Welfare Reform: Better Information Needed to Understand Trends in
States' Uses of the TANF Block Grant (03-MAR-06, GAO-06-414).	 
                                                                 
Under the Temporary Assistance for Needy Families (TANF) block	 
grant created as part of the 1996 welfare reforms, states have	 
the authority to make key decisions about how to allocate federal
and state funds to assist low-income families. States also make  
key decisions, through their budget processes, about federal and 
state funds associated with other programs providing assistance  
for the low-income population. States' increased flexibility	 
under TANF as well as the budgetary stresses they experienced	 
after a recession draw attention to the fiscal partnership	 
between the federal government and states. To update GAO's	 
previous work, this report examines (1) changes in the overall	 
level of welfare-related spending; (2) changes in spending	 
priorities for welfare-related nonhealth services; and (3) the	 
contribution of TANF funds to states' spending for		 
welfare-related services. GAO reviewed spending in nine states	 
for state fiscal years 1995, 2000, and 2004 and focused on	 
spending for working-age adults and children, excluding the	 
elderly, long-term and institutional care.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-414 					        
    ACCNO:   A48277						        
  TITLE:     Welfare Reform: Better Information Needed to Understand  
Trends in States' Uses of the TANF Block Grant			 
     DATE:   03/03/2006 
  SUBJECT:   Block grants					 
	     Comparative analysis				 
	     Cost analysis					 
	     Disadvantaged persons				 
	     Federal funds					 
	     Federal/state relations				 
	     Financial analysis 				 
	     Grants to states					 
	     Public assistance programs 			 
	     State-administered programs			 
	     Welfare benefits					 
	     HHS Temporary Assistance for Needy 		 
	     Families Block Grant				 
                                                                 

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GAO-06-414

     

     * Report to the Chairman, Committee on Finance, U.S. Senate
          * March 2006
     * WELFARE REFORM
          * Better Information Needed to Understand Trends in States' Uses of
            the TANF Block Grant
     * Contents
          * Results in Brief
          * Background
          * Spending on Low- Income Programs Increased over the Decade
               * Total Spending for Welfare- Related Services Increased over
                 the Decade
               * Health Spending Grew Faster Than Nonhealth Spending
               * Spending for a Broad Range of Nonhealth Services Increased
               * After Welfare Reform, State Spending for Low-Income Programs
                 Generally Increased from Both Federal and State Sources
          * Spending Priorities Shifted Away from Cash Assistance
               * Spending Priorities for Low- Income Programs Changed
                 Significantly from 1995 to 2004
               * Cash Assistance Spending Declined Significantly, Largely
                 from 1995 to 2000
               * Other Nonhealth Spending Increased Rapidly until 2000, Then
                 Growth Generally Slowed
                    * Changes in Spending for Employment Services and
                      Training Varied
                    * Increases in Spending for Work and Other Supports
                      Reflect State Welfare Reform Goals
                    * Aid for the At-Risk Spending Increased Steadily and
                      Remains the Largest Nonhealth Category
          * TANF and MOE Funds Played an Expanding and Flexible Role across
            State Budgets, but Accountability Remains a Challenge
               * Flexible TANF Funds Serve a Broad Population in Various Ways
                    * New Welfare Environment Emerges after Federal and State
                      Reforms
                    * Spending Priorities Shift as Policies and Programs
                      Change
               * Much Remains Unknown about How States Use TANF Funds to
                 Address Federal Welfare Reform Goals
          * Conclusion
          * Matter for Congressional Consideration
          * Agency Comments
     * Objectives, Scope, and Methodology
     * Federal and State AFDC, TANF, and MOE Spending as a Share of Total
       Welfare-Related Nonhealth Spending
     * Total Welfare-Related Health and Nonhealth Spending from Federal and
       State Sources
     * Welfare-Related Nonhealth Spending by Spending Category
     * Survey Instrument
     * Comments from the Department of Health and Human Services
     * GAO Contacts and Staff Acknowledgments

Contents

Tables

Figures

March 3, 2006Letter

The Honorable Charles E. Grassley Chairman Committee on Finance United
States Senate

Dear Mr. Chairman:

In 1996, the federal government made sweeping changes to national welfare
policy, significantly altering the federal-state partnership in assisting
low-income families as well as setting new goals for states to help
parents become independent of government assistance. A decade has passed
since then, during which strong economic growth faded into a short
recession and many states faced a period of significant budgetary stress.
This warrants attention to how the 1996 changes have evolved over time.
These changes, enacted through the Temporary Assistance for Needy Families
(TANF) block grant, gave states authority to make key decisions about how
to allocate federal and state funds to assist low-income families. Since
states implemented welfare reforms, they have spent almost $200 billion in
federal and state TANF funds on their programs. TANF spending is but a
portion of the billions of federal and state dollars that flow through
state budgets for a variety of programs for low-income working-age adults
and children. These welfare-related programs and services include ongoing
cash assistance, employment services and training, work and other
supports, aid for the at-risk, and health services.

To provide information on how this welfare-related spending has evolved
over the decade since reform and particularly after the national recession
in 2001, this report responds to your request that we examine (1) changes
in the overall level of welfare-related spending for nonhealth and health
services in the periods before and after the recession and over the
decade; (2) changes in spending priorities for nonhealth services over
these same periods; and (3) the contribution of TANF funds to states'
spending for welfare-related services.

To address these questions, we collected state spending data and conducted
site visits in nine states examined in our earlier reports1 that represent
a diverse set of characteristics, including geographic region, population
size, and experiences with welfare initiatives. These states are
California, Colorado, Louisiana, Maryland, Michigan, New York, Oregon,
Texas, and Wisconsin.2 Together, these states represented about 50 percent
of all federal TANF spending nationwide in 2004. In each of these states,
we collected budget data and program information for three points in time
based on state fiscal years: for 1995 before the passage of federal
welfare reform legislation; for 2000; and for 2004, the most recent year
for which data were available. We focused on spending for working-age
adults and children and excluded spending for the elderly, long-term care,
and institutional care. We classified spending into five key areas: cash
assistance, employment services and training, work and other supports, aid
for the at-risk, and health care. We also spoke with budget and program
officials in these states and at the Department of Health and Human
Services (HHS), which oversees TANF at the federal level.

Our study includes federal, state, and local spending associated with a
broad array of programs, including Medicaid, TANF, housing assistance, and
child care and welfare programs for which states make key budgetary
decisions. (See fig. 1.) We also focused specifically on federal TANF
funds and state funds-referred to as maintenance of effort (MOE)
funds-that states must spend at a specified level under law to receive
their federal TANF funds. We excluded federal program spending about which
states do not make key budget decisions, such as food stamp benefits, the
Earned Income Tax Credit (EIC), and others; as a result, our data do not
capture all federal spending for low-income individuals. We adjusted
spending data for each of our three study years to 2004 dollars in order
to make the spending more comparable over time. While information on real
spending levels is important, additional data on the extent to which
eligible individuals targeted by these programs are being
served-information not routinely available-would be needed to draw
conclusions about how service needs are being met at these spending
levels.

Figure 1: Welfare-Related Spending Categories Used in Our Analysis

We conducted our work from October 2004 through February 2006 in
accordance with generally accepted government auditing standards.

Results in Brief

Over the decade, state spending from both federal and state sources
increased for welfare-related health and nonhealth services in the nine
states. Health spending, excluding that for the elderly, increased in all
of these states in both periods (1995 to 2000 and 2000 to 2004),
reflecting upward trends in health spending nationwide, and, according to
state officials, increasing caseloads and costs for delivering health
services. Because health spending outpaced nonhealth spending since 1995,
health spending consumed an increasing portion of spending for
welfare-related populations in each of the nine states by the end of the
decade. Nonhealth spending also increased-in six states during the first
time period and in all nine states in the second time period-due to
changes in eligible populations and needs as well as federal and state
policy changes. Spending increases were substantially supported by both
federal and state funds in the health and nonhealth areas in each time
period, demonstrating the important federal-state partnership supporting
these low-income programs. For nonhealth programs, the federal share of
spending appeared to change with economic conditions, while it remained
fairly constant for health programs.

The overall nonhealth spending increases during the decade mask
substantial changes that occurred in the types of spending. By 2004, the
nonhealth portion of state spending for low-income people looked
substantially different than it did in 1995. Cash assistance spending fell
by at least 50 percent in the nine states over the decade, driven by
falling caseloads. In general, noncash spending-for employment services
and training, work and other supports, and aid for the at-risk
combined-increased significantly from 1995 to 2000, then increased more
slowly from 2000 to 2004. Several factors played a role in these
increases, including an increased emphasis on supporting working families
in their efforts to avoid the welfare rolls, increased demand for child
welfare and other services, and increased costs in areas such as mental
health. Officials in some states said that they faced challenges in
maintaining the services and programs that expanded from 1995 to 2000, as
spending then slowed in the following time period.

