Welfare Reform: Information on Changing Labor Market and State	 
Fiscal Conditions (15-JUL-03, GAO-03-977).			 
                                                                 
With the enactment of the Personal Responsibility and Work	 
Opportunity Reconciliation Act of 1996 (PRWORA), the Congress	 
made sweeping changes to federal policy for needy families.	 
PRWORA ended the Aid to Families with Dependent Children (AFDC)  
program and created the Temporary Assistance for Needy Families  
(TANF) block grant to states. The Department of Health and Human 
Services (HHS) oversees the TANF block grant program, which	 
provides grants to states totaling up to $16.5 billion each year 
and requires states to maintain a historical level of state	 
spending on welfare reform programs. Under TANF, states have	 
greater flexibility and face greater uncertainty than they did	 
under AFDC. States have greater flexibility to design, finance,  
and implement programs for low-income families, including	 
determining who is to be served and what services to provide.	 
TANF also emphasizes the transitional nature of assistance and	 
the importance of employment for welfare recipients. Because the 
amount of the TANF block grant is fixed, as caseloads decline--as
they did in all states through the late 1990s--states have had	 
additional resources that they have used to expand their	 
programs, achieve some budgetary savings, and create reserves;	 
however, states bear most of their TANF program's fiscal risks if
their programs' costs rise as a result of higher caseloads or	 
other factors. Welfare reform was initially implemented in a time
of economic growth, when there was a strong demand for labor and 
the fiscal situation of the states was favorable. More recently, 
the economy has slowed and welfare reform is being implemented in
less favorable economic conditions. To obtain information on	 
welfare reform under changing labor market and fiscal conditions,
Congress asked us to determine (1) how labor market conditions	 
have changed in recent years; (2) how cash public assistance	 
caseloads and the employment activities of current and former	 
welfare recipients have changed in recent years; (3) how the	 
fiscal situation of states has changed in recent years; and (4)  
to what extent states have made changes to their welfare programs
as a result of fiscal changes.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-977 					        
    ACCNO:   A07517						        
  TITLE:     Welfare Reform: Information on Changing Labor Market and 
State Fiscal Conditions 					 
     DATE:   07/15/2003 
  SUBJECT:   Block grants					 
	     Financial analysis 				 
	     Funds management					 
	     Risk management					 
	     State-administered programs			 
	     Strategic planning 				 
	     Welfare benefits					 
	     Welfare recipients 				 
	     HHS Temporary Assistance for Needy 		 
	     Families Block Grant				 
                                                                 

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GAO-03-977

Report to the Chairman and Ranking Minority Member, Committee on Finance,
U. S. Senate

United States General Accounting Office

GAO

July 2003 WELFARE REFORM Information on Changing Labor Market and State
Fiscal Conditions

GAO- 03- 977

Page i GAO- 03- 977 Welfare Reform Letter 1 Appendix I Briefing Slides 6

Appendix II GAO Contacts and Staff Acknowledgments 37 GAO Contacts 37
Staff Acknowledgments 37 Related GAO Products 38

Abbreviations

AFDC Aid to Families with Dependent Children HHS Department of Health and
Human Services TANF Temporary Assistance for Needy Families Contents

This is a work of the U. S. Government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. It may contain
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materials separately from GAO*s product.

Page 1 GAO- 03- 977 Welfare Reform July 15, 2003 The Honorable Charles E.
Grassley Chairman

The Honorable Max Baucus Ranking Minority Member Committee on Finance
United States Senate

With the enactment of the Personal Responsibility and Work Opportunity
Reconciliation Act of 1996 (PRWORA), the Congress made sweeping changes to
federal policy for needy families. PRWORA ended the Aid to Families with
Dependent Children (AFDC) program and created the Temporary Assistance for
Needy Families (TANF) block grant to states.

The Department of Health and Human Services (HHS) oversees the TANF block
grant program, which provides grants to states totaling up to $16.5
billion each year and requires states to maintain a historical level of
state spending on welfare reform programs. Under TANF, states have greater
flexibility and face greater uncertainty than they did under AFDC. States
have greater flexibility to design, finance, and implement programs for
low- income families, including determining who is to be served and what
services to provide. TANF also emphasizes the transitional nature of

assistance and the importance of employment for welfare recipients.
Because the amount of the TANF block grant is fixed, as caseloads decline*
as they did in all states through the late 1990s* states have had
additional resources that they have used to expand their programs, achieve
some budgetary savings, and create reserves; however, states bear most of
their TANF program*s fiscal risks if their programs* costs rise as a

result of higher caseloads or other factors. Welfare reform was initially
implemented in a time of economic growth, when there was a strong demand
for labor and the fiscal situation of the states was favorable. More
recently, the economy has slowed and welfare reform is being implemented
in less favorable economic conditions. To obtain information on welfare
reform under changing labor market and fiscal conditions, you asked us to
determine (1) how labor market conditions have changed in recent years;
(2) how cash public assistance caseloads and the employment activities of
current and former welfare recipients have changed in recent years; (3)
how the fiscal situation of

United States General Accounting Office Washington, DC 20548

Page 2 GAO- 03- 977 Welfare Reform states has changed in recent years; and
(4) to what extent states have made changes to their welfare programs as a
result of fiscal changes.

