Welfare Reform: States Are Using TANF Flexibility to Adapt Work  
Requirements and Time Limits to Meet State and Local Needs	 
(07-MAR-02, GAO-02-501T).					 
								 
Of the 2.1 million cash assistance cases funded by federal	 
Temporary Assistance for Needy Families (TANF) block grants or	 
state maintenance-of-effort (MOE) dollars in the fall of 2001,	 
one-third were composed of one or more children only. Because no 
adult in these families receives TANF or state MOE funded cash	 
assistance, work requirements and time limits do not apply. When 
the Personal Responsibility and Work Opportunity Reconciliation  
Act of 1996 established federally mandated participation rates,  
it also included a "caseload reduction credit" provision. This	 
specifies that each state's mandated participation rate is to be 
reduced if its welfare caseload declines. Because of the dramatic
declines in welfare caseloads that have occurred since 1996,	 
states have generally faced greatly reduced mandated		 
participation rates for the TANF programs. After accounting for  
child-only cases, states excluded 11 percent of the remaining 1.4
million families with an adult from federal or state time limits.
States' experiences with work requirements and time limits	 
highlight key issues in the reauthorization of TANF provisions,  
including the relatively limited number of families that have	 
reached their time limits so far and the future adequacy of the  
federal 20 percent extension.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-02-501T					        
    ACCNO:   A02867						        
  TITLE:     Welfare Reform: States Are Using TANF Flexibility to     
Adapt Work Requirements and Time Limits to Meet State and Local  
Needs								 
     DATE:   03/07/2002 
  SUBJECT:   Block grants					 
	     Federal aid programs				 
	     Program evaluation 				 
	     Welfare benefits					 
	     Welfare recipients 				 
	     Employment 					 
	     Federal regulations				 
	     HHS Aid to Families with Dependent 		 
	     Children Program					 
								 
	     HHS Temporary Assistance for Needy 		 
	     Families Block Grant				 
								 

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GAO-02-501T
     
United States General Accounting Office

GAO Testimony

Before the Subcommittee on Human Resources, Committee on Ways and Means,
House of Representatives

For Release on Delivery Expected at 9:30 a.m.

Thursday, March 7, 2002 WELFARE REFORM

States Are Using TANF Flexibility to Adapt Work Requirements and Time Limits
to Meet State and Local Needs

Statement of Cynthia M. Fagnoni, Managing Director Education, Workforce, and
Income Security Issues

GAO-02-501T

Mr. Chairman and Members of the Subcommittee:

Thank you for inviting me here today to discuss the extent to which families
receiving cash assistance are excluded from work requirements and time
limits. The 1996 Personal Responsibility and Work Opportunity Reconciliation
Act (PRWORA) significantly changed federal welfare policy for low-income
families with children, building upon and expanding state-level reforms.
When the Congress created the Temporary Assistance for Needy Families block
grant (TANF) to replace the previous welfare program, it emphasized that the
new program was to be transitional in nature and focus on moving welfare
recipients into employment. To this end, states are required to enforce work
requirements and time limits on most families receiving cash assistance.
More specifically, states face financial penalties if they do not include a
minimum percentage of adults receiving cash assistance in work or work
activities each year, referred to as the mandated participation rate
requirement. This mandated rate increased each year, reaching 50 percent of
all families in fiscal year 2002. In addition, states are to enforce a
60-month lifetime limit on families with adults who receive cash assistance.
To receive its TANF block grant, each state must also meet a
maintenance-of-effort requirement, under which it must spend at least a
specified amount of its own funds, referred to as state
maintenance-of-effort funds (MOE).

Along with these federal requirements, the law allows states considerable
flexibility to exclude families from work requirements and time limits.
First, these requirements only apply to families with an adult receiving
aid, not to cases in which only children receive cash assistance. Second,
PRWORA specifies that up to 20 percent of families receiving assistance may
receive extensions to federal time limits. Third, states may provide cash
assistance not subject to work requirements and time limits if they use
their state MOE in specified ways, such as through a state program other
than their TANF program.

As the Congress considers reauthorization of TANF, you asked us to determine
and assess the states' implementation of these work requirements and time
limits. More specifically, you asked us to determine (1) the extent of
child-only cases among the cash assistance caseload funded by federal TANF
and state MOE, (2) how states made use of work requirement flexibility, (3)
the number of families states have excluded from time limits, and (4) key
issues related to states' experiences in applying TANF work requirements and
time limits. The information we gathered came from site-visits in 4 states,
telephone interviews with TANF officials in 8 other states, and a survey
administered to TANF officials in

all 50 states and the District of Columbia.1 We conducted our work from
August 2001 through February 2002, in accordance with generally accepted
government auditing standards.