The combination of a substantial decline in cash assistance caseloads,
increased state flexibility under TANF rules, and states' implementation
of their new welfare programs resulted in a changing role for TANF and MOE
dollars across state budgets. Since welfare reform, states have
increasingly spent TANF and MOE funds for aid and services outside of
traditional cash assistance payments, as allowed under TANF. We found that
the states used these TANF and MOE funds to support a wide range of state
priorities, such as child care and development, including prekindergarten;
child welfare services; mental health and substance abuse treatment; and
refundable state EIC; among others. This shift was curtailed somewhat from
2000 to 2004, when cash assistance caseloads and related spending
increased in several states, associated with a contraction of spending for
other forms of aid and services. Still, by 2004, in seven of the nine
states cash assistance spending accounted for less than 40 percent of
total TANF and MOE spending. However, TANF reporting and oversight
mechanisms at the federal level have not kept pace with the evolving uses
of TANF funds. As a result, little information exists on the numbers
served by TANF funds and limited information is available nationwide on
how funds are used to meet welfare reform goals.

To address these information gaps, Congress should direct the Secretary of
HHS, in consultation with states, to identify and assess cost-effective
options for obtaining additional information on the numbers served by TANF
and how funds are used to meet welfare reform goals. These options should
take into account the need to strike an appropriate balance between
flexibility for state grantees and accountability for federal funds and
goals.

Background

The TANF block grant was created by the Personal Responsibility and Work
Opportunity Reconciliation Act of 1996 (PRWORA),3 and changed the federal
role in financing welfare programs in states. PRWORA ended families'
entitlement to cash assistance by replacing the Aid to Families with
Dependent Children (AFDC) program-essentially a federal-state matching
grant-with the TANF block grant, a $16.5 billion per year fixed federal
funding stream to states. PRWORA coupled the block grant with an MOE
provision, which requires states to maintain a significant portion of
their own historic financial commitment to their welfare programs as a
condition of receiving their full TANF allotments.4 This helped to ensure
that states remained strong fiscal partners. PRWORA provided states
greater flexibility and responsibility for administering and implementing
their welfare programs. Importantly, with the fixed federal funding
stream, states must assume the fiscal risks in the event of a recession or
increased program costs.

In addition to increased flexibility and the new fiscal structure, PRWORA
charged HHS with oversight of states' TANF programs and gave HHS new
responsibilities for tracking state performance. PRWORA also set federal
requirements that states must impose on many families receiving cash or
other ongoing assistance, including time limits and work requirements for
adults. At the same time, the law restricts HHS's authority to regulate
states' programs and reduced the number of federal employees involved in
the program.

TANF and MOE spending is one component of federal, state, and local
spending on a range of programs aimed at serving low-income and needy
populations, which in this report we will refer to as welfare-related
spending. In state fiscal year (SFY) 2004, among the nine states in our
study, TANF and MOE spending represented from 12 to 28 percent of all
federal, state, and local spending flowing through the state budgets for
welfare-related services outside of the health spending captured in our
survey. (See app. II.) Outside of TANF and MOE, welfare-related spending
provides a wide range of services and comes from a variety of federal,
state, and local sources. Transportation subsidies, rental assistance,
child care subsidies, heating and energy assistance, and low-income tax
preferences, among others, can all serve low-income and needy populations
and are funded through multiple federal agencies, such as the Department
of Housing and Urban Development, HHS, and the Department of
Transportation, as well as by state and local governments.

In 2001, we examined welfare-related spending in 10 selected states before
and after the passage of welfare reform, from SFY 1995 to SFY 2000.5 We
reported that after welfare reform, since both the amount of flexible
federal TANF funds and required MOE remain fixed regardless of the number
of people served with these funds, and since cash assistance caseloads
declined dramatically since the mid-1990s, states had additional budgetary
resources available for use toward a variety of welfare-related purposes
and spending. From SFY 1995 to SFY 2000, while total spending levels for
all welfare-related services generally increased, states began using these
additional budgetary resources to enhance spending for noncash services,
such as training, education, and a range of other welfare-related
spending-an allowable practice under TANF. As state TANF programs and
welfare-related spending evolved after welfare reform, the nation's
welfare system now looks quite different than it did under AFDC.

Our previous findings focused on a period of sustained economic growth and
increasing tax collections in states. From 1995 to 2000, state government
tax collections grew in inflation-adjusted terms, and unemployment and
poverty rates were generally falling, although there was some variation
among the nine states we studied. Overall, these circumstances suggest
that states were generally faced with declining spending demands from
low-income populations and increasing fiscal resources to meet those
demands. In 2001, however, the nation experienced a recession from March
through November, and a contrasting set of economic and fiscal
circumstances developed. A period of rising unemployment and declining
state tax collections ensued. In seven of the nine states, poverty rates
that fell from 1995 to 2000 increased from 2000 to 2004, as shown in
figure 2. These shifts suggest that, in general, states were faced with an
increased demand for services aimed at low-income populations at a time
when fewer fiscal resources were available to meet these demands after the
recession.

Figure 2: Changes in Poverty Rates in Nine States from 1995 to 2000 and
from 2000 to 2004

Notes: The poverty rate for 1995 and 2000 is a 3-year centered average,
that is, the poverty rate for 1995 is the simple average of the poverty
rates of 1994, 1995, and 1996, and the poverty rate for 2000 is the
average of those for 1999, 2000, and 2001. However, the poverty rate for
2004 is a 2-year average of 2003 and 2004, the latest available year. The
change in the poverty rate is the difference of these averages from 1995
to 2000 and from 2000 to 2004.

Spending on Low-Income Programs Increased over the Decade

According to data provided by the states, total welfare-related spending
rose over the decade in each of the nine states. Health spending
accelerated as the decade progressed, increasing faster over the decade
than nonhealth spending, which varied somewhat by state and period. Health
and nonhealth spending from both federal and state sources increased over
the decade, a reflection of the strong fiscal partnership between the
federal government and states in supporting low-income individuals.
However, while the federal share of health care spending remained fairly
consistent over the decade, the federal share of nonhealth spending varied
over time.

Total Spending for Welfare-Related Services Increased over the Decade

In the nine states, spending for low-income people for health and
nonhealth services increased over the decade since welfare reform. These
spending levels, shown in figure 3 for each of the three points in time we
examined, include federal and state funds that flowed through state
budgets for programs targeting low-income and at-risk individuals. The
figure excludes spending for the elderly, for those in institutions, and
for long-term care.

Figure 3: Total Welfare-Related Nonhealth and Health Spending in Real
Dollars since 1995

Note: Includes federal, state, and local spending captured in our survey
of expenditures about which states make key budgetary decisions. Excludes
spending for long-term care, institutional care, and the elderly.

Health Spending Grew Faster Than Nonhealth Spending

In general, health spending accelerated over the decade. The median growth
rate increased from 11 percent in the first period (from 1995 to 2000) to
40 percent in the second period (2000 to 2004), as shown in table 1.
Colorado and Oregon were exceptions, with larger increases during the
strong economy of the late 1990s. States often cited increases in eligible
populations and rising pharmaceutical and service delivery costs as the
primary reasons for the rapid spending growth in this area.

Table 1: Percentage Change in Real Spending for Welfare-Related Health
Care

                                        

     Based on real 2004 dollars                   
                                        SFY       
               State                    1995-2000     2000-2004     1995-2004 
California                                   2            38            41 
Colorado                                   129            32           202 
Louisiana                                    8            48            61 
Maryland                                     8            45            58 
Michigan                                     3            32            36 
New York                                    11            40            55 
Oregon                                     123            22           173 
Texas                                       52            62           147 
Wisconsin                                   15            59            83 
Median                                      11            40            61 
Maximum                                    129            62           202 
Minimum                                      2            22            36 

Source: GAO survey and analysis of state spending data.

Note: Includes federal, state, and local spending captured in our survey.
Excludes spending for long-term care, institutional care, and the elderly.

