
        Mr. BERG. Thank you, Mr. Chairman.
        I am really tickled to have Carol Cartledge here from North
    Dakota. She oversees the TANF program in North Dakota, and I
    asked her to come out and share some of the commonsense things
    that they are doing in North Dakota with the committee.
        And so thank you for being here.
        Chairman DAVIS. Thank you, Ms. Cartledge. You may proceed.

      STATEMENT OF CAROL CARTLEDGE, DIRECTOR, ECONOMIC ASSISTANCE
       POLICY DIVISION, NORTH DAKOTA DEPARTMENT OF HUMAN SERVICES

        Ms. CARTLEDGE. Chairman Davis, members of this
    subcommittee, I am here today to provide you with information
    on North Dakota Temporary Assistance for Needy Families
    program.
        Maintenance of effort is the amount a State must spend in
    order to receive the TANF Block Grant. Excess MOE is in excess
    of the amount that States need to meet the MOE expenditure
    requirements.
        A State may claim as excess MOE existing State and third-
    party spending. Using this option allows the State to reduce
    their target work participation rate and operate separate State
    programs to address special needs of families with severe
    barriers to employment.
        Target work participation rate is a percentage of a TANF
    household required to participate in work activities, which may
    be lowered by a caseload reduction credit.
        States must engage 50 percent of the TANF participants who
    are work eligible and 90 percent of two-parent TANF families in
    work activities, or States face financial penalties for failing
    to meet the work participation rate. However, the rates a State
    must actually meet for a Federal fiscal year are reduced by the
    amount of a State's caseload reduction credit. Generally the
    caseload reduction credit equals the number of percentage
    points that a State reduces its overall caseload in the prior
    fiscal year compared to the overall caseload in base year,
    which is 2005. If a State utilizes the excess MOE option, it
    further reduces the caseload reduction credit.
        North Dakota took a serious look at the excess MOE option
    with the implementation of the Deficit Reduction Act. After
    much discussion North Dakota decided not to rely on excess MOE
    as a means of meeting the work participation rate, but instead
    looked at other options under TANF. Taking it a step further,
    we looked at ways to meet the 50 percent work participation
    rate without using the caseload reduction credit to stay within
    the Federal work requirements. In order to achieve this goal,
    North Dakota researched our current policies and procedures.
        In 2006, the North Dakota Department of Human Services
    conducted on-site visits to the counties and State levels to
    determine where improvements could be made. Many of the
    discussions surrounded why TANF clients could not do the work
    activities. Obstacles typically related to mental health,
    family and health issues.
        Based on these visits, we learned we needed to change the
    focus from what clients can't do to what they can do. Further,
    we needed to look at the entities that work with our families
    with multiple barriers and agencies with the skills and the
    expertise to work effectively with various populations in North
    Dakota.
        This led to contracts for case management and employment
    services with three agencies: Community Options, Job Service
    North Dakota, and Tribal Employment and Training. Under TANF,
    adults receiving assistance are expected to engage in work
    activities and develop capacity to support themselves and their
    families.
        We also shifted our focus on the federally defined work
    activities and on how to make the work activities work for us
    instead of against us. North Dakota uses the full array of
    options, with some individuals involved with many activities.
    We have become creative with the work activities such as
    working with our tribal agencies for TANF clients to achieve
    the required hours. One of the examples is during a powwow,
    where we can count some of the hours that some of the
    individuals may be participating in a powwow.
        North Dakota continued to look at the TANF and how we could
    improve the program to better serve our clients and their
    needs. Today North Dakota has regular TANF benefits and these
    additional options: Diversion assistance, which provides short-
    term benefits to families that are employed or will be employed
    to help the parent or caregivers remain employed.
        We also have our regular TANF benefits. Within the regular
    TANF benefits we have--it is called Pay After Performance--
    work-eligible individuals are required to meet work
    requirements before their needs are met. This means that the
    child-only payment is made, and if the work-eligible individual
    meets the work requirements, we would provide them with a
    supplement benefit. If the work-eligible individual does not
    meet the requirement, a sanction is imposed. The reasons for
    this requirement is so that individuals will become work ready,
    get used to what a paycheck is like.
        We have now entered into a new endeavor, which is called a
    career ladder, where we are allowing individuals to pursue
    secondary education. We have a Kinship Care program, which
    expands the options of placements for children who are in the
    care, custody, and control of the child welfare system. We have
    transition assistance, which promotes job retention by
    providing extended periods of assistance to qualified families.
    And then we have post-TANF, which is once they totally lose
    TANF assistance. We also provide support services to families.
        Implementing these changes to North Dakota has resulted in
    a work participation rate increase. In Federal fiscal year 2005
    without a caseload deduction credit, North Dakota work
    participation rate was 31.45 percent.
        Chairman DAVIS. Ms. Cartledge, would you mind summing up
    briefly? We are over a bit.
        Ms. CARTLEDGE. Of course.
        With these changes, North Dakota has been able to increase
    its work participation rate by 128 percent.
        That concludes my testimony, and I would be happy to answer
    any questions that you may have.
        Chairman DAVIS. Thank you very much.
        [The prepared statement of Ms. Cartledge follows:]

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        Chairman DAVIS. Mr. Palermino.