To address your first and second questions, we obtained data on national
and state unemployment rates and the national labor force participation
rate, as well as qualitative information on recent economic conditions for
five states, selected judgmentally to reflect variation in geographic
location and welfare- to- work approaches (Arizona, Iowa, Montana,
Pennsylvania, and Wisconsin). We also obtained data on cash public
assistance caseload changes for the nation and the selected states, as
well as qualitative information on caseload patterns and the ability of
TANF recipients to enter employment from the selected states and three
nongovernmental welfare- to- work organizations. To address your third and
fourth questions, we obtained publicly available information on the
current fiscal situation of the states from national organizations
representing states and publicly available budget documents on state

TANF programs and on proposals for changes to their TANF programs. In
addition, we obtained information from budget officials in the selected
states as well as TANF financial data submitted by states to HHS. We
conducted our work from February to May 2003 in accordance with generally
accepted government auditing standards. Data used in this analysis were
those readily available as of April 30, 2003.

On May 13, 2003, we presented your staff with this descriptive information
on changing economic conditions and welfare reform. This report formally
conveys the information provided during that briefing. In summary, we
reported:

The recent economic downturn is reflected in key national and state labor
market statistics and in the reports of state officials. The national
unemployment rate, for example, increased from 4.0 percent in January 2000
to 5.8 percent in March 2003. Although changes in unemployment rates have
varied across industrial sectors and for workers of different levels of
educational attainment, unemployment rates have generally increased across
sectors and education levels in recent years. Unemployment rates varied
across the five selected states, ranging from 4.0 percent in Iowa and
Montana to 6.2 percent in Pennsylvania in February 2003. Despite these
differences, officials in each state felt that their state has experienced
an economic downturn. While the loss of jobs in manufacturing and the
continued importance of service sector employment for TANF recipients were
common features of the downturn across the five states, other important
characteristics of the downturn differed.

Page 3 GAO- 03- 977 Welfare Reform Changes in cash public assistance
caseloads and the employment activities of welfare recipients also varied
across the five states. Although the

national welfare caseload declined from December 2000 to December 2002,
only one of the five states (Pennsylvania) experienced caseload declines
in both years of this time period. Caseload patterns differed across the
five states in terms of any geographic concentration of caseload changes
or the length of time recipients stayed on cash assistance. Information on
how the downturn has affected the employment prospects of TANF recipients
also differed across the states and by the type of organization
interviewed. Some reported that TANF recipients had greater difficulty
finding jobs as a result of changing economic conditions, while

others said that entry- level jobs* those most likely to employ TANF
recipients* were still generally available. State officials in the five
states reported that changes had not been made to state welfare- to- work
programs in response to recent economic changes, but some states have had
to curtail, or expect to curtail, services and/ or cut cash benefits
because of fiscal difficulties.

States are facing one of their most challenging fiscal situations in
years, in part, due to the economic downturn and state fiscal responses to
this downturn. Most states are required to balance their budgets and since
their revenues have been much lower than forecast, state officials have
struggled to bring expenditures in line with available resources. A
state*s

need to cut spending or increase revenues during a downturn can be
mitigated if it has accumulated surplus balances in reserve and states
accumulated unprecedented reserves during the late 1990s. However, these
reserves have dropped appreciably as states address their fiscal crises.

For the TANF program specifically, we found that each of the five states
in our review planned to use their reserves of unspent federal TANF funds
1 to maintain their TANF programs and they also planned to use the
program*s flexibility to reallocate some resources to higher priority TANF
needs. Nationwide, states reported that over $5.8 billion in federal TANF
funds

1 States are allowed to keep unspent TANF funds without fiscal year
limitation. They are required to report unspent balances as either an
unobligated balance or an unliquidated obligation. While the latter
implies that there is an underlying commitment on these funds, we reported
in 2001 that it is difficult to tell from the states* reports whether
these funds have actually been committed or whether they might be
available to use in the future. See U. S. General Accounting Office,
Welfare Reform: Challenges Maintaining a Federal- State Fiscal
Partnership, GAO- 01- 828 (Washington D. C.: Aug. 10, 2001).