The health spending we examined in this report included state spending
from federal and state sources for any health care program for working age
adults and children, excluding long-term and institutional care. While
this spending included such services as public health
initiatives-outreach, prevention, diagnosis, care, and children's
vaccines, most funds were spent on the State Children's Health Insurance
Program (SCHIP) and the Medicaid program. Medicaid is a complex program
that serves many different low-income populations. Nationwide, children
and their families constitute 75 percent of those served but only account
for 30 percent of expenditures, while those with disabilities represent 16
percent of beneficiaries and 45 percent of expenditures.6 Between 1995 and
1997, the number of able-bodied adults and children on Medicaid fell,
which may be due in part to changes in the relationship between TANF and
Medicaid triggered by the 1996 welfare legislation.7 At the same time,
states were starting to enroll low-income children in SCHIP, a new
federal-state partnership created by Congress in 1997. It extends health
insurance to low-income children whose families earn too much to be
eligible for Medicaid but are unable to obtain insurance another way,
either through an employer or outright purchase of private insurance.
Nationwide, enrollments in Medicaid and SCHIP generally increased from
2000 to 2004.8 Even so, not all low-income individuals are eligible for
Medicaid or SCHIP, and some of those who are eligible are not enrolled for
a variety of reasons, including lack of information about the program or
choosing not to enroll.9

Because health spending grew faster than nonhealth spending since 1995, it
now consumes a greater share of welfare-related spending in the state
budgets we examined, as shown in table 2. In eight of our nine states,
health care accounted for at least 45 percent of welfare-related spending
for low-income programs from federal and state sources by 2004. This
mirrors a nationwide trend of rising health costs, raising concerns about
growing government expenses for health programs.

Table 2: Welfare-Related Health Spending as a Share of Total
Welfare-Related Spending

                                        

      Percentages based on real 2004 dollars              
                                                   SFY    
                      State                          1995      2000      2004 
California                                          32        31        34 
Colorado                                            48        61        67 
Louisiana                                           64        68        74 
Maryland                                            47        49        53 
Michigan                                            40        40        45 
New York                                            51        54        59 
Oregon                                              41        58        62 
Texas                                               54        60        70 
Wisconsin                                           54        56        64 
Median                                              48        56        62 
Maximum                                             64        68        74 
Minimum                                             32        31        34 

Source: GAO survey and analysis of state spending data.

Note: Includes federal, state, and local spending captured in our survey.
Excludes spending for long-term care, institutional care, and the elderly.

Spending for a Broad Range of Nonhealth Services Increased

Nonhealth spending also generally increased after 1995, although at a
slower rate and with more variation among the states and time periods, as
shown in table 3. Nonhealth spending includes the following categories:
cash assistance, employment services and training, work and other
supports, and aid for the at-risk. Spending in these combined categories
occurs through a wide variety of federal and state programs that can serve
low-income and needy populations. While we found that spending increased
overall when looking at all these programs combined, some differences
emerged when compared with health spending. Since 1995, median nonhealth
spending increased 17 percent, in contrast to the 61 percent median growth
rate for health.

Table 3: Percentage Change in Real Spending for Welfare-Related Nonhealth
Services

                                        

     Based on real 2004 dollars                   
                                        SFY       
               State                    1995-2000     2000-2004     1995-2004 
California                                  11            17            30 
Colorado                                    38             2            40 
Louisiana                                  -12            15             2 
Maryland                                     2            23            25 
Michigan                                    -1             8             7 
New York                                    -1            14            13 
Oregon                                      12             4            17 
Texas                                       17             5            22 
Wisconsin                                    3            14            17 
Median                                       3            14            17 
Maximum                                     38            23            40 
Minimum                                    -12             2             2 

Source: GAO survey and analysis of state spending data.

Notes: Includes federal, state, and local spending captured in our survey.
The nonhealth category reflects total spending from the following
previously defined GAO categories: cash assistance, employment services
and training, work and other supports, and aid for at-risk. See app. I for
a further explanation of these categories.

Because nonhealth spending includes so many different federal and state
programs and services, it is difficult to clearly identify factors that
explain spending changes overall. However, our previous work and our
discussions with state officials show that the spending outcomes reflect a
multitude of factors, including changes in the numbers and needs of
eligible populations and in federal and state policy and fiscal
situations. We provide more information on the factors affecting spending
changes in this area in the next section.

After Welfare Reform, State Spending for Low-Income Programs Generally
Increased from Both Federal and State Sources

Federal and state governments are important fiscal partners when it comes
to providing many types of assistance to low-income and at-risk
individuals. Our analysis of state expenditures showed that the spending
increases evident since 1995 were substantially supported by both federal
and state funds in the health and nonhealth areas in both time periods.
(For more details on federal and state spending, see app. III.) The state
contribution is noteworthy particularly during the second time period when
states experienced declining revenues. States generally are required to
balance their operating budgets, and may need to raise revenues or reduce
spending to do so. At the same time, many of the key federal programs for
low-income individuals are structured in a way to help ensure that states
maintain their financial commitment to these programs in order to receive
continued federal support.

In the health area, federal and state funds spent on health services grew
at roughly the same rate over the decade, resulting in a fairly stable
split in federal and state shares of spending over time. As shown in table
4, in 2004, the median federal share of health spending totaled 58
percent, which would correspond to a state share of 42 percent. The higher
federal shares in some states, such as Louisiana, may be explained in part
by the greater role the federal government plays in funding Medicaid costs
in states with lower per capita incomes. At the same time, because the
health spending data include services other than Medicaid, the federal
share will not correspond directly to the share under Medicaid.10

Table 4: Federal Share of Welfare-Related Health Spending over Time

                                        

      Percentages based on real 2004 dollars              
                                                   SFY    
                      State                          1995      2000      2004 
California                                          49        49        52 
Colorado                                            53        50        53 
Louisiana                                           73        70        75 
Maryland                                            49        49        54 
Michigan                                            56        54        58 
New York                                            42        50        49 
Oregon                                              62        61        64 
Texas                                               63        62        61 
Wisconsin                                           57        58        60 
Median                                              56        54        58 
Maximum                                             73        70        75 
Minimum                                             42        49        49 

Source: GAO survey and analysis of state spending data.

Note: Excludes spending for long-term care, institutional care, and the
elderly.

In the nonhealth spending area, we also found spending increases generally
supported by both federal and state funds, although the federal share
showed more variation over the two time periods for nonhealth than for
health spending. As shown in table 5, the median federal share fell in
2000 (from 50 percent to 44 percent), possibly as states responded to
higher state revenues during the late 1990s. In 2004, the median federal
share rose to 49 percent, possibly as a reflection of the tighter fiscal
conditions states faced in this time period. In addition, the federal
share of nonhealth spending grew more consistent among the states over the
decade. The federal share ranged from 33 to 73 percent in 1995, tightening
to range from 43 to 61 percent by 2004.

Table 5: Federal Share of Welfare-Related Nonhealth Spending over Time

                                        

      Percentages based on real 2004 dollars              
                                                   SFY    
                      State                          1995      2000      2004 
California                                          46        44        44 
Colorado                                            50        39        49 
Louisiana                                           73        52        58 
Maryland                                            42        42        45 
Michigan                                            53        51        54 
New York                                            33        38        43 
Oregon                                              61        60        61 
Texas                                               51        56        58 
Wisconsin                                           39        43        46 
Median                                              50        44        49 
Maximum                                             73        60        61 
Minimum                                             33        38        43 

Source: GAO survey and analysis of state spending data.

Note: Excludes spending for long-term care, institutional care, and the
elderly.

It is important to highlight the distinction between the health and
nonhealth areas again when discussing the federal and state shares of
spending. In contrast to the health area where much of federal and state
financial participation is guided by federal Medicaid statute and
regulations, nonhealth spending-comprising numerous federal and state
programs-is guided by an array of different laws and rules about federal
and state financial participation. Specifically, supports for low-income
people vary in terms of whether they are funded with federal funds,
state-local funds, or a combination. While several key funding sources,
such as the TANF block grant, foster care, food stamp administrative
costs, and others require state matching and MOE provisions, others do
not. In these cases, funding decisions are left entirely up to states.

Spending Priorities Shifted Away from Cash Assistance

The overall increases in spending for nonhealth services in the nine
states mask some substantial shifts over the decade in how states spent
federal and state funds for low-income people. Two trends emerged. First,
spending shifted away from cash assistance programs toward other types of
aid and services (excluding health). Second, this expansion in noncash
spending was strongest from 1995 to 2000, and spending increased
further-but more slowly-from 2000 to 2004. Spending for work and other
supports, particularly child care and development, was a key growth area
in several states, reflecting state efforts to support welfare reforms
that focused on employment. Spending on the various nonhealth services
varied among the states, reflecting to some extent different state
spending priorities. In general, states reported that increases in these
areas were driven by policy changes to welfare and other social programs,
increased program costs and demand, and increases in federal grants.