         STATEMENT OF PETER J. PALERMINO, TANF ADMINISTRATOR,
      CONNECTICUT DEPARTMENT OF SOCIAL SERVICES, REPRESENTING THE
               AMERICAN PUBLIC HUMAN SERVICES ASSOCIATION

        Mr. PALERMINO. Good afternoon, Chairman Davis, Ranking
    Member Doggett, distinguished Members of the Committee. My name
    is Peter Palermino. I am the TANF administrator as well as the
    child care administrator for the State of Connecticut. The TANF
    program is operated through the Connecticut Department of
    Social Services. I am here on behalf of the State of
    Connecticut, the National Association of State TANF
    Administrators, and the American Public Human Services
    Association.
        I am pleased to be here to discuss the ongoing partnership
    between the Federal Government and the States, and the ongoing
    effort to support low-income or no-income families to attain
    self-sufficiently. I expect that today's hearing will move us
    forward in an open discussion on how States such as Connecticut
    are faring in their efforts to help families with complicated
    needs, how our State is implementing strategies to help
    families through strategic investment of our State TANF MOE
    dollars, and possible options for improving the system based on
    our experience and experiences of other States across the
    country.
        Let me share a few stats for you for Connecticut. Our TANF
    Block Grant is $267 million, which brings our MOE requirement
    to $183 million, for a total of $450 million. That is a nice
    piece of change to use to help support a lot of families, and
    yet despite that, we still look for more as best we can.
        We currently serve 17,500 with direct cash assistance each
    month. That total is down from a high of 24,000 back in 2005.
    And we also serve several thousand more families with the TANF
    MOE to obtain and maintain self-sufficiency.
        Connecticut has a time limit of 21 months, with up to two
    6-month extensions for mandatory recipients. So our typical
    length of stay for a TANF client is around 33 months.
        Since October of 2010, Connecticut's monthly work
    participation rate has exceeded 50 percent without factoring in
    the caseload reduction credit or any excess MOE credit. Since
    the work participation rate is dependent on so many factors,
    including barriers of individuals' access to jobs, education,
    transportation, and other supports, we are pleased to know that
    the State's additional investments in excess MOE may assist us
    if our rate begins to drop. We have used the caseload reduction
    credit and excess MOE in years past, and we expect we may need
    to in the future.
        States do like the flexibility provided by the TANF Block
    Grant. The ability to design programs and utilize State and
    Federal funds is essential to meet differing needs of our State
    populations and economic variables, and yet still address the
    four TANF purposes. Thus, we urge you to continue to maintain
    this flexibility and honor those provisions that are in the
    TANF regulations.
        A little historical information. In 1996, Connecticut's
    TANF program expanded beyond the Aid to Families with Dependent
    Children population to serve a much broader and diverse
    population to families with incomes less than 75 percent of the
    State median income level.
        We have other programs that are supported by TANF and MOE
    funds, and they include job training, child care,
    transportation. Those are important and critical employment
    support programs for those individuals. These programs do help
    targeting families get to and stay at work and begin the road
    to self-sufficiency.
        In October of 2007, Connecticut did move our two-parent
    cash assistance families to a solely State-funded program. We
    recognized that we could not attain the 90 percent
    participation rate. Hard decision in 2007, similar to other
    States, was eventually recognized by Chairman Davis in a
    statement he made in 2011, which I quote: ``Current welfare
    rules create marriage penalties by expecting a greater share of
    married parents to be working and for more hours. States have
    responded by in effect opting out of such requirements
    altogether,'' quotations closed.
        TANF MOE in Connecticut has been very consistent over
    several years. The excess MOE is an extension of those funds
    that demonstrate the additional commitment of funding by the
    State to these TANF-directed programs. Connecticut has exceeded
    its MOE requirement for several years, and we expect to
    continue to do so.
        We do believe that the work participation rate is limiting,
    and there are a variety of reasons why, but we believe the
    caseload reduction and the application of excess MOE is a
    thoughtful provision for our States.
        In conclusion, I believe Congress and the Department of
    Health and Human Services in the States all desire similar
    results, and we are here today to work with you and will be
    happy to take some questions.
        Thank you.
        Chairman DAVIS. Thank you, Mr. Palermino.
        [The prepared statement of Mr. Palermino follows:]

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        Chairman DAVIS. Dr. Pavetti.

    STATEMENT OF LADONNA PAVETTI, PH.D., VICE PRESIDENT FOR FAMILY
     INCOME SUPPORT POLICY, CENTER ON BUDGET AND POLICY PRIORITIES