Page 4 GAO- 03- 977 Welfare Reform remained unspent at the end of federal
fiscal year 2002. However, the levels of TANF reserves vary considerably
among the 50 states. For

example, 3 states* reserves of unspent funds are equal to or greater than
their annual grant amount whereas 3 other states have no reported
reserves. Many states began to draw down some of their reserves in federal
fiscal years 2001 and 2002, in part due to concerns that accumulating
unspent balances might signal that these funds were not

needed. 2 In using reserve funds to augment the annual block grant, states
assumed some risks. Because the amount of federal funding is fixed and
does not vary based on the number of people served or changing program
costs, states that used their reserves to augment their annual block grant
would face challenges maintaining this level of funding if program costs
rose as a result of higher caseloads or other factors. These risks are
compounded by the current fiscal situations in the states that make it
difficult for them to increase their own funding for these programs. Four
of the 5 states we reviewed faced difficult budget challenges in their
TANF programs this year. In Montana, for example, program budget officials
said the state used most of its TANF reserves to fund short- term
projects. When the fiscal situation worsened this year, program officials
worked to terminate these programs early and reallocated the program funds
to address shortfalls in other higher priority TANF- funded programs. In
Pennsylvania, on the other hand, program budget officials said that the
state*s TANF program is relatively well protected from the state budget
crisis and that based on current expenditure rates the state*s TANF
reserves could last through 2006.

We provided a draft of this briefing to officials at HHS for their
technical comments and incorporated their comments where appropriate. We
are sending copies of this report to relevant congressional committees and
other interested parties and will make copies available to others upon
request. This report will also be available on GAO*s Web site at http://
www. gao. gov. If you or your staff have any questions about this

2 For more information, see U. S. General Accounting Office, Welfare
Reform: Challenges in Saving for a *Rainy Day,* GAO- 01- 674T (Washington,
D. C.: Apr. 26, 2001).

Page 5 GAO- 03- 977 Welfare Reform report, please contact Cynthia M.
Fagnoni at (202) 512- 7215 or Paul L. Posner at (202) 512- 9573.
Additional GAO contacts and acknowledgments

are listed in appendix II. Cynthia M. Fagnoni, Managing Director
Education, Workforce, and Income Security Issues Paul L. Posner, Managing
Director Federal Budget Issues and Intergovernmental Relations

Appendix I: Briefing Slides Page 6 GAO- 03- 977 Welfare Reform Appendix I:
Briefing Slides

1

Welfare Reform: Changing Labor Market and Fiscal Conditions Briefing to
the Staff of the Senate Committee on Finance

May 13, 2003

Appendix I: Briefing Slides Page 7 GAO- 03- 977 Welfare Reform 2

Introduction: States Have Both Greater Flexibility and Greater Uncertainty
under Welfare Reform

 States have greater programmatic flexibility to design, finance, and
implement programs that serve the needs of low- income families living in
their states.  Welfare reform moved public assistance from a system that
focused

on income support to one that emphasizes the goal of economic
independence.  Under Temporary Assistance to Needy Families (TANF), the
emphasis on employment is greater than under Aid to Families

with Dependent Children (AFDC).  States bear most of their program*s
fiscal risks.

 Before 1996, under AFDC, any increased costs were shared by the federal
government and the states.  TANF is a fixed block grant and if costs rise
states face most of

the burden of financing the unexpected costs.

Appendix I: Briefing Slides Page 8 GAO- 03- 977 Welfare Reform 3

Introduction (cont.)

 Previous research has shown that the relationship between economic
conditions and welfare reform outcomes is complex. The strong economy,
changes in welfare policies, and other policy changes affecting low- wage
workers were all found to contribute to the increase in work among low-
income single mothers and the decline in welfare caseloads following
welfare reform in 1996.

 Research also suggests that state program choices* such as those
regarding benefit levels, earnings disregards, sanctions, and time limits*
affect the work incentives embodied in welfare programs.

Appendix I: Briefing Slides Page 9 GAO- 03- 977 Welfare Reform 4

Key Questions

You asked us to determine the following: (1) How labor market conditions
have changed in recent years. (2) How cash public assistance caseloads and
the employment

activities of current and former welfare recipients have changed in recent
years.

(3) How the fiscal situation of states has changed in recent years. (4) To
what extent states have made changes to their welfare program as a result
of fiscal changes.

Appendix I: Briefing Slides Page 10 GAO- 03- 977 Welfare Reform 5

Scope and Methodology

 To examine recent labor market changes, changes in welfare caseloads,
and the employment prospects of TANF recipients, we obtained

 data on unemployment rates and labor force participation for the nation;

 unemployment rates and qualitative information on recent economic
conditions for five states selected judgmentally to reflect variation in
geographic location and welfare- to- work approaches (Arizona, Iowa,
Montana, Pennsylvania, and Wisconsin), as well as unemployment rates for
selected counties;

 data on cash public assistance caseload changes for the nation and the
selected states and counties; and

 qualitative information on caseload patterns and the ability of TANF
recipients to enter employment from the selected states and three
nongovernmental welfare- to- work organizations.

Appendix I: Briefing Slides Page 11 GAO- 03- 977 Welfare Reform 6

Scope and Methodology (cont.)