In summary, of the 2.1 million cash assistance cases funded by federal TANF
or state maintenance-of-effort dollars in the fall of 2001,2 one-third of
these cases, or 700,000, were composed of one or more children only. Because
no adult in these families receives TANF or state MOE funded cash
assistance, work requirements and time limits do not apply. Regarding work
requirements, when PRWORA established federally mandated participation
rates, it also included a "caseload reduction credit" provision. This
provision specifies that each state's mandated participation rate is to be
reduced if its welfare caseload declines. Because of the dramatic declines
in welfare caseloads that have occurred since 1996, states have generally
faced greatly reduced mandated participation rates for the TANF programs.
For example, in fiscal year 2000, caseload reduction credits reduced
mandated participation rates to 0 in 31 states- instead of the mandated rate
of 40 percent specified in the law. As a result, states have increased
flexibility in determining the numbers of adults that are to be involved in
work or work activities. Regarding time limits, after accounting for
child-only cases, states excluded 11 percent of the remaining 1.4 million
families with an adult from federal or state time limits. States'
experiences with implementing work requirements and time limits highlight
key issues of interest for the reauthorization of TANF provisions, including
the relatively limited number of families that have reached their time
limits so far and the future adequacy of the federal 20 percent extension

PRWORA made sweeping changes to national welfare policy, creating TANF and
ending the federal entitlement to assistance for eligible needy families
with children under Aid to Families With Dependent Children (AFDC). The
Department of Health and Human Services (HHS) administers the TANF block
grant program, which provides states with up

Background

1We visited California, Illinois, Maryland, and New York and conducted
telephone interviews with Colorado, Hawaii, Florida, Michigan,
Massachusetts, Mississippi, Texas, and Wisconsin. The states were selected
to represent a range of factors, including variation in caseload size and in
TANF program funding choices. The survey had a 100 percent response rate,
although each state did not respond to all questions.

2This represents the number of families receiving cash assistance during 1
month between October and December of 2001.

to $16.5 billion each year through fiscal year 2002. TANF was designed to
help needy families reduce their dependence on welfare and move toward
economic independence. The law also greatly increased the discretion states
have in the design and operation of their welfare programs, allowing states
to determine forms of aid and the categories of families eligible for aid.
TANF establishes time limits and work requirements for adults receiving aid
and requires states to sustain 75 to 80 percent of their historic level of
welfare spending through a maintenance-of-effort requirement. In addition,
TANF gives states funding flexibility, which allows states to exclude some
families from federal time limits and work requirements.

TANF Establishes Time Limits and Work Requirements for Adults Receiving Aid

TANF establishes a 60-month time limit for families receiving aid. States
have the option of establishing shorter time limits for families in their
state. A state that does not comply with the TANF time limit can be
penalized by a 5 percent reduction in its block grant. While the intent of
TANF is to provide temporary, time-limited aid, federal time limits do not
apply to all forms of aid or to all families receiving aid. First, states
are only to count toward the 60-month time limit any month in which an
individual receives a service or benefit considered "assistance," which is
defined in the TANF regulations as cash or other forms of benefits designed
to meet a family's ongoing basic needs.3 Second, time limits do not apply to
the following types of cases:

1. Cases in which the adult in the household does not receive cash
assistance, typically called "child-only" cases.4

2. Families that received assistance while living in Indian country or an
Native Alaskan village where 50 percent of the adults are not employed.

3"Assistance" does not include things like nonrecurrent, short-term
benefits, such as rent deposits or appliance repairs; work subsidies; work
supports such as child care or transportation subsidies for working
families; or any other services such as counseling, case management, and
peer support that do not provide basic income support.

4HHS has indicated that it would be inconsistent with statutory intent for
states to simply remove adults from assistance units once they reach their
60-month time limit and then continue to use federal dollars to pay benefits
to the children as a child-only unit. States may choose to use their MOE
funds to do this.

Third, all states have the option to use federal funds to extend assistance
beyond the federal 60-month limit for reasons of hardship, as defined by the
state. States can extend assistance for up to 20 percent of the average
monthly number of families receiving assistance ("20 percent extension").5
States can also extend assistance for victims of domestic violence through
federally approved domestic violence waivers.6 Finally, assistance that is
provided solely through state MOE is not subject to the federal time limit.

TANF also establishes work requirements for adults receiving aid. After 2
years of assistance, or sooner if the state determines the recipient is
ready, TANF adults are generally required to be engaged in work as defined
by the state.7 In addition, TANF establishes required work participation
rates-a steadily rising specified minimum percentage of adult recipients
that must participate in federally specified work or work-related activities
each year. 8 States were required in federal fiscal year 2002 to meet a work
participation rate of 50 percent for all TANF families with adult
members-referred to as the rate for all families. States were also required
to meet a much higher rate-90 percent-for two-parent families. 9 States must
meet these work participation rates to avoid financial penalties.

5 In calculating the federal 20 percent extension, child-only cases are
included in the denominator but not in the numerator. All things being
equal, the larger the percentage of child-only cases in a state's caseload,
the greater the number of families with adults whose time limit may be
extended.