        Ms. PAVETTI. Good afternoon, Chairman Davis, Ranking Member
    Doggett, and distinguished Members of the Subcommittee. Thank
    you for inviting me to testify today.
        The key point I would like to make today is that States
    rely on excess MOE to meet their work rate because of the work
    rate's flaws. If the work rate was replaced with a new measure
    that focused on what States achieve through their TANF work
    programs, the excess MOE issues related to meeting the work
    rates would largely disappear.
        States didn't begin to use excess MOE to help to meet their
    work rate until after the passage of the Deficit Reduction Act,
    which included changes that made it harder for States to meet
    the rate. One important change was moving the base year for the
    caseload reduction credit from 1995 to 2005. This matters
    because as you can see in figure 2 on this screen, by 2005,
    States had already reduced their TANF caseloads far below their
    prereform levels.
        For every 100 families in poverty in 2005, states served
    just 35 families in their TANF programs, down from 68 families
    in 1996.
        In 2009, just eight States met their 50 percent work rate
    without any caseload reduction credit. That is either from
    reducing their TANF caseload or from claiming excess MOE.
    Comparing them to two larger States with much lower work
    participation rates, Washington and California, shows that the
    work rate fails to adequately measure whether States are
    meeting the primary goal of welfare reform, increasing the
    employment among participants while providing a safety net for
    families unable to work.
        As you can see in figure 3, Washington has done quite well
    at getting single mothers employed. In 2009, two-thirds of
    single mothers were employed, a higher share than in 38 of the
    50 States. Yet its performance on the work rate does not paint
    the same picture of success. In 2009, the State achieved a work
    rate of just 23 percent. Without the help of an excess MOE
    claim, It would not have met its work rate.
        California was one of five States that failed to meet its
    work rate in 2009 even with an excess MOE claim. Yet the
    State's low work rate obscures its success. Even with the
    State's unemployment rate at 11.4 percent, 60 percent of single
    mothers were employed. In 2009, almost 90,000 TANF recipients
    met their work requirements, and that was an increase of 40,000
    recipients from 2005, a measure of success by just about any
    standard except the TANF work rate.
        As figure 4 shows, what is even more telling is that for
    every 100 single mothers in California who were unemployed in
    2009, there were 13 TANF recipients, who met their work
    requirement. This ratio was the second highest in the country,
    and higher than the States that achieved a 50 percent work
    rate.
        Mississippi shows the other side of the story. Mississippi
    achieved the highest work rate of 61 percent in 2009, but its
    employment rate among single mothers was among the 10 lowest in
    the country. And for every 100 unemployed single mothers, there
    were just 4 TANF recipients who met their work requirement.
        Moreover, Mississippi was able to achieve a high work rate
    because it served few families in its TANF programs. As figure
    5 shows, for every 100 Mississippi families in poverty, only 10
    received any TANF cash assistance, compared to 66 in California
    and 49 in Washington.
        The weakening of the cash safety net for families has
    resulted in increased numbers of children living in deep
    poverty, and has removed the safety net from the most
    vulnerable families who have the most to gain with the help
    that TANF can provide, those that have physical or mental
    health issues, and those caring for a sick or disabled child.
        The work rate is so terribly flawed that reconsideration of
    it should be central to any TANF reauthorization discussion. In
    the interim, I offer two changes to include in a TANF extension
    that would begin to refocus State aid efforts on what matters:
    getting TANF recipients employed.
        First, allow States to count individuals that leave TANF
    for work in their work rate for up to 12 months; and second,
    ask HHS to initiate a demonstration project to encourage States
    to develop and hold themselves accountable for alternative
    performance measures that focus on outcomes.
        Now, I would like to make a few statements about third-
    party MOE, which I believe is a significant problem. States
    have found ways to withdraw State funds from programs and
    services that had been supported with TANF MOE funds and still
    meet their MOE requirement by identifying this third-party MOE.
        Importantly, this practice is not limited to States that
    report excess MOE expenditures. Some States have identified
    third-party spending and have used this spending simply to
    meet, not to exceed, their MOE requirement. This is not what
    Congress intended, and this practice should be stopped.
        These are hard economic times, and many families are
    struggling, and there are two actions--and I am going just do
    those quickly and end--that Congress should also consider that
    are related to MOE. One is redesigning the contingency fund,
    which has very complicated excess MOE provisions and makes it
    difficult for States to meet, and the other is funding the TANF
    supplemental grants, which has taken money out of State
    programs that really they need to be able to meet those
    requirements.
        With that, I will stop and take any questions that you
    might have.
        Chairman DAVIS. Thank you very much, Doctor, for that.
        [The prepared statement of Ms. Pavetti follows:]