Spending Priorities for Low-Income Programs Changed Significantly from
1995 to 2004

By 2004, the nonhealth portion of state spending (from federal and state
sources) for low-income services looked substantially different than it
did in 1995. In all of the nine states, the total portfolio of nonhealth
services shifted away from cash assistance toward other programs, as
demonstrated in figure 4. For example, in New York, 33 percent of total
nonhealth spending was devoted to cash assistance in 1995, compared with
13 percent in 2004. Other shifts among the noncash assistance categories
varied by state and period, reflecting differing spending priorities. For
example, work and other supports increased from 39 percent to 58 percent
of the welfare-related budget in Wisconsin over the decade, while in
Louisiana, the same category declined from 37 percent to 31 percent.

Figure 4: Share of Federal and State Spending (Combined) for
Welfare-Related Nonhealth Services by Category over Time (Based on Real
Spending)

Notes: Each bar represents 100 percent of all welfare-related state
spending-from federal and state sources-for nonhealth services captured in
our survey in each state for each year. Bars may not total to 100 percent
due to rounding.

Figure 4 also shows the relative size of the nonhealth categories.
Employment services and training remained the smallest category in most of
these states over the decade. Although cash assistance began the decade as
a larger category in many states, by 2004 it was generally the second
smallest category. Over the decade, work and other supports grew to become
the second largest category in most states, and aid for the at-risk
generally remained or became the largest category. The aid to the at-risk
category includes spending for child welfare, juvenile justice, mental
health, and other related services.

Cash Assistance Spending Declined Significantly, Largely from 1995 to 2000

Cash assistance spending declined dramatically from 1995 to 2000 in all
case study states and varied from 2000 to 2004, as shown in table 6.
Although some states increased spending after 2000, all nine states
experienced at least a 50 percent decline in cash assistance spending over
the decade. In all of the states, a dramatic decrease in cash assistance
caseloads led to the decline in spending in this area, particularly from
1995 to 2000.11

Table 6: Percentage Change in Real Spending for Cash Assistance

                                        

     Based on real 2004 dollars                   
                                        SFY       
               State                    1995-2000     2000-2004     1995-2004 
California                                 -54             1           -53 
Colorado                                   -71            26           -64 
Louisiana                                  -59            -2           -60 
Maryland                                   -69             7           -66 
Michigan                                   -70            13           -66 
New York                                   -32           -35           -55 
Oregon                                     -62             3           -61 
Texas                                      -53           -20           -62 
Wisconsin                                  -80            56           -69 
Median                                     -62             3           -62 
Maximum                                    -32            56           -53 
Minimum                                    -80           -35           -69 

Source: GAO survey and analysis of state spending data.

Notes: Includes federal, state, and local spending captured in our survey.
See app. I for a further explanation of the cash assistance category.

In our previous work, we found that several factors have been cited to
explain the large reductions in cash assistance caseloads. These include
changes in welfare programs; the strong economy of the late 1990s; and
other policy changes, such as expansions of the federal EIC and increased
federal spending for child care subsidies.12 One state attributed the more
recent caseload increases to the economy. Many state officials also noted
changes in the characteristics of those who remained on the welfare rolls.
They told us that after the shift to a work-first approach, the caseloads
stabilized as the most employable recipients transitioned into the
workforce. They said that the remaining cash assistance recipients tend to
have multiple barriers to employment and require a wider and costlier
range of services to enable them to be self-sufficient.

Other Nonhealth Spending Increased Rapidly until 2000, Then Growth
Generally Slowed

In general, spending for other noncash categories combined (employment
services and training, work and other supports, and aid for the at-risk)
increased significantly after welfare reform, but slowed from 2000 to 2004
in most of these states, as shown in table 7. While most states increased
spending after 2000, some states cited challenges in maintaining their
initial rate of growth as their fiscal situations tightened. In contrast
to cash assistance spending, which declined sharply during the first
period, noncash expenditures rose dramatically in the first period and
generally continued to rise during the second period, but at a slower
rate.

Table 7: Percentage Change in Real Spending for Noncash Assistance

                                        

     Based on real 2004 dollars                              
                                       SFY      
               State                  1995-2000    2000-2004    1995-2004 
California                                60           21           94 
Colorado                                  73            0           74 
Louisiana                                 -1           17           16 
Maryland                                  17           24           45 
Michigan                                  22            7           31 
New York                                  14           29           47 
Oregon                                    38            5           44 
Texas                                     31            7           40 
Wisconsin                                 36           11           52 
Median                                    31           11           45 
Maximum                                   73           29           94 
Minimum                                   -1            0           16 

Source: GAO survey and analysis of state spending data.

Notes: Includes federal, state, and local spending captured in our survey.
Noncash assistance spending reflects total spending from the following
previously defined GAO categories: employment services and training, work
and other supports, and aid for at-risk. See app. I for a further
explanation of these categories.

Changes in Spending for Employment Services and Training Varied

State spending patterns for training and education varied, although one
trend related to welfare reform was evident. As shown in table 8, six
states expanded employment services and training spending after 1995, in
part to meet the increased employment focus of their TANF programs. Then
five of these states cut this spending back as state revenues declined
after 2000. For example, as cash assistance caseloads declined in
Wisconsin from 1995 to 2000, it more than doubled spending for employment
services and training. However, as cash assistance caseloads increased
after 2000, spending for employment services and training was reduced 44
percent. Even so, spending for employment services and training ended more
than 30 percent higher at decade end than at its beginning. In addition,
in California, a large amount of TANF funds were moved into the training
and education area from 1995 to 2000, but some of these funds were removed
after 2000. In contrast, two states reduced their training and education
spending during the period immediately following welfare reform, but
expanded this spending after 2000.

Table 8: Percentage Change in Real Spending for Employment Services and
Training

                                        

     Based on real 2004 dollars                                 
                                        SFY       
                State                   1995-2000     2000-2004     1995-2004 
California                                  74            -6            64 
Colorado                                     0          173a           172 
Louisiana                                  -35            35           -13 
Maryland                                    43           -59           -42 
Michigan                                    41           -34            -7 
New York                                    -6            31            23 
Oregon                                      28           -26            -5 
Texas                                        3            18            21 
Wisconsin                                  138           -44            34 
Median                                      28            -6            21 
Maximum                                    138           173           172 
Minimum                                    -35           -59           -42 

Source: GAO survey and analysis of state spending data.

Notes: Includes federal, state, and local spending captured in our survey.
See app. I for a further explanation of the employment services and
training category.

aColorado state officials said that this large increase was due in part to
data reporting issues associated with the transition from the Job Training
Partnership Act employment and training programs to those of the Workforce
Investment Act. As a result, this number overstates the increase in actual
spending for employment services and training.

Increases in Spending for Work and Other Supports Reflect State Welfare
Reform Goals

Over the decade, state spending generally increased by a higher percentage
for work and other supports than for any other nonhealth category. In most
case study states, this was the second largest nonhealth category in 2004.
In each period, most of these states increased spending in this area,
although the median increase was much smaller after 2000, as shown in
table 9. These expansions are consistent with our previous work, which
found that many states expanded the availability of supports that promote
employment and economic independence for low-income families.13

Table 9: Percentage Change in Real Spending for Work and Other Supports

                                        

     Based on real 2004 dollars                   
                                        SFY       
                State                   1995-2000     2000-2004     1995-2004 
California                                  69            18            99 
Colorado                                   143            -6           129 
Louisiana                                  -31            24           -14 
Maryland                                    38            24            71 
Michigan                                     5            10            15 
New York                                    -1            47            46 
Oregon                                      64            15            88 
Texas                                       59             4            66 
Wisconsin                                   32            32            74 
Median                                      38            18            71 
Maximum                                    143            47           129 
Minimum                                    -31            -6           -14 

Source: GAO survey and analysis of state spending data.

Notes: Includes federal, state, and local spending captured in our survey.
See app. I for a further explanation of the work and other supports
category.

Louisiana was the only state to experience a substantial spending decline
in this category from 1995 to 2000. Louisiana increased spending for two
areas in this category, including child care and development, as discussed
below. However, these increases were more than offset by other spending
areas that decreased, including administrative costs for food stamps,
associated with declining food stamp caseloads in the state.14 After 2000,
spending for work and other supports increased as Louisiana invested TANF
funds in additional programs, particularly prekindergarten. In contrast,
Colorado increased spending on refundable tax credits for working families
during the robust economic growth of the 1995-2000 period, but decreased
spending slightly from 2000 to 2004.