6States can elect the Family Violence Option allowing states to waive any
TANF requirement, under certain conditions, for victims of domestic
violence. If a state elects the Family Violence Option and waives the time
limits for such recipients and later faces a penalty for extensions that
exceed the 20 percent cap, the state may qualify for a reasonable cause
penalty exception.

7States may not penalize parents with children under age 6 for not working
if child care is not available. States have the flexibility to exclude other
categories of recipients from work requirements, although they cannot remove
these individuals from the work participation calculation.

8States may choose to exempt parents with children under age 1 from
calculation in the work participation rate. Work activities that count for
federal participation rate purposes include employment, work experience
programs, on-the-job training, community service, providing child care for
other TANF recipients, job search, and (under certain circumstances)
education and training.

9The two-parent work participation rate of 90 percent means that each
two-parent family must participate in a federally defined work activity for
an average of at least 35 hours per week and that a specified number of
hours be attributable to specific work activities. A state may have one
parent participate for all 35 hours, or both parents may share in the work
activities. HHS issued penalties for not meeting the two-parent work
participation rate in fiscal year 2000 to Alaska, Arkansas, Minnesota,
Mississippi, New Mexico, North Carolina, and Wisconsin.

While states have generally met the work participation rate for all
families, many states have faced financial penalties due to failure to meet
the two-parent required rate in recent years. HHS issued penalty notices to
19 states in fiscal year 1997, 14 in fiscal year 1998, 9 in fiscal year
1999, and to 7 states in fiscal year 2000.

In addition to establishing federal participation rate requirements, PRWORA
specified that the required rates are to be reduced if a state's TANF
caseload declines. States are allowed caseload reduction credits, which
reduce each state's work participation requirement by one percentage point
for each percentage point by which its average monthly caseload falls short
of its fiscal year 1995 level (for reasons other than eligibility changes).

In addition, federal time limits and work requirements may not apply in some
states that were granted federal waivers to AFDC program rules in order to
conduct demonstration programs to test state reforms.

                          States May Choose Various
                          State Funding Options for
                          Providing Cash Assistance

Previously, under AFDC, state funds accounted for 46 percent of total
federal and state expenditures. Under PRWORA, the law requires states to
sustain 75 to 80 percent of their historic level of spending on welfare
through a maintenance-of-effort requirement to receive their federal TANF
block grant. The federal TANF funds and state MOE funds can be considered
more like funding streams than a single program and states may use their MOE
to assist needy families in state programs other than their TANF programs.
In fact, states have flexibility to expend their MOE funds for cash
assistance in up to three different ways, some of which allow states to
exclude some families from time limits and work requirements.

* A state may use its state MOE funds in three different ways to provide
cash assistance for needy families.

* Commingling: A state can provide TANF cash assistance by commingling its
state MOE with federal funds within its TANF program.

* Segregating: A state can provide some TANF cash assistance with state MOE
accounted for separately from its federal funds within its TANF program.

* Separating: A state can use its state MOE to provide cash assistance to
needy families in any one or more non-TANF state programs, referred to as
"separate state programs."

Each state may choose one or more of these options to provide cash
assistance. In some cases, in this testimony, we refer to the second and
third options as using "state-only" funds when the distinction between
segregating and separating funds is not necessary. In addition, we focus
only on cash assistance and not on other forms of aid or services,
including, for example, child care and transportation, for which time limits
and work requirements generally do not apply.

How a state structures its funds determines which TANF rules apply to the
needy families being served. (See table 1.) When a state commingles funds,
it must meet all TANF requirements. For example, states that commingle all
their state MOE with federal funds are only able to exclude families from
time limits through the 20 percent extension, cannot exclude families from
counting towards the federal work participation rate, and cannot provide
assistance to certain groups of legal immigrants.

Table 1: Application of  Key TANF Restrictions and Requirements on State MOE
Funds under the Three Funding Options

Application of PRWORA rules by state funding option

           Key program   State TANF       State TANF      State MOE
                         program with                          for
           requirements    federal or   program with          needy
               and         commingled   state             families
           restrictions                                 in any non-
            for cash         funds       MOE accounted

           assistance                   for separately  TANF state
                                        from
                                         federal funds   program
                                          (referred to    (referred
                                              as             to as
                                                           separate
                                          segregated)        state

program)

Does 60-month time limit apply?

Yes, except for up to 20 percent of the cash assistance caseload

                                   No No

a

Do work-activities Yes Yes No
count toward the
federal work
participation rate?

Do restrictions on Yes No No
assistance to
immigrants apply?b

aWith this option, states have the flexibility to serve families they might
not otherwise be able to serve in TANF, such as certain legal immigrants,
but at the same time count their work activities toward meeting the federal
participation target rate.

bImmigrants arriving in the United States after August 22, 1996, are barred
from the receipt of federal TANF assistance for a 5-year period.