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        Chairman DAVIS. With that, we will move to questions. I
    essentially see two questions today.
        I see some opponents to reform are messing with our sound
    system now.
        The first question that I have--I am going to put two of
    these together and then ask a couple of you to respond. First,
    is the way that we define State spending in the TANF program
    correct, Part 1, the right type of definition of the standard?
    And second, should States be able to reduce the share of adults
    on welfare expected to work if the State spends more than
    expected?
        Mr. Collins, currently States can count spending by non-
    State third parties like charitable organizations as if that
    were State welfare spending. Does that policy make sense to
    you, and do you think this potentially allows States to back
    out of their own obligations to the detriment of low-income
    families?
        Mr. COLLINS. Chairman Davis, I have done a lot of thinking
    about this. It is hard for me to understand how an incentive
    can be created when what it ends up doing is having people stay
    dependent on welfare for longer periods of time. So I don't
    believe that it works well in the way that it is set up right
    now. The way we define State spending in the TANF program is
    incorrect.
        Chairman DAVIS. Dr. Pavetti, you have said this practice of
    allowing third-party spending to be counted as State welfare
    spending, quote, ``should be stopped,'' closed quote. Why?
        Ms. PAVETTI. That is third-party MOE, because I don't think
    that that was what the intent was. It has allowed States to
    reduce State spending.
        But I would like to comment on the difference with the work
    rate. I think there are two sides to that, and in your opening
    statement, you basically said States are allowed to use the
    excess MOE, but that doesn't make it right.
        I think you can make exactly the same statement about
    States reducing their caseloads in order to meet the rate or to
    get the credit. That doesn't make it right. In the slides I
    showed, you can see States are not serving families in need,
    and they are not working, so we are not measuring the right
    things.
        So I think it is not an issue about whether or not we want
    TANF recipients to go to work, it is about whether or not we
    are measuring whether or not they are going to work, and that
    is what I think the issue is.
        Chairman DAVIS. I appreciate you sharing that. You know,
    ultimately the issue is making sure that we are measuring the
    right outcomes and also the process is correct.
        And the question of allowing apparently excess State
    welfare spending to reduce work requirements, can anyone on the
    panel explain the logic of this provision to me? Why should we
    reduce work requirements just because a State spends more on
    TANF benefits?
        Before we double back here, I would like to give a--
    actually Dr. Pavetti could be a staff member almost with the
    number of times I have seen her here. I appreciate her erudite
    contributions to the subcommittee over the last 18 months that
    I have chaired.
        Mr. Palermino.
        Mr. PALERMINO. What I would like to share is this, is that
    the complexities that we have encountered with some of the
    families, and some of the opportunities that we would like to
    provide based on the way the current rules are set up with
    providing, for example, more adult basic skills type of
    opportunities, we would like to take those risks. I think our
    State legislators want to work with us and want us to take some
    more risk to serve people that won't count towards what the
    work participation rate allows us to be countable.
        So in taking those risks, we would like to think that if
    there is excess MOE, and we have accounted for that, and that
    excess MOE does support the purpose statements, that then if
    the risk we take did not come through, and we were
    unsuccessful, at least at that time, we would be able to still
    comply with the ultimate goal of the TANF law and then also
    give opportunities for families that may not get it because we
    just didn't have that opportunity.
        Chairman DAVIS. Ms. Cartledge, would you like to comment?
        Ms. CARTLEDGE. Mr. Chairman, Members of the Committee,
    North Dakota has chosen not to use excess MOE, and it has to do
    with not wanting to be reliant on third parties to meet our MOE
    requirements. And also we wanted to be able to look at how we
    can help our families. We do not want to shift people, and we
    knew after going out and doing research, we discussed what were
    some of the issues families were experiencing. Like I said,
    mental health issues, and also health issues, and also some of
    the other things came up as hygiene issues.
        So when we went out and did the research, it was, okay, how
    can we address those things to help our families get to work?
    And a very basic example is one of our first clients that we
    saw when we did a little bit of shifting of the individual had
    very poor hygiene. So it means that, okay, these are some of
    the things we are seeing. This is why they can't become
    employed. We need to take them by the hand and take them to the
    store; here is a toothbrush. We are going to take you in a
    bathroom and show you how to brush your teeth.
        So we chose instead to go to this is how we can help our
    clients, because we felt that was the intent of TANF was to
    take them from where they are and move them into employment.
    And I did include several, a couple, three examples of actually
    how we did move some clients to employment.
        So I am not really an expert on utilizing excess MOEs
    because we chose not to.
        Chairman DAVIS. With that, thank you.
        I am going to recognize Mr. Doggett for 5 minutes.
        Mr. DOGGETT. Thank you very much.
        Mr. Palermino, what is your feeling about what the States
    will do if we bar them from continued use of excess
    maintenance-of-effort credits?
        Mr. PALERMINO. The example that I shared a few minutes ago
    with regard to the one clear example right now is with our
    families with basic skills is that if we are not allowed that
    flexibility to challenge ourselves or challenge our clients,
    then I think we may have to resort to moving those individuals
    out of the TANF Block Grant and make them State-only
    individuals. That would be the way to avoid our not being
    compliant in order to meet the work participation rate.
        So we are very concerned as a State to meet the work
    participation rate. No one wants to be faced with a penalty,
    and Connecticut's penalty would be roughly $13 million if we
    failed to meet that rate.
        Mr. DOGGETT. So the most immediate effect would be to deny
    those individuals participation in the Federal program?
        Mr. PALERMINO. These are the more hard-to-serve individuals
    that are receiving assistance.
        Mr. DOGGETT. Yes.
        Dr. Pavetti, are there features in the current
    regulations--if this Congress does nothing, and that seems to
    be one of the things that we are best at, but if we do nothing,
    will there be provisions in the current regulations that will
    reduce the work participation requirements through special
    credits? In other words, even if Congress doesn't act, aren't
    many States likely to face higher effective work participation
    requirements in TANF starting this year?
        Ms. PAVETTI. They are. One thing that happened was their