The child care and development area was the main driver of spending
changes in this category in many of these states, with high rates of
growth as shown in table 10. In five states, more than half of all growth
in the category was due to increased spending for child care and
development. Several states reported that child care continued to be in
demand, even as TANF caseloads fell, because many working parents relied
on subsidized child care to help them keep their jobs. While most spending
in this area is focused on child care subsidy programs, some states also
increased spending for prekindergarten and other child development
programs. As part of the 1996 welfare reform, the federal government
increased funding to states through the Child Care and Development Fund
(CCDF) to subsidize child care assistance for low-income families who were
working or preparing for work through education and training, with a
special emphasis on families working their way off welfare. In addition to
CCDF, funds allocated by the nine states for child care or development
included TANF, MOE, and other funds. Table 10 shows that substantial
investments of these funds for child care and development accompanied
welfare reforms in the first period and continued, in almost all of these
states at a slower rate of increase, in the second period.15

Table 10: Percentage Change in Real Spending for Child Care or Child
Development

                                        

     Based on real 2004 dollars                   
                                        SFY       
                State                   1995-2000     2000-2004     1995-2004 
California                                 215            19           275 
Colorado                                   112            10           133 
Louisiana                                  178            12           212 
Maryland                                    33             5            39 
Michigan                                     4             6            10 
New York                                   124            41           216 
Oregon                                      32             8            44 
Texas                                       71            19           104 
Wisconsin                                  219            48           373 
Median                                     112            12           133 
Maximum                                    219            48           373 
Minimum                                      4             5            10 

Source: GAO survey and analysis of state spending data.

Note: Includes federal, state, and local spending (from CCDF, TANF, and
other sources) captured in our survey for child care or child development
programs for low-income individuals, including prekindergarten and state
spending for Head Start.

Other areas of expansion included some entitlement or federal grant
programs, such as tax credits, housing, or food assistance. Four states
(Colorado, Maryland, New York, and Wisconsin) began or expanded state EIC
programs to complement the federal EIC program, which offers work
incentives in the form of a tax credit based on income.16 Food assistance
spending increased in most states due to increased administrative costs
related to expanding food stamp benefit rolls, although the benefit costs
are not reflected here. Two states told us they had engaged in publicity
campaigns to encourage eligible recipients to sign up for federally funded
programs such as food stamps or EIC.

Aid for the At-Risk Spending Increased Steadily and Remains the Largest
Nonhealth Category

Spending on aid for the at-risk, generally the largest nonhealth category,
increased over the decade, although growth slowed considerably in most
states after 2000, as shown in table 11. This category includes spending
for child welfare, mental health, developmental disabilities, juvenile
justice, substance abuse prevention and treatment, and related spending.
Among these, the largest areas of spending were child welfare, mental
health, and developmental disabilities. Officials in several states told
us that there were increases in the costs of providing services for these
three areas, as well as increased demand for child welfare and other
services. However, several states had growth rates under 10 percent after
2000, because of decreases in spending areas such as juvenile justice,
substance abuse, and developmental disabilities.

Table 11: Percentage Change in Real Spending for Aid for the At-Risk

                                        

     Based on real 2004 dollars                   
                                        SFY       
                State                   1995-2000     2000-2004     1995-2004 
California                                  54            27            95 
Colorado                                    44             1            46 
Louisiana                                   57             9            71 
Maryland                                     7            33            42 
Michigan                                    33            13            50 
New York                                    27            20            53 
Oregon                                      26             3            30 
Texas                                       23             5            30 
Wisconsin                                   25            -2            23 
Median                                      27             9            46 
Maximum                                     57            33            95 
Minimum                                      7            -2            23 

Source: GAO survey and analysis of state spending data.

Note: Includes federal, state, and local spending captured in our survey.
See app. I for a further explanation of the aid for the at-risk category.

Child welfare spending increased considerably in most of the nine states
over the decade, primarily from 1995 to 2000, as shown in table 12. This
includes spending for key federal/state partnership programs such as
foster care, adoption assistance, and other child welfare services.
Nationwide, child welfare systems investigate abuse and neglect, provide
placements to children outside their homes, and deliver services to help
keep families together.17 TANF and MOE funds played an important role in
four states, which increased TANF-related spending until it accounted for
19 to 32 percent of child welfare spending by 2004.

Table 12: Percentage Change in Real Spending for Child Welfare

                                        

     Based on real 2004 dollars                   
                                        SFY       
                State                   1995-2000     2000-2004     1995-2004 
California                                  44            22            75 
Colorado                                    50             5            57 
Louisiana                                   23             0            23 
Maryland                                    35            17            59 
Michigan                                    52            40           112 
New York                                    14            13            29 
Oregon                                     -17            18            -1 
Texas                                       21            19            44 
Wisconsin                                  118            -1           116 
Median                                      35            17            57 
Maximum                                    118            40           116 
Minimum                                    -17            -1            -1 

Source: GAO survey and analysis of state spending data.

Note: Includes federal, state, and local spending captured in our survey
for adoption assistance, foster care, and independent living programs; on
any program intended to prevent out-of-home placements, promote
reunification of families, or provide a safe environment for children; and
on programs that focus on prevention of child abuse and neglect.

TANF and MOE Funds Played an Expanding and Flexible Role across State
Budgets, but Accountability Remains a Challenge

The combination of a substantial decline in traditional cash assistance
caseloads, new flexibilities under PRWORA, and states' implementation of
their welfare reforms resulted in a changing role for TANF and MOE dollars
across state budgets. The change from the previous welfare program-with
its open-ended federal funding that matched state expenditures for monthly
cash assistance-to the federal TANF block grant-with fixed federal funding
and a specified level of state spending-gave states broader discretion
over the types of services and activities to fund toward welfare reform
goals. This change also gave states broader discretion over the amount of
federal TANF and state MOE funds to spend in a given year, subject to
minimum levels required under the MOE provisions. Under this new fiscal
framework, the landscape of spending for traditional welfare funds changed
substantially since welfare reform. TANF and MOE dollars played an
increasing role in state budgets outside of traditional cash assistance
payments, for programs to encourage work, help former welfare recipients
keep their jobs, and provide services to needy families that did not
necessarily ever receive welfare payments. However, with this shift, gaps
arose in the information gathered at the federal level to ensure state
accountability. Existing oversight mechanisms focus on cash assistance,
which no longer accounts for the majority of TANF and MOE spending. As a
result, there is little information on the numbers of people served by
TANF-funded programs, meaning there is no real measure of workload or of
how services supported by TANF and MOE funds meet the goals of welfare
reform.

Flexible TANF Funds Serve a Broad Population in Various Ways

Since welfare reform, states have increasingly spent TANF and MOE funds
for aid and services outside of traditional cash assistance payments.
Before welfare reform each of our study states spent some federal and
state AFDC-related funds in spending categories other than cash
assistance.18 However, by 2004, most of the states had significantly
increased their use of TANF and MOE funds in these noncash categories
compared with the level of spending in 1995, as shown in figure 5.

Figure 5: Percentage Change in TANF and MOE Spending for Noncash Aid and
Services (Percentage Change in Real Spending from 1995 to 2004)

Note: This compares 1995 federal and state AFDC-related funds spent in the
noncash categories-employment services and training, work and other
supports, and aid for the at-risk-with the amount of federal TANF and
state MOE spending in these same categories in 2004. These data will not
directly correspond to amounts reported by states to HHS because of
differences in fiscal years and our study methodology.

The TANF block grant played a critical role in this shift in spending
priorities. Under the block grant structure, states' fixed annual TANF
allotments did not change as cash assistance caseloads fell. In addition,
states still had to meet maintenance of effort requirements by spending at
least 75 percent of the amount they had spent in the past when caseloads
were much higher. States faced choices about how to use these funds,
including whether to leave some amount of their annual grant in reserve at
the U.S. Treasury to help them meet any future increases in welfare costs.
TANF funds not spent by states accumulate as balances in the U.S.
Treasury.

New Welfare Environment Emerges after Federal and State Reforms

Our previous work showed that several trends emerged in this new welfare
environment. First, many states increased their efforts to engage more
welfare families in work or work-related activities in keeping with key
TANF program requirements. More specifically, to avoid financial
penalties, states were to meet specified work participation rates by
engaging parents receiving cash assistance in work-related activities.
States generally met these rates, in part because of adjustments made in
the target rates due to the drop in caseloads and other provisions that
allowed states to serve some families without work requirements.19 In
strengthening their welfare-to-work programs, states emphasized the
importance of work to TANF recipients and paid more attention to case
management services, child care and transportation assistance, and other
services to help individuals, including those who faced some barriers to
employment, become job ready.20

Second, many states took steps to help parents who had left the welfare
rolls for employment, often by continuing to provide child care
assistance, sometimes using TANF funds to supplement other federal funds
used for child care subsidies for low-income parents. Our work has shown
that many former welfare recipients work in low-wage jobs with limited
benefits and that continued assistance, such as child care subsidies, can
help them maintain their jobs.