States may exclude families from time limits by funding their cash
assistance with state MOE, either through "segregated funds" or in any

non-TANF state programs. More specifically, any month of cash assistance
funded solely by state MOE funds does not count toward the federal 60-month
limit and may be provided to families who have reached their federal time
limit. States may exclude families from federal time limits if they

* Stop the clock. States can "stop the clock" so that a family's cash
assistance does not count towards the federal time limit. This is
accomplished by funding any month of cash assistance with state-only funds
rather than with federal or commingled federal and state dollars. For
example, if a state provides monthly cash assistance to working families
with state-only funds, those months of assistance do not count toward the
federal time limit.

* Extend the time limit. States can provide cash assistance beyond the
60-month time limit by using state-only funds. A state may extend a family's
time limit because it has determined that the adult needs more time to
prepare for and find employment.

Finally, while not required by federal law, states may choose to apply time
limits on their state-funded assistance. In this case, states may also
decide to stop the clock or extend time limits for certain families.10

In addition, families provided cash assistance funded by state MOE through
non-TANF state programs are not subject to federal work requirements, though
states may choose to impose their own work requirements on these families.

10Nineteen states have chosen a time limit shorter than 60 months as allowed
by PRWORA, with the most common limit being 24 months.

One-Third of Families Receiving Cash Assistance Are Child-Only Cases Not
Subject to Federal Work Requirements or Time Limits

States reported that in the fall of 2001, 2.1 million families received cash
assistance funded with federal TANF or state MOE dollars, with about
700,000, or one-third, of these families composed of children only.
Generally, child-only cases are not subject to work requirements or time
limits.11 The most common types of child-only cases were families in which
the

* caregiver is a nonparent, such as a relative, often a grandparent (40
percent);

* parent is receiving Social Security or Supplemental Security Income and
not eligible for TANF (25 percent);

* parent is a noncitizen ineligible for federally funded TANF (23
percent);12 and

* parent is subject to sanctions (7 percent). (See figure 1.)13

The breakdown of child-only cases varied significantly across states,
however. For example, child-only cases in which the parent is an ineligible
noncitizen ranged from 0 percent in ten states to 39 percent in California
and 77 percent in Texas; this variation is likely due to the variation in
immigrant populations across the states. (For more information on each
state's child-only caseload, see Appendix I.)

11Connecticut has a small number of state-funded child-only cases that are
subject to a state-imposed time limit on state-funded assistance. The time
limit exclusion rules in Connecticut's separate state program are the same
for both recipient and non recipient parents.

12Some households may include parents who are illegal immigrants or legal
immigrants ineligible for cash assistance in addition to children who are
citizens and eligible for cash assistance.

13States can sanction individuals not complying with TANF program
requirements by taking away part or all their TANF cash benefits and
possibly other public benefits as well.

                   Figure 1: Reasons for Child-Only Cases

Other reasons

Parent subject to sanctions

Parent is ineligible noncitizen

Parent is receiving Social Security/SSI

Note: States were only able to report on 434,420 of the 700,000 federally
funded child-only cases. Eighteen states had no data on the reasons for
their child-only cases.

Source: GAO survey.

Reduced federal participation targets-due to declining caseloads and the
caseload reduction credit-and states' use of their MOE funds in non-TANF
programs give states considerable flexibility in implementing work
requirements. (For more information on how states use their MOE funds, see
Appendix II). Since the implementation of welfare reform, states have
experienced strong economic growth and welfare caseloads have declined
dramatically, from 4.4 million in August 1996 to 2.1 million as of September
2001, marking a 52 percent decline in the number of families receiving cash
welfare. The work participation target rate for every state in fiscal year
2002 is 50 percent for all families. However, once the caseload reduction
credit is taken into account, the target rates can be greatly reduced. For
example, as shown in table 2, the actual rate for all families reported by
HHS for fiscal year 2000 was zero in 31 states and less than 25 percent in
all but two states.

States Use Flexibility under PRWORA to Exempt Some Families from Federal
Work Requirements

Table 2: Fiscal Year 2000 Required All-Family Work Participation Rate for
Each State after Factoring in Caseload Reduction Credit (Stated Rate Was 40
percent)

Kentucky 0 Texas 0
Louisiana 0 Utah 6
Maine 9 Vermont 40
Maryland 1
Virginia 0
Massachusetts 0
Washington 2
Michigan 0 West
Virginia 0
Minnesota 9
Wisconsin 0
Mississippi 0
Wyoming 0 Missouri
0

Source: The
Administration for
Children and Families, HHS.