 To examine recent changes in the states* fiscal situation and the extent
to which they have made changes to their welfare programs as a result of
fiscal changes, we  reviewed publicly available information on states*
current fiscal

situation from national organizations representing states;  reviewed
research papers on causes and effects of the current state

fiscal crisis;  reviewed publicly available budget documents on state
TANF programs;

 interviewed budget officials from Arizona, Iowa, Montana, Pennsylvania,
and Wisconsin;

 reviewed TANF financial data states submitted to the Department of
Health and Human Services.

Appendix I: Briefing Slides Page 12 GAO- 03- 977 Welfare Reform 7

Selected Features of the Five States* TANF Programs

11 75 60 months Partial None Up to $673 Wisconsin

92 11 60 months Mixed 50 percent $421 Pennsylvania 17 44 b 60 months
Partial $200 and 25 percent $494 Montana

94 41 60 months Full 20 percent and 50 percent of the rest $426 Iowa 81 33
24 months in 60 months Partial $90 and 30 percent $347 Arizona

Percentage of these adult TANF recipients meeting the participation
requirement that were in unsubsidized employment (U. S. = 65 percent)
Percentage of adult TANF recipients

meeting the federal participation requirement (fiscal year 2001) a Time
limits on

receipt of cash assistance Sanction policy Amount of earnings not taken
into

account when determining monthly benefits Monthly benefit

for 3 person family in Jan. 2002 State Source: Temporary Assistance for
Needy Families Program: Fifth Annual Report to Congress, U. S. Department
of Health and Human Services, Administration for Children and

Families, Office of Family Assistance, February 2003 and TANF Benefits and
Earnings Limits, Vee Burke, Congressional Research Service, updated March
3, 2003. a Actual *all- family* rates states achieved as reported by HHS.
To avoid financial penalties, states were to meet a minimum 45 percent
participation standard. However, after taking into account the caseload
reduction credit allowed by law, these five states faced adjusted
standards of 1 percent or less. Activities that count for federal
participation requirement purposes include unsubsidized and subsidized
employment, work experience programs, on- the- job training, community
services, providing child care for other TANF recipients, job search, and
(under certain circumstances) education and training.

b This rate reflects activities that count toward the federal work
participation rate under Montana*s waiver of existing TANF rules. Without
taking into account the waiver, Montana*s actual participation rate was 27
percent.

Appendix I: Briefing Slides Page 13 GAO- 03- 977 Welfare Reform 8

Changing National Labor Market Conditions

Question One The national unemployment rate rose from 4.0 percent in
January 2000 to 5.8 percent in March 2003.

The national labor force participation rate declined from 67. 3 percent in
January 2000 to 66. 2 percent in March 2003.

Source: Bureau of Labor Statistics.

0 1

2 3

4 5

6 7

Jan- 00Apr- 00 July- 00Oct- 00Jan- 01

Apr- 01 July- 01Oct- 01

Jan- 02 Apr- 02

July- 02 Oct- 02Jan- 03

66 66.2 66.4 66.6 66.8 67 67.2 67.4 67.6 Jan- 00

Apr- 00 July- 00

Oct- 00 Jan- 01

Apr- 01 July- 01

Oct- 01 Jan- 02

Apr- 02 July- 02

Oct- 02 Jan- 03 National Unemployment Rate

Percent National Labor Force Participation Rate Percent

Appendix I: Briefing Slides Page 14 GAO- 03- 977 Welfare Reform 9

Unemployment Rates Varied across Industries 0 2

4 6

8 10

12

Question One Source: Bureau of Labor Statistics.

In March 2003, unemployment rates were highest for the mining,
construction, business services and leisure/ hospitality industries.

Unemployment Rates by Industry, March 2000 to March 2003 Percent

Mining Construction

Durable goods Nondurable goods

Wholesale/ retail trade Trans./ utilities

Information Finance

Business services Edu./ health

Leisure/ hospitality Other services

Mar- 00 Mar- 01 Mar- 02 Mar- 03

Appendix I: Briefing Slides Page 15 GAO- 03- 977 Welfare Reform 10

Unemployment Rates Rose for Every Educational Attainment Level

Question One The unemployment rate for the *less than high school degree*
category consistently is higher than the unemployment rates for other
levels of educational attainment. The percent increase is smallest for the
*less than high school degree* category.

Source: Bureau of Labor Statistics.

Unemployment Rates by Educational Attainment Percent

0 1

2 3

4 5

6 7

8 9

10

Less than high school degree High school graduate only Some college
College graduate

Jan- 00 Apr- 00

July- 00 Oct- 00

Jan- 01 Apr- 01

July- 01 Oct- 01

Jan- 02 Apr- 02

July- 02 Oct- 02

Jan- 03

Appendix I: Briefing Slides Page 16 GAO- 03- 977 Welfare Reform 11

0 1

2 3

4 5

6 7 Changing State Labor Market Conditions

Question One The unemployment rates vary across states.