    final regulations haven't gotten fully implemented because
    there were ``hold harmless'' provisions that were implemented
    because of the recession, knowing that States were going to
    have difficulty meeting those rates.
        So what will happen this year which is that excess MOE will
    be treated much as it was intended, which is that only the
    share of basic assistance will be counted. So it will be
    constrained. States only spend about 30 percent of their TANF
    dollars on basic assistance. So basically if the State spends
    $100, they will only be able to use $30 of their excess MOE
    spending for caseload reduction credit. So it is going to
    substantially reduce what they can do, and it also gets it back
    to what it was intended, which is that if States spent more on
    basic assistance, they should not be penalized for doing that.
    That was the idea. So if nothing happens, it will already be
    harder for States to meet their work rates.
        Mr. DOGGETT. I gather from the chart you presented in your
    testimony, your response to the chairman's questions, that the
    real problem here is that these TANF requirements don't account
    for what the States are really doing to help poor mothers find
    jobs; basically that the current standards are too focused on
    the process and not enough on the results in terms of women who
    find jobs.
        Ms. PAVETTI. Right. That is very true.
        There are lots of different ways in which this is
    problematic. I would say the biggest problem is that it is a
    rate. Because it is a rate, you can manipulate the denominator,
    by not serving people, which is what many States have done. And
    the other thing is that when you see States like California
    that, since 2005, has increased the number of people in meeting
    their work participation rate by 40,000 people, but they don't
    meet their work rate, something is wrong. They have done a lot
    to engage TANF recipients in work activities. It is the rate
    that creates the problem.
        So unless we fix it, we are always going to be measuring
    the wrong things, and we are not going to be necessarily
    helping families to move forward, which is, I think, what we
    all want to achieve.
        Mr. DOGGETT. Thank you all very much.
        I yield back, Mr. Chairman.
        Chairman DAVIS. I thank you very much.
        And with that, I recognize Mr. Paulsen for 5 minutes.
        Mr. PAULSEN. Thank you, Mr. Chairman, also for holding the
    hearing. And also for all of the witnesses who took the time to
    be here today.
        It was interesting as we heard in the testimony earlier
    about States that are counting third-party spending now as if
    it were spending towards TANF MOE, the requirements, and I am
    trying to get a sense, do we know how many States are, in fact,
    counting third-party spending in this count towards TANF? Do
    you have an idea, Ms. Brown? Do we have an idea of how many of
    the States numerically?
        Ms. BROWN. Although we haven't studied the third-party
    spending issue, we did have a recent discussion with HHS, and
    our understanding is they don't know how many States, nor do
    they know the dollars involved.
        Mr. PAULSEN. Do you think that agents just would have
    adequate oversight to understand State MOE spending or what
    States are reporting as MOE; do they have adequate oversight to
    determine that?
        Ms. BROWN. When I talked about MOE spending, I mentioned
    the things that can make it effective are good design, good
    implementation, and good monitoring. And we have been talking a
    lot about design and implementation today, but monitoring is a
    really key part of that. HHS has some administrative reports
    that come in to them, but they also rely a lot on the Single
    Audit Act, on the single audits that are done on the programs,
    and our work on those audits has shown us that the quality is
    uneven, and they may not catch the kinds of complex policy
    issues that we are talking about here today.
        Mr. PAULSEN. Mr. Palermino, from the association's
    perspective, do they have any information on how many States
    are using third-party spending, or how much they are counting?
    I did note that in a report that the Georgia Budget and Policy
    Institute----
        Mr. PALERMINO. No. At this point there is no formal report
    that has been issued with regard to that specific information.
        Mr. PAULSEN. Okay.
        Mr. PALERMINO. Just to let you know for the record, for
    Connecticut, we have been using primarily State investments,
    and when we report on our excess MOE, we are talking about
    State investments and not necessarily some of the other, I
    think, responses that have been referenced in there, too.
        When we worked with our TANF ECF, we did do, we did work
    with some nonprofits. There are some community-based
    organizations that carry out a lot of similar functions that
    are similar to the TANF purpose statement, so they present
    opportunities because we know that the State government nor the
    Federal Government can handle this alone. In fact, we work very
    closely with private foundations in order to encourage them to
    look at investing some of their dollars. And that was
    attractive, as I am sure you would expect, for them to invest
    private dollars when they knew they could leverage some of the
    Federal funds.
        Mr. PAULSEN. I am just trying to get a sense, because it
    sounds like there is a report that Georgia Budget and Policy
    Institute, noting that about half of Georgia's MOE spending is
    from third parties. And, you know, from my perspective--now we
    heard the reference to at least one State counting a Girl Scout
    troop leader's time as State spending in the TANF program. Is
    that something that is sort of common knowledge out there? Has
    anyone else on the panel heard about that, or could anyone
    explain how a Girl Scout leader's volunteer time or troop time
    would meet TANF's purposes, program purposes?
        Mr. COLLINS. The opportunities to amass this type of third-
    party spending is quite vast actually, particularly in
    organizations that deal with youth, because that particular
    group fits purpose 3, and it allows the TANF agency to go in
    and find the program, establish the TANF purpose. Once you do
    that, the organization can sign an agreement, and once that has
    happened, you can then use the actual expenditures as TANF
    spending. In some cases you can use the volunteer hours in a
    similar sort of way.
        So there are a number of ways to get third-party
    expenditures to count as TANF spending. I think the
    opportunities are far greater than actually what we know.
        Mr. PAULSEN. So if the opportunities are far greater than
    what we know, I mean, do you believe or does anyone on the
    panel believe that we should be counting a Girl Scout troop
    leader's volunteer time towards excess MOE counts or spending?
    I mean, to me it just seems a little crazy.
        Mr. COLLINS. The challenge that I have with it is until
    someone can show me how it directly impacts more welfare
    recipients going in to work and how that actually comports with
    the intent of TANF, then I think no, I don't think it makes a
    lot of sense at all actually.
        Mr. PAULSEN. Right.
        Mr. Chairman, if I could, just for the record, put an
    article or position paper that identifies the Girl Scout leader
    issue in--the State of Hawaii I believe was the State--into the
    record.
        Chairman DAVIS. Without objection.
        [The information follows, The Honorable Erik Paulsen:]