Third, states also used TANF and MOE funds to provide a range of services
to families that had not previously received cash welfare payments. These
services can include onetime payments to families in need, such as for
rent payments that might help keep them off the welfare rolls. Some states
increased efforts to promote healthy marriages and two-parent families.
All of these uses of TANF and MOE funds are generally considered in
keeping with the broad goals established in the legislation. As specified
by law, the purpose of TANF is to

o provide assistance to needy families so that children may be cared for
in their own homes or in the homes of relatives;

o end the dependence of needy families on government benefits by promoting
job preparation, work, and marriage;

o prevent and reduce the incidence of out-of-wedlock pregnancies; and

o encourage the formation and maintenance of two-parent families.

Spending Priorities Shift as Policies and Programs Change

This shift to aid and services other than cash assistance is mirrored in
our analysis of states' spending patterns for TANF and MOE funds. Figure 6
shows the percentage of TANF and MOE funds (combined) that each state
spent in each spending category in 1995, 2000, and 2004. (This figure only
includes TANF and MOE spending, in contrast to figure 4, which showed the
percentage of total federal and state low-income spending that each state
spent in each category.) For example, figure 6 shows that California spent
more than 90 percent of its federal and state AFDC-related funds on cash
assistance in 1995 compared with 68 percent of its federal and state
TANF-related funds in 2004. As the share of funds devoted to cash
assistance declined in that state, the portion devoted to employment
services and training, in particular, increased. In seven of the nine
states, by 2004, cash assistance spending accounted for 40 percent or less
of total TANF and MOE. States varied in how their TANF and MOE funds were
distributed among the noncash categories.

Figure 6: Share of Federal TANF and State MOE Spending for Welfare-Related
Nonhealth Services by Category over Time (Based on Real Spending)

Notes: Each bar represents 100 percent of the TANF and MOE spending for
nonhealth services captured in our survey in each state for each year.
Bars may not total to 100 percent due to rounding. To the extent that
states did not report to us TANF funding spent through the Social Services
Block Grant and CCDF, as allowed under law, it is not included in these
data.

This shift to noncash assistance was curtailed somewhat from 2000 to 2004,
when cash assistance caseloads and related spending increased in several
of the states, associated with a contraction of spending for other forms
of aid and services, as shown in figure 6. During this period, state
officials generally had to make different choices about what services and
programs they could support with TANF and MOE funds to ensure they had
enough funds to support the core cash assistance program. Some state
officials told us that they drew down their TANF balances or reserves to
help them maintain service levels. Regarding these TANF balances, most of
the nine states followed a pattern of initially building up their TANF
balances and then drawing them down in the 2000-2004 time period to help
them maintain services, as shown in figure 7.

Figure 7: TANF Balances as a Percentage of Total TANF Funds Available by
State in Federal Fiscal Years 2000 and 2004

Note: These data represent the total amount of unspent TANF funds
(including unliquidated and unobligated funds) as a percentage of the
total TANF funds available to the state (the state's annual grant amount
plus any unexpended grant amounts carried over from previous years).

Over the decade, we found that the states used their federal and state
TANF-related funds throughout their budgets for low-income individuals,
supporting a wide range of state priorities, such as refundable state EICs
for the working poor, prekindergarten, child welfare services, mental
health, and substance abuse services, among others. While some of this
spending, such as that for child care assistance, relates directly to
helping cash assistance recipients leave and stay off the welfare rolls,
other spending is directed to a broader population and set of state needs.
The flexibility afforded states under TANF allows them to use these funds
toward their state priorities. Some examples include the following:

o Oregon-home to a large refugee resettlement population-spent TANF funds
on cash benefits and other refugee services. Oregon also spent TANF and
MOE funds on emergency assistance for survivors of domestic abuse.

o New York and Wisconsin use federal TANF or state MOE funds for
refundable tax credits. New York has increased the extent to which it
counts state spending for the refundable portion of its EIC and dependent
care tax credit to help it meet its MOE requirement. Wisconsin has used
federal TANF funds to finance the refundable portion of its state EIC that
previously had been financed with state funds, as we reported in our
earlier report on these states' use of funds.21

o Michigan uses TANF funds for emergency homeless shelters and programs
for runaways. TANF funds are also used for individual development
accounts, which provide funds to eligible families to match their own
funds to encourage them to save for educational purposes.

o According to state officials, Texas used MOE funds for prekindergarten
for low-income children with low English proficiency. Texas also used TANF
funds for an employment retention and advancement program for working
people.

o California counts state funds used for the California Food Assistance
Program toward its MOE requirement and uses TANF funds for juvenile
probation services and fraud prevention incentive grants to counties.

o Maryland spent TANF funds through the state Department of Education for
the Children At Risk program. According to the Governor's Budget, this
program provides services for pregnant and parenting teenagers and
provides funds to reduce the number of students who drop out of school
each year, prevent youth suicides, reduce the incidence of child alcohol
and drug abuse, and reduce AIDS among students.

o According to state officials, Louisiana, after initially building up a
large TANF balance, took steps from 2002 to 2004 to spend down these
funds, in some cases through short-term initiatives to be supported only
until funding ran out. Some of these spending initiatives included
prekindergarten, which state officials noted is a priority of the
governor; funds to address teen pregnancy; and support for child welfare
advocates.

Much Remains Unknown about How States Use TANF Funds to Address Federal
Welfare Reform Goals

While current mechanisms in place at the federal level to hold states
accountable for their use of federal TANF and state MOE funds provide
useful information, these reporting mechanisms still leave significant
gaps that hamper oversight. The new federal welfare program goals and
fiscal structure established in 1996 entailed substantial changes in
federal oversight and reporting mechanisms. At the federal level, HHS is
responsible for oversight of the TANF block grant, and states provide
several types of information for oversight purposes. Key oversight and
reporting mechanisms are

o expenditure reports on the amount and type of federal and state MOE
spending;

o plans that each state must file with HHS to outline its TANF programs
and goals, among other things, for reducing out-of-wedlock pregnancies;

o annual reports that each state must file with HHS to supplement its
state plan information;

o aggregate caseload and individual reporting on demographic and economic
circumstances and work activities of individuals receiving TANF cash
assistance;

o single audit reports conducted as part of governmentwide audits of
federal aid to nonfederal entities;

o performance bonuses related to measures of job entry, job retention, and
wage growth for TANF recipients and also for reducing out-of-wedlock
births; and

o financial penalties in 14 specified areas, including failure to meet the
state MOE requirement and the minimum work participation rates.

In addition, HHS funding supports a range of research activities that
provide additional information on TANF recipients and other low-income
populations.

These reporting mechanisms and information sources generally provide
useful information on states' use of TANF and MOE funds, although key
information gaps remain. One such gap exists because the key measure of
the number of people served through the block grant remains focused on
families receiving TANF assistance, defined in TANF regulations as
benefits designed to meet a family's ongoing basic needs, which most
typically occurs through receipt of monthly cash assistance.22 This
measure does not provide a complete picture of the number of people
receiving other forms of aid or services funded with TANF and MOE funds.
In 2002, we estimated that in the 25 states we studied, at least 46
percent more families than are counted in the TANF caseload are provided
aid or services with TANF and MOE dollars.23 In addition, we reported in
June 2005 that the lack of information on the numbers of children and
families receiving child care subsidies funded by TANF and the types of
care received leads to an incomplete picture of the federal role in
providing child care subsidies to low-income parents.24 We already said in
that report that Congress may wish to require HHS to find cost-effective
ways to address this specific gap to provide additional information of
value to policymakers and program managers in ensuring the efficiency,
effectiveness, and accountability of federal supports for child care.

Additional information on the full range of people served by TANF and MOE
funds is essential for a better understanding of the true workload of the
grant. Caseload or workload information is important for oversight and
policy-making purposes, particularly those related to the amount of and
needs associated with the block grant. For example, as the cash assistance
caseload declined by more than half nationwide, it raised questions as to
whether adjustments were needed to the block grant funding levels. At the
same time, because the amount of the block grant has not been adjusted for
inflation since its creation in 1996, concerns have been raised about its
declining value and the possible impact on meeting needs. Better
information could inform these discussions.

While having more information on the numbers served is important, it is
also critical to make a distinction between those receiving cash
assistance and other types of assistance, because different program
requirements apply to families in different situations. More specifically,
under TANF, families receiving ongoing cash assistance are generally
subject to work requirements, time limits, and other requirements, in part
to emphasize the transitional nature of assistance and to help ensure that
recipients take steps to prepare for work. Those receiving other forms of
aid outside of a state's TANF program through a separate state program,
such as working parents receiving child care subsidies, are not subject to
requirements such as time limits on aid.