 States begin and end this time period with unemployment rates at
different levels.

 While unemployment rates increased in four of the five states, the
pattern of change differs across states.

Source: Bureau of Labor Statistics.

State Unemployment Rates from February 2000 to February 2003 Percent

Feb- 00 Feb- 01 Feb- 02 Feb- 03

United States Arizona

Iowa Montana

Pennsylvania Wisconsin

Appendix I: Briefing Slides Page 17 GAO- 03- 977 Welfare Reform 12

States and the Economic Downturn  Despite differences in unemployment
rates and changes in unemployment rates across the five states, officials
in each state felt that their state has experienced an economic downturn.
 State officials and documents provided in each of the five states
indicated that job losses in manufacturing industries are one of

the common features of the downturn. Other features of the downturn* such
as other industries or regions particularly affected* differ somewhat
across states.

 The service sector is a major employer of TANF recipients across the
five states. Question One

Appendix I: Briefing Slides Page 18 GAO- 03- 977 Welfare Reform 13

States and the Economic Downturn (cont.)

 Other characteristics of the economic downturn emphasized by state
officials:

 Pennsylvania* The state*s unemployment rate in February was the highest
since 1994.

 Wisconsin* The manufacturing industry, located primarily in the
southeast quadrant of the state, has been hit the hardest.

 Arizona* The decrease in tourism and job losses in urban areas have
negatively impacted the economy.

 Iowa* The state is experiencing an economic downturn, but the
unemployment rate is still low relative to the rest of the nation.

 Montana* The state has a decreasing unemployment rate, but is still
experiencing economic difficulties, in part because the state did not
experience as great an economic boom as other states in the mid1990s.
Question One

Appendix I: Briefing Slides Page 19 GAO- 03- 977 Welfare Reform 14

Changing TANF Caseloads -5 0

5 10

15 20

Question Two The national caseload continued to decline over the December
2000 to December 2002 time period.

The state caseload increased over both time periods in three of the five
states and declined over both time periods in only one state.

Source: Center for Law and Social Policy (CLASP). Note: Data available
from HHS were not as current as data available from CLASP.

Percent change in TANF caseloads December 2000 to December 2002 Percent
change

Dec 00 to Dec 01 Dec 01 to Dec 02

United States Arizona

Iowa Montana

Pennsylvania Wisconsin

Appendix I: Briefing Slides Page 20 GAO- 03- 977 Welfare Reform 15

TANF Caseload Patterns

 In Arizona, Montana, and Wisconsin, state program officials report that
recipients are staying on cash assistance programs longer.  Caseloads are
becoming more concentrated in urban areas in Arizona. In Montana,
caseloads are increasing across the state,

and in Wisconsin, changes in caseloads vary across the state.  In Iowa,
state program officials report that recipients are leaving the

program more quickly.  In Pennsylvania, state program officials report
that an increasing

share of recipients live in urban areas. The program also is serving more
recipients with multiple barriers to employment. Question Two

Appendix I: Briefing Slides Page 21 GAO- 03- 977 Welfare Reform 16

TANF Recipients* Employment

 In each of the five states, state officials and local program
administrators for Goodwill, a nonprofit organization that provides
employment and training services, told us TANF recipients typically find
work in the service sector.

 Wisconsin* Recipients mostly find work in the service (particularly
health care) and retail industries.

 Arizona* Recipients largely find work in the service sector
(particularly tourism).  Montana* Recipients tend to work in the service
or health- related

industries.  Iowa* Many recipients work in labor intensive jobs and in
the service

industry.  Pennsylvania* A majority of recipients find work in service
industries (particularly retail, telemarketing, restaurant, and personal
care). Question Two

Appendix I: Briefing Slides Page 22 GAO- 03- 977 Welfare Reform 17

TANF Recipients* Ability to Get Jobs  State officials and Goodwill
program administrators in each of the five states told us the impacts of
the downturn on the employment prospects of TANF recipients vary across
the five states.  Wisconsin* The impact of the recession has been to make
it more difficult to find employment as service sector growth has

slowed.  Arizona* The economic downturn has made it more difficult for
recipients to find jobs, particularly in urban areas. Low wage jobs
continue to be scarce in rural areas. Question Two

Appendix I: Briefing Slides Page 23 GAO- 03- 977 Welfare Reform 18

TANF Recipients* Ability to Get Jobs (cont.)

 Montana* Recipients are having a particularly difficult time finding or
keeping employment because of child care constraints. TANF recipients also
face more competition for low wage jobs as more skilled workers lose jobs.
 Iowa* While the economic downturn has had some impact,

entry- level jobs still are available. TANF recipients do not yet face
more competition for jobs from more skilled workers.