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        Chairman DAVIS. And the gentleman's time has expired. I
    thank the gentleman.
        Mr. Berg from North Dakota is recognized for 5 minutes.
        Mr. BERG. Thank you, Mr. Chairman.
        And thank you, Ms. Cartledge, for being here. You know, one
    of the things in your testimony that really jumped out at me is
    since 2005 where our work participation rate was 31 percent,
    and it has gone up to 72 percent in 2012. I mean, I just want
    to commend you for digging into these, each cases, and helping
    people. We didn't get to it, but there are some great stories
    at the end of your testimony and really putting people back to
    work and helping them both with work as well as education.
        Two quick questions, and then I have a question for Mr.
    Collins. The first question is why did North Dakota decide not
    to count this outside money? What was that thinking? Why was
    that decision made?
        Ms. CARTLEDGE. Mr. Chairman, Members of the Committee, the
    reason North Dakota decided not to is we didn't want to be
    dependent on a third party to meet our MOE requirement or have
    to do like a chase to get the requirement. So we preferred to
    be independent and wanted to meet our requirements by using our
    general funds or also other means.
        Mr. BERG. So it really creates more stability for the
    program----
        Ms. CARTLEDGE. Right.
        Mr. BERG [continuing]. Rather than have some third party
    that may be there one year and gone the next?
        Ms. CARTLEDGE. Correct.
        Mr. BERG. The other question was brought up today that it
    may be easier for small, rural States to meet the work
    participation requirements, and that States like North Dakota
    have a very weak safety net for families in need. And I guess I
    would just like to--I mean, how do you feel about that? To me,
    it seems like North Dakota has a very strong safety net. Could
    you respond to that?
        Ms. CARTLEDGE. Yes. Mr. Chairman, Members of the Committee,
    North Dakota does have a strong safety net for our children. As
    one of the example of our TANF families, the TANF program
    itself has like a pre- and postprogram, so it tries to avoid
    the cliffhanger effect that once they become employed, they are
    done, they are gone.
        What we did was we have the transition assistance for 6
    months. We give them a smaller TANF benefit, and we keep them
    with supportive services. Once that ends after 6 months, then
    they can get additional 6 months with transportation allowance.
    Those are not counted as part of meeting our work requirement,
    as also those who go beyond the educational point.
        So we are taking additional steps like the educational
    ladder, the career ladder, is to move people out of, further
    out of, poverty by giving them the educational skills to also
    work themselves totally off of the TANF benefits.
        Mr. BERG. Thank you very much.
        Mr. Collins, I have a question for you, and just to follow
    up on the chairman, I am having trouble with the underlying
    logic here if our goal is to put people back to work, and we
    are saying, gee, if a State spends more money, then you can
    have fewer people working. I mean, if we believe more money is
    the right program and doing the right thing, if a State has a
    higher maintenance of effort, it should, in fact, have more
    people working, not fewer.
        And so to me it seems like on the fundamental core here,
    the incentives and consequences are somehow twisted around and
    backwards. Could you just help me either figure out why it is
    the right thing, or what the alternative should be?
        Mr. COLLINS. Well, what is interesting is, you know, when
    the provision was created, it was in the 1990s. We have
    evolved. We have gone through the deficit reduction act (DRA);
    things have changed. So it is a fair statement to rethink
    really what we are doing with this particular incentive,
    because it seems to be the opposite of what it is that you
    would want to do.
        A couple of things. One, if you cannot tie it directly to
    more single parents moving into paid employment or
    participating in work activities, I am struggling with what the
    reward would be. That would be necessary.
        And, second, to be fair, a lot of this happened because the
    Deficit Reduction Act created a stronger work requirement, and
    States found a way around it, and they used the excess MOE to
    do that.
        I would argue that the best and safest way to guard
    yourself against penalties is to do what North Dakota did,
    engage your caseload; figure out what they are doing, where
    they are at, and make sure that they make progress.
        And the last piece I would add to that is it is about what
    you can do, not what you can't do. There are 12 different work
    activities that people can do. If there are no paid employment
    opportunities right now, people need to get ready for when that
    opportunity comes around in the future. Sitting at home and
    waiting is not a strategy. Hope is not a strategy.
        Mr. BERG. Thank you.
        I will yield back, Mr. Chairman.
        Chairman DAVIS. I thank the gentleman.
        Mrs. Black is recognized for 5 minutes.
        Mrs. BLACK. Thank you, Mr. Chairman.
        First of all, Ms. Cartledge, I want to commend you in North
    Dakota for what you are doing. It seems to me that you are
    doing a very commonsense thing. You recognize that your role is
    to get people back to work and to help them to become self-
    sufficient, and I commend you for what you have done in going
    out and actually meeting with folks and figuring out why it is
    that they are having a hard time getting employed, and really
    giving them the opportunity for upward mobility.
        That is truly what this is about, and it saddens me that we
    get to that position where States will do things to try to
    twist and turn and almost cover up what they are really doing,
    what they are putting into the program in order for it to be
    successful. It really does bother me.
        But let me ask you, Ms. Brown, because you are the person
    who looks at the statistics and so on, in your testimony about
    the States that can count this third-party spending as if it