As a result, states have had increased flexibility in determining the
numbers of adults that are to be working or preparing for work and the types
of activities required. For states to count families' activities towards the
work participation rate, families have to be participating in federally
approved work activities. In a previous report, we found that some states
included recipients in a range of work and work-preparation activities that
extend beyond those that meet federal work participation requirements,

particularly to meet the needs of recipients considered hard to employ.14
Officials in one state told us that because the work participation rates are
so low due to caseload reduction credits, states have more flexibility in
the types of activities or services provided, for example, substance abuse
treatment or mental health services, without fear of not meeting their
federal work participation rates. In other cases, the lower target rates
give states more flexibility in exempting TANF recipients considered hard to
employ from meeting work requirements, as we found in our report on TANF
recipients with mental and physical impairments.15

In addition to the flexibility provided by reduced federal target rates,
many states have increased work requirement flexibility by using state MOE
funds to provide cash assistance through non-TANF programs, as allowed by
PRWORA. Twenty-six states use state MOE funds to provide cash assistance
through separate state programs, which allows states to exclude families
from federal work requirements and to serve certain immigrants ineligible
for federal TANF. Sixteen of these states provide cash assistance to
two-parent families through these programs. Several state officials told us
they provide aid in this way to avoid the risk of financial penalties for
failing to meet the federal two-parent work participation rate. State
officials told us that two-parent families often have as many or more
challenges as single parents, making the higher target rate for two-parent
families difficult to meet.16

While states expressed concern about failing to meet the federal target rate
for two-parent families, all 16 of these states imposed their own state work
requirements on these families. Thirteen of the 26 states used state MOE in
separate programs to provide cash assistance to certain legal immigrants not
eligible for federal TANF aid; these 13 states still apply a state work
requirement for these families as well. Overall, approximately

14For more information, see U.S. General Accounting Office, Welfare Reform:
Moving Hard-to-Employ Recipients into the Workforce, GAO-01-368 (Washington,
D.C.: Mar. 15, 2001).

15For more information on TANF and persons with disabilities, see our report
entitled: U.S. General Accounting Office, Welfare Reform: More Coordinated
Federal Effort Could Help States and Localities Move TANF Recipients With
Impairments Toward Employment,

GAO-02-37 (Washington, D.C.: Oct. 31, 2002).

16The caseload reduction credit would also decrease the 90 percent work
participation requirement for two-parent families; however, some states told
us that they still moved two-parent families into separate state programs
because they did not want to rely on caseload reductions to avoid a
financial penalty.

States Excluded 11 Percent of Adult Families from Federal and State Time
Limits

nine-tenths of the families receiving cash assistance in separate state
programs are still subject to a state work requirement. While states
generally imposed work requirements, about half of them also have policies
in place to exclude families facing significant barriers to work from work
requirements. For example, 13 states exclude families with an adult who is
disabled and 13 states exclude families that care for someone with a
disability.

States generally targeted time limit exclusions to families they considered
hard to employ, families that were working but not earning enough to move
off of TANF, and families that were cooperating with program requirements
but had not yet found employment. During fall 2001,17 states excluded from
federal or state time limits 11 percent of the 1.4 million cash assistance
families with adults. The number of families excluded from time limits may
increase in the future because most families have not yet reached their
federal or state-imposed cash assistance time limit.

Federal 20 Percent Extension and State-Funded Time Limit Exclusion Policies
Generally Target Working or Hard-to-Employ Families

States targeted time limit exclusions to families they considered "hard to
employ", families that were working but not earning enough to move off of
TANF, and families that were cooperating with program requirements. The
majority of states excluded "hard-to-employ" families in which the parent
had a disability or was caring for a child with a disability, families
dealing with domestic violence, and families with a head of household of
advanced age. (See figure 2.) Some of these exclusions are granted on a
temporary basis (such as for disabled recipients pending transfer to the
Supplemental Security Income program), and others are granted for longer
periods of time (such as for family heads of advanced age).

17In our survey, we asked states to provide us information for the most
recent month for which they had complete data. Most states reported numbers
from a month in the first quarter of federal fiscal year 2002.

Figure 2: Number of States with Exclusions to Federal or State Time Limits
by Recipient Characteristic

Reason for exclusion

Parent or caretaker 
                        Caring for disabled family member               46
             Domestic violence/ extreme cruelty           42
               Family head is of advanced age          26
            Making good faith effort to find job   23
                   Caring for young child          22

                        Working or in              22
                        work activity

                      Parent completing            21
                    education or training

           Family living in high unemployment area 19

0 1020304050

Number of states

Source: GAO survey.

Twenty-two states exclude working families from time limits, either through
the federal 20 percent extension or by using state-only funds. Maryland and
Illinois, for example, "stop the clock" for working families by funding them
with state-only dollars. Officials from both states told us that their
states adopted this policy to reward working families for complying with
program requirements.

States that exclude families by using state-only funds use similar criteria
to those used by states that rely solely on the federal 20 percent hardship
extension. Using the 20 percent extension, states are able to extend time
limits for a broad range of families, such as families cooperating with
program requirements or making a "good faith effort" to find employment. For
example, officials from Michigan, a state that commingles all of its state
funds with federal funds, told us that they will use the 20 percent
extension for all recipients following the rules of the program; if the
number of families they want to provide and extension to begins to exceed 20
percent, they plan to continue providing assistance through state funds.

Almost half  of the  states exclude families  making a good  faith effort to
find employment.