 Pennsylvania* In general, entry- level jobs still are available for
work- ready recipients. Question Two

Appendix I: Briefing Slides Page 24 GAO- 03- 977 Welfare Reform 19

TANF Recipients* Ability to Get Jobs (cont.)

 Goodwill program administrators in six other states (Colorado, Indiana,
Massachusetts, Nebraska, Ohio, and Virginia) told us recent economic
conditions have made it more difficult for recipients to get jobs, in
part, because it has been taking more time for recipients to find jobs.

 According to a recent survey of 150 business leaders conducted by the
Welfare- to- Work Partnership, an employer group, over threequarters of
those who hire disadvantaged workers say they will continue to hire them
in the coming year.

 America Works (Baltimore), a for- profit placement agency that works
with job- ready recipients, does not report increased difficulty in
recipients getting jobs. Question Two

Appendix I: Briefing Slides Page 25 GAO- 03- 977 Welfare Reform 20

Program Changes and Challenges

 State officials reported that changes had not been made to state
welfare- to- work programs in response to the economic downturn. However,
some states have had to curtail* or expect to curtail*

services (such as non- TANF, low- income child care) and/ or cut cash
benefits. 1  State officials in Montana and Iowa emphasized that, as
rural states,

both child care and transportation posed particular challenges for their
TANF programs. Officials in Arizona also emphasized transportation
problems.

 State officials in Pennsylvania emphasized that, while not caused by
changing economic conditions, they have made program changes to better
serve people that have greater barriers to employment, such as domestic
violence and drug- related issues, than those considered more job ready.
Question Two

1 U. S. General Accounting Office, Child Care: Recent State Policy Changes
Affecting the Availability of Assistance for Low- Income Families, GAO-
03- 588 (Washington, D. C.: May 5, 2003).

Appendix I: Briefing Slides Page 26 GAO- 03- 977 Welfare Reform 21

300 350

400 450

500 550

Forecast Actual

States Face Challenging Fiscal Situation

 State budgets are cyclical, with revenues rising during prosperous times
and falling when the economy slows.  Unlike the federal government most
states cannot run deficits.  A deficit* or budget gap* arises when there

is a mismatch between the level of revenues expected (budgeted) and the
level of revenues received (actuals).

 The current budget crisis may also be the result of other longer- term
pressures that are more structural in nature:  Medicaid,  eroding tax
bases; and  new fiscal pressures, such as Homeland Security.

Source: National Association of State Budget Officers (NASBO). Question
Three

a estimate

State Revenues for 50 States: Budgeted vs. Actual

(in 2002 dollars)

Dollars (in billions)

1995 1996

1997 1998

1999 2000

2001 2002

2003a

Appendix I: Briefing Slides Page 27 GAO- 03- 977 Welfare Reform 22

0 10

20 30

40 50

60 1995 1996 1997 1998 1999 2000 2001 2002 2003 States Face Tough Choices
Addressing the Crisis

 States* choices in how they address the fiscal crisis are limited by
constitutional or statutory balanced budget requirements, pressures from
the bond markets, and other limitations.

 States do, however, have the ability to save revenues during prosperous
times in a *rainy day* account that they can use to help address some of
the shortfalls that can occur during an economic downturn.  During any
sort of fiscal crisis, a state*s need to cut spending or increase revenues
can be alleviated if it has accumulated surplus

balances in reserve funds.  During the 1990s states accumulated
significant reserves.

 However, reserve balances are being depleted and the fiscal crisis does
not appear to be abating.

Source: NASBO. Question Three

State Reserve Fund Balances

(in 2002 dollars)

Dollars (in billions)

Appendix I: Briefing Slides Page 28 GAO- 03- 977 Welfare Reform 23

0 1

2 3

4 5

6 7

8 9

10 1997 1998 1999 2000 2001 2002 TANF Reserves

 TANF funds are provided to states without fiscal year limitation; this
provides states with opportunities to save some federal funds for
contingencies like fiscal crises.  States accumulated large reserves of
TANF funds through fiscal year 2000, but by 2001 had begun to draw more
heavily on these balances

to fund various programs for low- income families.  In 2001, we reported
a that state officials told us

that they had concerns that accumulating unspent TANF balances might
signal that these funds were not needed and as a result they were under
considerable pressure to spend their funds more quickly.

 Reliable data on the adequacy of state TANF reserves are not available 
States do not report data on unspent balances

in a consistent manner  Therefore, no information is available on how

much of these reserves are truly uncommitted and available for future
contingencies.

Unspent TANF Funds

Source: HHS*s 2002 ACF- 196 data as reported by states a U. S. General
Accounting Office, Welfare Reform: Challenges in Saving for a *Rainy

Day*, GAO- 01- 674T (Washington, D. C.: Apr. 26, 2001).. Question Four

Dollars (in billions) Unliquidated obligations Unobligated balances

Appendix I: Briefing Slides Page 29 GAO- 03- 977 Welfare Reform 24
Question Four

Source: HHS*s 2002 ACF- 196 data as reported by states. Note: TANF
Reserves include both unobligated balances and unliquidated obligations.
Includes states* Supplemental Grant for Population Increases.