Another information gap relates to what services are funded and how those
services fit into a strategy or approach for meeting TANF goals. This
would include information about intended target populations and the
strategy or approach for using the funds to further welfare reform goals.
For example, additional information on the extent to which TANF and MOE
funds were used to support work requirements for cash assistance
recipients is important to understanding the costs of supporting a state's
core TANF program. It is also important to have additional information to
better understand the costs involved in providing aid to those
transitioning off of welfare and to a more general population, such as for
prekindergarten services or to supplement a state's refundable EIC
program. Such information would be useful to congressional policymakers in
considering changes to TANF work requirements and implications for the
provisions of other services, a key issue in TANF reauthorization
deliberations.

In creating the TANF block grant, Congress emphasized the importance of
state flexibility, and to that end, the legislation restricted HHS
regulatory authority over the states except to the extent expressly
provided in the law. Regarding collecting additional information about
services beyond cash assistance, while HHS has acknowledged the value of
having additional information, it has said that it will not collect this
information without legislative changes directing it to do so.

In any effort to get more information or to increase or revise program and
fiscal reporting requirements, important considerations should be taken
into account. In our report on the current undercounting of those served
by TANF, some state officials raised concerns about the possibility of
additional TANF reporting requirements being imposed on states to collect
information on families not included in the TANF caseload. These concerns
included that (1) states lack the information systems needed to fulfill
additional requirements, (2) fulfilling additional requirements will
increase administrative costs, (3) additional data collection requirements
could deter states and service providers from offering services because
they would not want the administrative burden associated with them, and
(4) requiring all service recipients to provide personal identifying
information for every service may deter some people from accessing
services because of the stigma associated with welfare. While many of
these concerns are legitimate, they do not necessarily outweigh the
importance of getting needed information for oversight and policy making
and can be considered in addressing any changes. In addition, there may be
a variety of ways to get needed information, some more cost-effective than
others, including relying on existing data sources or special studies.
Moreover, opportunities may exist to streamline or eliminate some
reporting requirements to make way for more relevant ones, as determined
by Congress, HHS, and the states. In the past, Congress has included in
legislation a requirement that HHS cooperate with states-key stakeholders
in welfare reform-in considering aspects of monitoring state programs and
performance. HHS has worked with state and human services professional
organizations to discuss and receive input on information requirements and
performance standards in the past.

National-level data show that the trend away from cash assistance spending
has occurred nationwide. States are using substantial portions of their
block grants and MOE funds as large, flexible funding streams to meet
their priorities in many areas of their budgets for low-income families,
yet much remains unknown at the national level about how these federal
TANF and state MOE funds are used to meet the overall goals of welfare
reform.

Conclusion

Ten years after Congress passed sweeping welfare reforms, much has changed
in how federal and state dollars support programs for low-income and
at-risk individuals. Some trends raise issues for the future. Overall,
spending is up, but state budgets for low-income individuals are
increasingly dominated by health care spending. To the extent that this
trend continues or becomes more pronounced, it warrants attention as to
its effect on state spending to meet other needs of low-income
individuals. Another key trend was the shift in nonhealth spending
priorities away from cash assistance to greater emphasis on supporting
low-income individuals' work efforts. However, the greatest increases came
right after welfare reform during the strong economy, while some
contraction in spending was apparent in the latter period. This raises
questions about the sustainability of this shift.

In addition, in the new welfare environment, too much remains unknown
about how TANF block grant funds are spent to meet welfare goals. A
natural tension exists with block grants that is not easily addressed. A
key challenge is to strike an appropriate balance between flexibility for
states and accountability for federal goals. This is particularly
important given the large dollar amount of the TANF block grant-over $16
billion in federal funds annually. With the current accountability and
reporting structure for TANF, the information gaps hamper decision makers
in making informed choices about how best to spend federal funds to assist
vulnerable populations cost effectively. At the same time, consideration
needs to be given to collecting needed information in a way that minimizes
reporting burden and acknowledges the importance of flexibility in
addressing state and local needs.

Matter for Congressional Consideration

To better inform its oversight and decision-making process, Congress
should consider ways to address two key information gaps for the TANF
block grant: (1) insufficient information on the numbers served by TANF
funds and (2) limited information on how funds are used-for example, on
which target populations and as part of what strategies and approaches-to
meet TANF goals.

Efforts to obtain more information must take into account how to do so in
the most cost-effective and least burdensome way. Some options include
Congress directing the Secretary of HHS to require states to include more
information in state TANF plans filed with HHS on their strategies and
approaches for using funds; require states to include more information on
all aspects of TANF spending in the annual reports they must file with
HHS; and revise other reporting requirements regarding the uses and
recipients of TANF-related funds. Congress may wish to require the
Secretary to consult with key welfare reform stakeholders in assessing and
revising reporting requirements or information-gathering strategies.

Agency Comments

We provided a draft of this report to HHS for review. In its written
comments, which appear in appendix VI, HHS agreed that additional
information on states' use of TANF funds would be valuable and that
expanded data collection requirements should be done in a cost-effective
manner and in consultation with stakeholders. HHS also provided technical
comments that we incorporated where appropriate.

As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
after its issue date. At that time, we will send copies of this report to
the Secretary of Health and Human Services, appropriate congressional
committees, and other interested parties. We will also make copies
available to others upon request. In addition, the report is available at
no charge on GAO's Web site at http://www.gao.gov .

If you or your staff have any questions about this report, please contact
David D. Bellis at (415) 904-2272 or Stanley J. Czerwinski at (202)
512-6520. Contact points for our Offices of Congressional Relations and
Public Affairs may be found on the last page of this report. GAO staff who
made major contributions to this report are listed in appendix VII.

Sincerely yours,

David D. Bellis Director Education, Workforce, and Income Security Issues

Stanley J. Czerwinski Director Strategic Issues

Appendix I

Objectives, Scope, and Methodology

In order to provide information on welfare-related spending over the
decade since welfare reform, we designed our study to (1) examine changes
in the overall level of welfare-related spending for nonhealth and health
services in the periods before and after the recession in 2001 and over
the decade since 1995, (2) examine changes in spending priorities for
nonhealth welfare-related services during the same time periods, and (3)
review the contribution of Temporary Assistance to Needy Families (TANF)
funds to states' spending for welfare-related services. To address these
objectives, we used a survey instrument to collect state spending data
from state budget and program officials in nine states examined in our
prior reports;1 conducted site visits in these nine states; and reviewed
information available from prior GAO work, relevant federal agencies, and
other organizations. The nine states in our study-California, Colorado,
Louisiana, Maryland, Michigan, New York, Oregon, Texas, and
Wisconsin2-represent a diverse set of socioeconomic characteristics,
geographic regions, population sizes, and experiences with state welfare
initiatives. For the purposes of this report, we focused on spending for
working-age adults and children and excluded spending for the elderly,
long-term care, and institutional care. The term welfare-related refers to
spending for low-income and at-risk individuals, including TANF-eligible
and non-TANF eligible individuals. Because our focus was on states'
budgetary decisions, we excluded federal program spending about which
states do not make key budget decisions, such as food stamp benefits, the
Earned Income Tax Credit, Supplemental Security Income, and other
programs; as a result, our data do not capture all federal spending for
low-income individuals.

To obtain data on welfare-related spending over the decade since welfare
reform, we asked state budget and program officials from each state's
central budget office and relevant state agencies to identify
welfare-related spending data using the same survey instrument and
criteria used in our

prior report.3 (See app. V.) We worked closely with state officials to
complete the survey during our site visits and through numerous telephone
and e-mail contacts. Because parts of the survey were completed by
different state officials, we also provided the states with the data we
compiled for their review as well as data summaries of our analysis. We
collected budget data and program information for three points in time
based on state fiscal years: for 1995 before the passage of federal
welfare reform legislation; for 2000; and for 2004, the most recent year
for which data were available. Consistent with our prior methodology, we
used the survey to take a comprehensive look at state social service
program budgets by encouraging states to provide spending data on a broad
array of programs, rather than just those programs that received federal
TANF funding. Our study includes federal, state, and local spending
associated with Medicaid, TANF, housing assistance, child care and
welfare, and a myriad of other programs aimed at needy populations and for
which states make key budgetary decisions.