While States Had Excluded 11 Percent of Families with Adults from Time
Limits as of Fall 2001, This Percentage May Increase as More Families Reach
Their Time Limits

States have excluded from time limits 11 percent of the approximately 1.4
million families with adults receiving federal- or state-funded cash
assistance. (See Appendix III for the percent of exclusions by state.) As
shown in figure 3, 45 percent of these families-mostly in Illinois,
Massachusetts, and New York-were excluded through states use of state-only
funds. An additional 43 percent of the families were excluded from time
limits under federal waivers granted to states before welfare reform to
conduct demonstration programs. Many of these waivers remain in

18

effect.

Figure 3: Percentage of Families with Adults Excluded from Time Limits and
Method of Exclusion

                                 Method of

Federal 20% hardship extension

Exclusions using state-only funds

Note: Exclusions do not total 100% due to incomplete data from states.
Delaware was unable to provide us with caseload data and is not included in
this figure.

Source: GAO survey.

18Eight states exclude federally funded families from time limits because of
pre-existing waivers to their welfare programs that allow them to exempt
federally funded families from the federal time limit. These states are
Arizona, Hawaii, Indiana, Nebraska, Oregon, South Carolina, Tennessee, and
Virginia. In addition, Connecticut was operating under a waiver through
September 2001. As a result, the federal clock did not start on federally
funded families that were exempt from Connecticut's state time limit until
October 2001. Therefore, Connecticut can extend cash assistance to some of
its federally funded families well beyond 60 months without using the
federal 20 percent extension.

Even though states are free to exclude all state-funded families from time
limits, 64 percent of state-funded families that include adults were still
subject to a time limit imposed by the state. Twenty-six of the 33 states
with state-only funds apply a state time limit to some or all of their
state-funded cases. (See Appendix IV for additional information on state
choices regarding funding and time limits.)

The percentage of the caseload that is excluded from time limits may
increase, since most families have not reached their time limit. In 22
states TANF had not been in effect long enough for families to reach either
the federal or the state time limit by the time we conducted our survey.19
Even in those states where it was possible to have received 60 months of
cash assistance, many families had not reached their time limit because they
have cycled on and off welfare, slowing their accrual of time on assistance.
As a result, only 15 states had begun to use the federal 20 percent hardship
extension, and all of these states were applying it to less than 6 percent
of their total caseload. One state we visited, California, told us it
estimated that over 100,000 families with adults would reach the federal
time limit in the next year. California plans to use state-only funds to
continue aid beyond 60 months to children by removing the adult from the
case. California also plans to continue aid to families that are making a
good faith effort to find employment and to families that are hard to employ
because the adult is aged, disabled, caring for a disabled family member, or
experiencing domestic violence.

States' experiences with implementing TANF time limits and work requirements
for families receiving cash assistance highlight key issues related to
reauthorization of TANF provisions. Officials from the four states we
visited and eight states we interviewed shared their views on work
requirements and time limits, and the flexibility they have to implement
them. Some state officials commented on the limited extent of states'
experiences with time limits, given that many families have not yet reached
their time limits, as well as their inexperience with operating TANF during
times of state budget pressures. State officials also highlighted their
concerns about the federal 90 percent work participation requirements for
two-parent families.

States' Experiences with TANF Highlight Issues for Reauthorization

19States responded to our survey using their most recent month of data
available- generally a month in the first quarter of fiscal year 2002
(October through December of 2001).

States Support TANF Flexibility, but Some States Have Concerns

In general, state officials we spoke with were supportive of time limits and
work requirements. For example, Maryland officials said that one advantage
of time-limits assistance and work requirements was that families understood
that the receipt of cash assistance was no longer an entitlement, thereby
changing the culture of welfare. In addition, another Maryland official
noted that time limits encourage caseworkers to link families, particularly
the hard to employ, to the services they need to become self-sufficient.
States also said that, for the most part, flexibility in implementing time
limits and work requirements were important in allowing them to meet the
needs of special populations while supporting the federal goal of reducing
dependency. The flexibility in implementing their own time limits helps to
ensure that states can adapt the federal program to meet state and local
needs while still emphasizing the transitional nature of cash assistance
through time limits.

While state officials were generally supportive of TANF flexibility,
officials in almost all of the states we spoke with expressed the desire to
have more flexibility in counting education and training towards the federal
work participation rate. Some states officials also expressed a desire to
count activities such as mental health and substance abuse counseling
towards the federal work participation rate. The states that did not opt for
additional flexibility through the use of state-only funds expressed two
general concerns. First, they were uncertain about the consequences of their
funding flexibility under TANF. A Mississippi TANF official told us that the
state plans to follow the federal regulations rather than risk penalties by
establishing its own program rules that could become confused with the
federal regulations. Second, Colorado state officials were concerned about
the potential administrative burden that could result from creating separate
funding or programs that used state-only funds.