>100% 3 states 50- 100% 13 states 25- 50% 15 states 10- 25% 10 states 5-
10% 5 states 0- 5% 2 states 0% 3 states

TANF Reserves* as of September 30, 2002, as a Percent of a State*s Annual
Block Grant

Appendix I: Briefing Slides Page 30 GAO- 03- 977 Welfare Reform 25

Effect of State Fiscal Crisis on Welfare Programs 0 2

4 6

8 10

12 14

16 18

20 1997 1998 1999 2000 2001 2002

 Many states used their TANF reserves to augment some programs and
services; those states will face challenges maintaining this level of

funding as the surpluses are being depleted.

 However, due to the fixed nature of the TANF funding streams funding for
basic TANF programs is more stable than it is for program that relied on
TANF reserves.

 TANF is a dedicated federal funding stream and, to the extent it cannot
be used to supplant state funds; that is, diverted for other purposes, a
state cannot achieve *savings* from

reductions in the level of federal funds it expends.  States* maintenance
of effort (MOE) is fixed. If states were to reduce their own required
level of effort, they would face severe fiscal penalties. This also serves
to protect some state spending from budget cuts. Source: HHS*s 2002 ACF-
196 data as reported by states. Question Four

TANF Expenditures (FY 1997- 2002) Dollars (in billions)

Total expenditures Transferred to Social Services Block Grant Transferred
to Child Care and Development Fund

$16.5

Appendix I: Briefing Slides Page 31 GAO- 03- 977 Welfare Reform 26

States Have Flexibility to Address TANF- Related Budget Issues

38% 10% 19%

33% Fiscal Year 2002 Combined State and Federal TANF Expenditures in All
States

Source: HHS*s 2002 ACF- 196 data as reported by states.  As states have
reformed their welfare programs, they have used the flexibility

provided under TANF to  provide more services to recipients and  provide
some benefits and services to lowincome families even if they do not
qualify for

traditional cash assistance payments.  In 2002, about a third of total
TANF/ MOE expenditures were for cash assistance payments while the rest
were spent on child care, training, and other services

 Other services include transportation subsidies, 2- parent family
formation and maintenance programs, pregnancy prevention, and refundable
tax credits.

 We found, in our review of these five states, that each used this
flexibility to address current needs in their states by drawing on

their reserves and by reallocating resources within their TANF budgets.
Question Four

Cash assistance Employment/ training

Child care Other

Appendix I: Briefing Slides Page 32 GAO- 03- 977 Welfare Reform 27

Arizona

 TANF budget faces shortfalls between current spending and valuable
resources. The executive branch and the legislature differ in how to
address the shortfall.  Current program expenditures exceed TANF revenues
(i. e., block grant and maintenance of effort (MOE) funds).  Funding
child care programs presents significant challenges to maintain current
spending levels. Question Four

Source: GAO analysis of 1997- 2002 ACF- 196 reports. a GAO analysis of
state*s estimated expenditures for 2003 and 2004 executive budget
proposals.

b Total block grant, supplemental grants, and 75% MOE levels.

0 50

100 150

200 250

300 350

400 1997 1998 1999 2000 2001 2002 2003 2004 State TANF/ MOE Expenditures

Dollars (in millions) Cash assistance Employment/ training

Child care Other

$313 b

a a

Appendix I: Briefing Slides Page 33 GAO- 03- 977 Welfare Reform 28

0 50

100 150

200 250

1997 1998 1999 2000 2001 2002 2003 2004 State TANF/ MOE Expenditures

Dollars (in millions) Cash assistance Employment/ training

Child care Other

$193 b

a a Iowa

 Unspent TANF funds will be used to offset increases in the cash
assistance portion of the TANF budget.  These increases reflect both a
recent rise in caseloads and in cost per case.  Other offsets were found
by reducing or eliminating funding for other programs.  Funding for an
increase in child care subsidies was not approved.

 State could not support using surplus TANF funds to raise eligibility
levels or increase subsidy rates because officials said these levels were
unsustainable. Question Four

Source: GAO analysis of 1997- 2002 ACF- 196 reports. a GAO analysis of
state*s estimated expenditures for 2003 and 2004 executive budget
proposals.

b Total block grant, supplemental grants, and 75% MOE levels.

Appendix I: Briefing Slides Page 34 GAO- 03- 977 Welfare Reform 29

0 10

20 30

40 50

60 70

80 1997 1998 1999 2000 2001 2002 2003 2004 Montana

 Unspent TANF funds were used to provide a variety of other TANF- related
services in 2002- 03 budget.  Decision makers feared that unspent funds
would be taken back if not spent quickly.