    were spending toward their maintenance of effort, do you know
    how many States are doing so today and how much in the third-
    party spending they can count in that State spending?
        Ms. BROWN. The information I gave on 2009 is the most
    recent that we have. It is not something that you can just look
    at a set of data and figure it out. It requires quite a bit of
    calculating to determine how much of someone's caseload
    reduction credit is due to different factors.
        Mrs. BLACK. And why is that so complicated? It would seem
    to me there would be categories that say, okay, here is how
    much the State actually puts in, dollar number; here is how
    much the State gets from volunteer hours; and here is how we
    figure it. Is that not what gets reported, or how does it get
    reported?
        Ms. BROWN. Well, you know, we have also gone on record
    about the problems with the work participation rate and don't
    believe that it is achieving the goals that it should be. But
    beyond that, that is really the primary metric that they use to
    gauge the success of the program. And so as the caseloads have
    gone down since the beginning, since welfare reform, many more
    funds are being devoted to other types of activities, and we
    don't know enough about what those are. We actually have some
    work ongoing right now where we are trying to figure some more
    of that out.
        Mrs. BLACK. And I note that in the Congressional Research
    report on page 9 where we have the pie chart, and when I look
    at how the money is being used, there is 16 percent of the
    money that is being used in the ``other'' category. That is a
    pretty large percent, especially when you compare that to the
    capability of using the two-parent family formation and
    pregnancy prevention, which seems to me if we were looking at
    it from that end of making sure that people are keeping solid
    relationships and not getting into the situation to begin with,
    because obviously prevention is the best medicine there. But we
    have got 16 percent that is in the ``other'' category.
        Ms. BROWN. Yes. And the tricky part about that is what we
    don't really know--in addition to not knowing enough about
    every activity is in that ``other,'' we don't know how many
    people are actually getting served, and we don't know if it is
    effective or not.
        Mrs. BLACK. So obviously the point is being made that if
    this program really is a temporary assistance for needy
    families, and we call it TANF, which we talk about as an
    acronym, but don't really talk about what its real mission is,
    that if we don't know how the dollars are being spent in order
    to help someone to become self-sufficient, it is hard to say
    that the dollars are really being spent for the mission of the
    program.
        I want to go also to the child care category, because 17
    percent of the money is being spent on child care. Is there any
    way that we can tell whether the folks who are using the child
    care and the expenditures on that are being used for parents
    being in school, in programs that are actually working, or do
    we know that?
        Ms. BROWN. Well, we have done some work looking at the
    multiple funding streams that go into funding child care in
    States, and in addition to TANF and some of the Child Care
    Block Grants, there is also Social Service Block Grant funding.
    Those go into a pool to be provided for services for people who
    are determined eligible. And the States actually set their own
    specific eligibility requirements, but they are often things
    that are related to needing child care because you are low
    income and you are trying to work, or you are doing other
    activities that are acceptable to the State.
        Mrs. BLACK. I see that I am on the yellow, which means I am
    going to turn red--oh, right now I turned red, so I am going to
    be out of time, but what I would ask is if I had the
    opportunity and the time to ask one more question, I would ask
    each of you how it is that we can fix this program, both in
    meeting the mission and, second, in the requirements that we
    should have in the reporting to make sure that what is being
    spent and the way it is being done is really ultimately meeting
    the mission of getting people to work so they can fulfill their
    dreams.
        So thank you for that.
        Chairman DAVIS. Thank you, Mrs. Black.
        The chair now recognizes Mr. Reed from New York.
        Mr. REED. Well, thank you, Mr. Chairman, and I will be as
    kind as I can for the lady from Tennessee and go with her
    question to the panel first and use up some of my time to
    answer her question. Hope you were listening to that question.
    Anyone want to take a stab at that? Mr. Collins? Oh, no, Dr.
    Pavetti, you jumped up. Please. We haven't heard much from you
    today.
        Ms. PAVETTI. I think the single most important thing we
    could do is to fix the work rate. I would just like to say I
    have the numbers. I looked to compare the numbers from 2005 to
    2009, and Ms. Cartledge gave her rate and how it increased, but
    the numbers of people meeting the work rate requirement are
    pretty much the same. And so I think that we just don't know
    how to measure whether States are doing the work to get
    recipients to work. So I think we need to really give States
    the opportunity to try different ways of saying, this is what I
    am doing, and this is how I think I should be held accountable.
    So that is one thing on the work rate.
        On the spending, I think that there are very detailed
    reports. We did--there was a report on the ``other,'' and I
    think States should be required to do more detail than they are
    now so that we do have a better accounting. And I think that,
    again, you can constrain the MOE spending without putting
    States at risk of not serving people because of the way it
    relates to the work rate.
        Mr. REED. Well, thank you very much.
        Mr. Collins, you wanted to offer something?
        Mr. COLLINS. Yes.
        My answer would be to do what North Carolina and the other
    eight States did that were able to meet the 50 percent work
    participation rate of which over 65 percent are in paid