Changing Economic Conditions May Pose Difficult Choices for States in the
Future

Up until very recently, TANF has been implemented under conditions of strong
economic growth, with declining cash assistance caseloads and the resulting
increase in resources available to states to assist families. This has
fostered increased flexibility in how state officials use their federal TANF
and state maintenance-of-effort dollars. Several states we interviewed now
face budget pressures and increasing cash assistance caseloads, which could
affect the policy choices they make about funding mechanisms and time limit
exclusions in the future. This could affect some states' choices regarding
continued support for families that take longer to become self-sufficient.
California state officials noted that its plan to

continue aid  for all  children whose parents  have reached time  limits may
pose a future financial burden on the state.

States' Experiences with Adequacy of the 20 Percent Federal Extension May
Change as More Families Reach Time Limits

State officials generally thought the 20 percent federal extension was
adequate now, but were less sure about the future, given that many families
have not yet reached the 60-month time limit. Given that states' experiences
with families reaching their time limits is still limited, it is important
to emphasize that much remains unknown nationwide about the numbers,
characteristics, and experiences of families who have reached or are close
to reaching federal time limits on assistance. In the past we have
recommended that HHS work with state officials on this issue to promote
research and provide guidance that would encourage and enable state
officials to identify who has reached the 60-month time limit before they
are able to work. HHS has taken steps to do so.20

States Support the Goal of Helping Two-Parent Families Reduce Their
Dependency but Would Like More Flexibility in the Federal Two-Parent Work
Participation Rate

State officials cited their difficulties in meeting the federal work
participation target rate for two-parent families and a few discussed their
solutions-serving two-parent families in separate state programs to avoid
potential financial penalties. These states typically apply their own work
requirements and time limits to these families, demonstrating the states'
expectation that these families take steps to reduce dependency in the
absence of a federal requirement to do so.

Mr. Chairman, this concludes my prepared statement. I will be happy to
respond to any questions you or other members of the subcommittee may have.

GAO Contacts and For future contacts regarding this testimony, please call
Cynthia M. Fagnoni at (202) 512-7215 or Gale Harris at (202) 512-7235.
Individuals

Acknowledgments making key contributions to this testimony included Sigurd
Nilsen, Katrina Ryan, Elisabeth Anderson, Kara Kramer, Kim Reniero, and
Patrick DiBattista.

                  20For more information, see GAO-01-368.

Appendix I: States' Child-Only Caseloads and Reasons for Child-Only Cases

Percentage of TANF and state MOE child-only cases by reason

Percentage of total Parent is caseload that is Parent Parent is ineligible
subject to Nonparental Other child-only receiving SSI noncitizen sanctions
caregivers reason

Alabama 45

              Alaska                 19        39        6        0        55
             Arizona                 44        0        33        0        63
             Arkansas                42        --        --       --        --        --
            California               34        14       39        16       23
             Colorado                38        27        0        0        55
           Connecticut               34        40        5        1        54

Delaware

D.C. 19

Florida 57

              Georgia                  46       0       0        0       100
               Hawaii                  13       --      --       --       --          --
               Idaho                   42       0       0        0       100
              Illinois                 40       58      10       0       28
              Indiana                  20       42      4       13       41
                Iowa                   25       --      --       --       --          --
               Kansas                  33       35      4        5       56
              Kentucky                 44       0       0        0       100
             Louisiana                 45       45      0        0       55
               Maine                   24       --      --       --       --          --
              Maryland                 33       18      1        1       76           5
           Massachusetts               37       --      --       --       --          --
              Michigan                 32       54      3        3       40           0
             Minnesota                 21       47      11       0       40           2
            Mississippi                45       --      --       --      ---          --
              Missouri                 25       50      1        0       49           0
              Montana                  22       37      7        0       56           0
              Nebraska                 31       64      0        0       36           0
               Nevada                  31       9       12       0       76           3
           New Hampshire               29       30      0        0       51          19
             New Jersey                34       --      --       --       --          --
             New Mexico                15       --      --       --       --          --
              New York                 32       --      --       --       --          --
           North Carolina              50       --      --       --       --          --
            North Dakota               25       18      0       32       50           0
                Ohio                   45       --      --       --       --          --
              Oklahoma                 44       34      6        0       60           0
               Oregon                  35       28      25       3       37           7
            Pennsylvania               28       --      --       --       --          --

Percentage of TANF and state MOE child-only cases by reason

Percentage of total Parent is caseload that is Parent Parent is ineligible
subject to Nonparental Other child-only receiving SSI noncitizen sanctions
caregivers reason

      Rhode Island         18                                   52   32   0    16     0
     South Carolina        45                                   41    1   0    58     0
      South Dakota         57                                   22    0   0    78     0
       Tennessee           28                                   41    0   0    58     0
         Texas             34                                   0    77   0    0     23
          Utah             29                                   30    0   0    70
        Vermont            16                                   56    0   0    44
        Virginia           27                                   --    --  --   --     --
       Washington          32                                   28   21   0    48
     West Virginia         31                                   --    --  --   --     --
       Wisconsin           61                                   51    0   0    49
        Wyoming            73                                   --    --  --   --     --
                                          Source: GAO survey.