 These services were terminated early and unspent funds shifted to
finance basic TANF programs and child care.

 State legislature approved a reduction in the monthly TANF grant in
order to finance the additional child care subsidies. Question Four

Source: GAO analysis of 1997- 2002 ACF- 196 reports. a GAO analysis of
state*s estimated expenditures for 2003 and 2004 executive budget
proposals.

b Total block grant, supplemental grants, and 75% MOE levels.

State TANF/ MOE Expenditures Dollars (in millions)

Cash assistance Employment/ training

Child care Other

$58.9 b

a a

Appendix I: Briefing Slides Page 35 GAO- 03- 977 Welfare Reform 30

0 200

400 600

800 1, 000

1, 200 1, 400

1997 1998 1999 2000 2001 2002 2003 2004 Pennsylvania

 Budget is relatively well protected from state budget crisis, state
maintains significant reserves.

 Budget officials see few changes in this year*s TANF/ MOE budget.

 However, TANF reserves will be depleted more rapidly than previously
assumed due to greater than expected use of supportive services* such as
transportation subsidies and child care. Question Four

Source: GAO analysis of 1997- 2002 ACF- 196 reports. a GAO analysis of
state*s estimated expenditures for 2003 and 2004 executive budget
proposals.

b Total block grant, supplemental grants, and 75% MOE levels.

State TANF/ MOE Expenditures Dollars (in millions)

Cash assistance Employment/ training

Child care Other

a a

$1, 127 b

Appendix I: Briefing Slides Page 36 GAO- 03- 977 Welfare Reform 31

0 100

200 300

400 500

600 700

1997 1998 1999 2000 2001 2002 2003 2004 State TANF/ MOE Expenditures

Dollars (in millions) Cash assistance Employment/ training

Child care Other

$485 b

a a Wisconsin

 State TANF budget shortfall is about $100 million per year; the
governor*s proposal seeks to reduce program deficit by about $50 million
per year.  It will fill this 2004- 05 gap with unspent TANF funds.

 However, proposal leaves the program facing continued deficits in 2006-
07 and no reserve funds.

 Policy changes  New mothers can stay home longer and a new

subsidized wage program will be implemented by the state.  Direct
services* that is, cash assistance

payments, child care subsidies, and the Earned Income Tax Credit were not
cut in governor*s budget proposal.  Many other services and activities*
training programs, pregnancy prevention programs, etcetera* were cut or
eliminated. Question Four

Source: GAO analysis of 1997- 2002 ACF- 196 reports. a GAO analysis of
state*s estimated expenditures for 2003 and 2004 executive budget
proposals.

b Total block grant, supplemental grants, and 75% MOE levels.

Appendix II: GAO Contacts and Staff Acknowledgments

Page 37 GAO- 03- 977 Welfare Reform Gale Harris (202) 512- 7235 or
harrisg@ gao. gov Tom James (202) 512- 2996 or Jamest@ gao. gov

In addition to those named above, Elspeth Grindstaff, Bill Keller, Leah
Nash, and Janice Peterson made key contributions to this report. Appendix
II: GAO Contacts and Staff

Acknowledgments GAO Contacts Staff Acknowledgments

Related GAO Products Page 38 GAO- 03- 977 Welfare Reform Child Care:
Recent State Policy Changes Affecting the Availability of Assistance for
Low- Income Families. GAO- 03- 588. Washington, D. C.: May

5, 2003.

Welfare Reform: Former TANF Recipients with Impairments Less Likely to Be
Employed and More Likely to Receive Federal Supports. GAO- 03- 210.
Washington, D. C.: December 6, 2002.

Welfare Reform: With TANF Flexibility, States Vary in How They Implement
Work Requirements and Time Limits. GAO- 02- 770. Washington, D. C.: July
5, 2002.

Welfare Reform: Federal Oversight of State and Local Contracting Can Be
Strengthened. GAO- 02- 661. Washington, D. C.: June 11, 2002.

Welfare Reform: States Provide TANF- Funded Work Support Services to Many
Low- Income Families Who Do Not Receive Cash Assistance. GAO02- 615T.
Washington, D. C.: April 10, 2002.

Welfare Reform: States Are Using TANF Flexibility to Adapt Work
Requirements and Time Limits to Meet State and Local Needs. GAO- 02- 501T.
Washington, D. C.: March 7, 2002.

Welfare Reform: Moving Hard- to- Employ Recipients Into the Workforce.

GAO- 01- 368. Washington, D. C.: March 15, 2001.

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

Welfare Reform: Challenges in Saving for a Rainy Day. GAO- 01- 674T.
Washington, D. C.: April 26, 2001.

Welfare Reform: Early Fiscal Effects of the TANF Block Grant.

AIMD- 98- 137. Washington, D. C.: August 18, 1998. Related GAO Products

(130295)

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