    employment. Get dirty. Get in there and work with people. Get
    in there and build a fully comprehensive program, all 12 work
    activities. There are people who can work today, and there is
    going to be people who need help so they can work tomorrow, and
    we shouldn't let the one overshadow the other. Every one of
    them needs help, and what we should do is focus on what people
    can do. Now. Today.
        So this isn't about work participation hours. This is not
    about really meeting the rate. What it is about is engaging
    people and making sure that their government provides a service
    while they are on time-limited assistance. It is called
    Temporary Assistance for Needy Families. It has a time limit
    associated with it. I think you can start to understand really
    what the intent of the program is, and we should not let people
    sit, and we should not let them wait.
        I am referring to the fact that even before the DRA was
    passed, more than half of all TANF recipients who had a
    requirement for work activities had no hour in a single
    activity for the entire year, and I am suggesting, whether it
    is excess MOE or not, that we can do significantly better than
    that.
        Clearly, there could be other reports that would shed a
    light as to how these credits are put together, but I think
    that what we are doing is we are diverting ourselves from what
    I think the real work needs to be. You don't want a penalty?
    Build a really robust program, and it will never happen to you.
        Mr. REED. I appreciate that sentiment, Mr. Collins.
        Mr. Palermino, I want to direct my next inquiry to you
    because it is along what Mr. Collins was talking about, because
    when I read the testimony in preparing for today, the excess
    MOE issue, I know in 2008 you took a stance, or your
    organization may have taken a stance, that we should not repeal
    that, we need to continue it, encourage the State investments,
    spending investments and things.
        Do you still feel that same way? Does your organization
    still feel that same way if the repeal of excess MOE was put
    onto the table, given what everyone is talking about here
    today?
        Mr. PALERMINO. I think that we want to be working together
    to examine what the best strategies would be, and I think the
    work participation rate is one. I think reviewing what the
    purpose is, if we are going to change the purpose, and who the
    partners will be I think may lend itself to maybe what that
    decision would be.
        Mr. REED. Well, I guess I am truly focusing on the excess
    MOE issue. You think that should continue the way it is, or is
    there any need to reform that?
        Mr. PALERMINO. Well, we have seen some value with it, and
    not to the extent of some of the examples, I think, that have
    been used here, but I think we have seen some value with it,
    with giving us an opportunity to be flexible within our State,
    being able to--and we are not trying to move against families
    in getting adults in to work because ultimately they need to
    get a high school diploma before they can move to getting a
    good job, and that is some of the target populations we want to
    work to move there.
        So if we change some of the thought process around what the
    true output should be, and if we recognize that we do have
    partners beyond just the government--now, most of our excess
    MOE is within the State government. We do have records and
    data, and we do track to make sure it fits the purpose and all
    that so we can report about that. But I think to the extent
    that there are other viable partners to work with, maybe that
    is a way of rethinking how we revisit what the purpose
    statements are and who should participate with us.
        Mr. REED. I appreciate that.
        My time has expired, but I just have to put on the record,
    Mr. Chairman, if I could have the courtesy of 30 more seconds--
    --
        Chairman DAVIS. Without objection.
        Mr. REED [continuing]. The focus of the effort must be, in
    my opinion, to put people to work and provide an opportunity
    for people getting to work, not the policy initiative of
    encouraging folks just to spend money at the State level for
    the sake of making the policy initiative of spending more
    money. It just doesn't make any sense to me, and I echo the
    sentiments of my colleague from North Dakota and the chairman
    himself. It just seems to me counterintuitive. What we should
    be focusing on is getting people to work and providing them
    with the tools that they can go into this competitive workplace
    sooner than later.
        And with that, I will yield back. Thank you, Mr. Chairman.
        Chairman DAVIS. Thank you very much.
        I would like to thank, again, all of our witnesses for
    joining us today. We appreciate your input. Your different
    perspectives have all added value to this discussion. We hope
    you will continue to share your thoughts.
        We have discussed some opaque provisions of the TANF
    program, how they work, and some of the troubling consequences
    of how they have been used in recent years to weaken both work
    requirements and State spending requirements. I appreciate your
    help.
        If Members have additional questions, they will submit them
    to you in writing. What we would ask is that you share your
    responses with us on the committee for the record so all will
    have access to that information.
        Thank you again, and with that, the committee stands
    adjourned.
        [Whereupon, at 4:07 p.m., the subcommittee was adjourned.]
        [Submissions for the Record follow:]

                   American Public Human Services Association

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              Boys and Girls Clubs of America, Brian Manderfield

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                           Center for Fiscal Equity

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                        Center for Law and Social Policy

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                 Coalition of CA Welfare Rights Organizations

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                                Washington State

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