                     Appendix II: State Funding Choices

Most states use some form of state MOE funding to provide cash assistance to
families. Eighteen states relied solely on federal or commingled federal and
state funds in their TANF programs to provide cash assistance, as shown in
figure 4. The other 33 states used at least one of the state MOE funding
options in addition to commingled funds: 7 had segregated state funds; 17
had separate state programs; 9 had both segregated funds and separate state
programs.

Figure 4: Number of States That Use Different Funding Mechanisms to Expend
State Funds on Cash Assistance

Segregated funding AND separate state programs

Separate state program

Source: GAO survey.

States across the nation have opted to use state MOE funds to provide cash
assistance. (See Table 3.) States with larger caseloads are more likely to
use segregated funds or separate state programs than smaller states;
similarly, states with the smallest caseloads are more likely to commingle
all of their state and federal funds.

    Table 3: Funding Streams in All States and the District and Columbia

Commingled funds

Commingled + segregated state funds Commingled + separate state programs
Commingled + segregated + separate state programs

aNorth Carolina
uses only federal
funds to provide
cash assistance

bFlorida has
segregated and
separate state
programs but no
federal/commingled

Source: GAO survey.

Even though
two-thirds of the
states have opted
to use segregated
funds, separate
state programs, or
both to provide
cash assistance,
only 11 percent of
the total number of
families receiving
cash assistance is
funded with these funds.

Appendix III: Percentage of TANF or MOE Families with Adult Recipients in
Each State Not Subject to Federal or State Time Limits

Maryland 9
Virginia 54
Massachusetts    53
Washington 0
Michigan   8   West
Virginia 0
Minnesota 10
Wisconsin 0
Mississippi 0
Wyoming  6 Missouri
6

a Delaware was  not
able to  provide us
with  data  on  the
families   excluded
from   time  limits
in its caseload.

Source: GAO
survey.

Appendix IV:
State-By-State
Information on
State Funding,
Application of Time Limits, and Use of 20 Percent Extension

     Have not reached federal and/or state time limit at time of survey Have
                   state MOE funds in segregated and separate state programs

                                   States

 Apply state time limit to some/all Families served through state MOE funds

Were using 20 percent

extension at time of survey

Alabama X X

Alaska

Arizona X

                                  Arkansas

California X X X

Colorado

Connecticut X X

a

Delaware X X

D.C.X X

Florida X X

Georgia X X
Hawaii XXX

                                   Idaho

Illinois X X X

Indiana X X

Iowa X

Kansas

Kentucky X

Louisiana X

                                  Maine X X

Maryland X X X

Massachusetts X X

Michigan X

                               Minnesota X X X

Mississippi X

Missouri X X X

Montana X X X

Nebraska X X

Nevada XXX

New
Hampshire X

New Jersey X X X

New Mexico X X X

New York X X X

North Carolina

North Dakota X

                                   Ohio X

                                 Oklahoma X

States

             Have state MOE funds in segregated and separate state programs

Oregon X X

Pennsylvania X X

Rhode Island X X X

            South Carolina

South Dakota X

Tennessee X X

Texas XXX

Utah XX

Vermont X X

Virginia X X
Washington X X X

West Virginia X

Wisconsin X X

Wyoming X

               Total 33 states 26 states 22 states 15 states

a Delaware was  not able  to provide  data on  their use  of the  federal 20
percent extension. Source: GAO survey.

Related GAO Products

Welfare Reform: More Coordinated Federal Efforts Could Help States and
Localities Move TANF Recipients with Impairments Toward Employment.
GAO-02-37. Washington, D.C.: October 31, 2001.

Welfare Reform: Challenges in Maintaining a Federal-State Fiscal
Partnership. GAO-01-828. Washington, D.C.: August 10, 2001.

Welfare Reform: Moving Hard-to-Employ Recipients Into the Workforce.
GAO-01-368. Washington, D.C.: March 15, 2001.

Welfare Reform: Work-Site-Based Activities Can Play an Important Role in
TANF Programs. GAO/HEHS-00-122. Washington, D.C.: July 28, 2000.

Welfare Reform: Improving State Automated Systems Requires Coordinated
Federal Effort. GAO/HEHS-00-48. Washington, D.C.: April 27, 2000.

Welfare Reform: State Sanction Policies and Number of Families Affected.
GAO/HEHS-00-44. Washington, D.C.: March 31, 2000.

Welfare Reform: Assessing the Effectiveness of Various Welfare-to-Work
Approaches. GAO/HEHS-99-179. Washington, D.C.: September 7, 1999.

Welfare Reform: Information on Former Recipients' Status. GAO/HEHS-99-48.
Washington, D.C.: April 28, 1999.

Welfare Reform: States' Experiences in Providing Employment Assistance to
TANF Clients. GAO/HEHS-99-22. Washington, D.C.: February 26, 1999.
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