State budget structures differ across states. Some states in our analysis
used biennial budgets, others used annual budgets. States can place
employment and training programs primarily in their social services
departments; other states can place these programs in their economic
development departments. Some states place responsibility for welfare
programs with county governments. These differences make comparisons of
state budgets and spending difficult. In asking states to report spending
on individual programs, regardless of which state agency oversaw these
programs, and then aggregating the spending into the same categories for
each state, we were able to compare state spending trends across all of
the states. As figure 8 shows, we classified spending data in several key
ways, including nonhealth spending-cash assistance (Category 1),
employment services and training (Category 2), work and other supports
(Category 3), and aid for the at-risk (Category 4)-and health spending
(Category 5), which we generally separated from nonhealth spending in our
analysis.

Figure 8: Welfare-Related Spending Categories Used in Our Analysis

Our first spending category includes state spending for ongoing cash
assistance payments with federal or state moneys under the Aid for
Families with Dependent Children (AFDC), TANF, or other state programs.
This category corresponds most closely with traditional monthly cash
assistance payments under the AFDC program. Our second spending category
includes spending for job and training programs that seek to prepare
people for employment. Our third spending category includes programs that
seek to support low-income people with other forms of aid or services,
including helping families move from welfare to work or avoid welfare
altogether. For example, child care subsidies and rental assistance
payments can help parents remain employed even if they are working in
low-wage jobs. Our fourth spending category recognizes the range of
programs that states can use to develop strategies to achieve TANF's
goals. These spending areas include child welfare programs, substance
abuse programs, mental health programs, and programs that help the
developmentally disabled attain a level of self-sufficiency, and exclude
spending for any individuals in institutions. While many of these state
spending areas may not have income standards to determine eligibility, a
state can claim TANF funds for expenditures in these areas if the state is
able to certify that participants in these programs meet the eligibility
requirements set forth in the state's TANF plan. Our fifth spending
category includes spending for health services aimed at low-income people
but excludes spending for the elderly, long-term care, and institutional
care. Analyzing health care spending helps recognize a state's true and
substantial investment in spending to support these low-income and needy
populations. In general, our spending categories were designed to cover
all areas of a state's budget associated with the TANF-eligible population
and allowable expenses under TANF as well as for other low-income children
and individuals of working age.

We analyzed state spending of both federal and state funds on a wide array
of programs aimed at providing services to the needy and that flowed
through the state budget. In this analysis, federal spending is not
defined by the level of a federal grant allocated to a state, but rather
by how much of the grant the state chooses-or in some cases is required-to
spend on a particular activity. For this reason we did not consider a
number of 100 percent federally funded programs that do not flow through
the state budget. For example, the food stamp program is administrated by
the state and the shared administrative costs are included in the survey,
but the value of the food stamp coupons disbursed in the fiscal year,
borne 100 percent by the federal government, is not. Likewise, if a state
budget action prompted local spending in these areas, through incentives
like a state-local match, then local spending was included in our
analysis.

We converted state spending data to real 2004 dollars in order to make our
spending more comparable over time.

To obtain program description and recipient eligibility information on the
spending data we collected, we also spoke with budget and program
officials in these nine states knowledgeable about state TANF programs,
Medicaid programs, and other state programs supporting the spending we
captured in our survey. We also gathered information about the fiscal and
economic environment in each state since state fiscal year (SFY) 2000, the
last data year in our prior report, and a period that included a national
recession in 2001. We worked closely with state officials to complete the
survey. Once the state program and budget officials identified the program
spending to include in the survey, we verified through program
documentation and discussions with these state officials that the program
descriptions, targeted beneficiaries, and program goals met the survey
criteria.

To obtain information about policy and program developments for welfare
and other related program spending data collected in our survey, we
reviewed reports and information readily available from our prior work,
relevant federal agencies, state governments, and local advocacy groups.

We took several steps to determine the completeness and accuracy of data
obtained from states. We reviewed related documentation and examined the
data for obvious omissions and errors and to have reasonable assurance
that the spending data were comparable over the three years in our
analysis. We also collected information and audit reports on the systems
state officials used to provide state spending data. We did not test the
data systems ourselves. In some cases, state auditors found weaknesses
with relevant agency data systems or internal controls. However, for the
purposes of examining aggregate welfare-related spending across state
budgets, and identifying the purposes of spending within these aggregates,
we found the survey data we collected to be sufficiently reliable for use
in this report.

We determined the completeness and accuracy of data obtained from the
Department of Health and Human Services (HHS) based on interviews and
related documentation and determined that the data were sufficiently
reliable for use in this report.

Appendix II

Federal and State AFDC, TANF, and MOE Spending as a Share of Total
Welfare-Related Nonhealth Spending

                                        

      Percentage based on 2004 dollars     
                                               SFY     
                    State                         1995        2000       2004 
California                                       47          27         23 
Colorado                                         44          22         21 
Louisiana                                        23          14         21 
Maryland                                         22          17         12 
Michigan                                         29          15         15 
New York                                         35          27         23 
Oregon                                           29          29         25 
Texas                                            23          16         18 
Wisconsin                                        32          27         28 
Median                                           29          22         21 
Low                                              22          14         12 
High                                             47          29         28 

Source: GAO survey and analysis of state spending data.

Notes: Includes federal, state, and local spending captured in our survey.
The nonhealth category reflects total spending from the following
previously defined GAO categories: cash assistance, employment services
and training, work and other supports, and aid for the at-risk. See app. I
for a further explanation of these categories.

Appendix III

Total Welfare-Related Health and Nonhealth Spending from Federal and State
Sources

Table 13: Total Welfare-Related Health Spending

                                        

    2004 dollars in                                       
        millions                                          
                       SFY          Percentage 
                                      change   
         State          1995   2000       2004  1995-2000 2000-2004 1995-2004 
California         $7,676 $7,827    $10,796          2        38        41 
Colorado              651  1,493      1,969        129        32       202 
Louisiana           1,838  1,989      2,952          8        48        61 
Maryland             1929  2,093      3,038          8        45        58 
Michigan            3,029  3,113      4,106          3        32        36 
New York           15,468 17,217     24,035         11        40        55 
Oregon                632  1,411      1,726        123        22       173 
Texas               3,930  5,983      9,713         52        62       147 
Wisconsin           1,694  1,954      3,100         15        59        83 

Source: GAO survey and analysis of state spending data.

Notes: Includes federal, state, and local spending captured in our survey.
See app. I for a further explanation of the health category, which
excludes spending for long-term care, institutional care, and the elderly.

Table 14: Total Welfare-Related Nonhealth Spending

                                        

2004 dollars in                                        
       millions                                           
                      SFY           Percentage 
                                      change   
        State          1995    2000       2004  1995-2000 2000-2004 1995-2004 
California       $15,970 $17,717    $20,768         11        17        30 
Colorado             692     952        967         38         2        40 
Louisiana          1,041     920      1,060        -12        15         2 
Maryland           2,178   2,218      2,725          2        23        25 
Michigan           4,626   4,576      4,930         -1         8         7 
New York          14,622  14,413     16,493         -1        14        13 
Oregon               892   1,002      1,047         12         4        17 
Texas              3,371   3,930      4,122         17         5        22 
Wisconsin          1,473   1,523      1,730          3        14        17 

Source: GAO survey and analysis of state spending data.

Notes: Includes federal, state, and local spending captured in our survey.
The nonhealth category reflects total spending from the following
previously defined GAO categories: cash assistance, employment services
and training, work and other supports, and aid for the at-risk. See app. I
for a further explanation of these categories.

Table 15: Welfare-Related Health Spending from Federal and State Sources

                                        

       2004 dollars in                                         
          millions                                             
                             SFY   
                            1995          2000          2004  
            State          Federal  State      Federal  State  Federal  State 
California               $3,774 $3,902       $3,807 $4,020   $5,595 $5,201 
Colorado                    347    304          742    750    1,053    916 
Louisiana                 1,337    501        1,398    591    2,206    746 
Maryland                    941    987        1,033  1,059    1,653  1,385 
Michigan                  1,684  1,345        1,682  1,431    2,373  1,734 
New York                  6,548  8,920        8,561  8,656   11,828 12,207 
Oregon                      392    239          858    553    1,112    614 
Texas                     2,487  1,442        3,682  2,302    5,885  3,828 
Wisconsin                   968    726        1,126    828    1,858  1,242 

Source: GAO survey and analysis of state spending data.

Notes: Includes federal, state, and local spending captured in our survey.
See app. I for a further explanation of the health category, which
excludes spending for long-term care, institutional care, and the elderly.

Table 16: Welfare-Related Nonhealth Spending from Federal and State
Sources

                                        

      2004 dollars in                                         
          millions                                            
                            SFY   
                           1995          2000          2004  
           State          Federal  State      Federal  State  Federal   State 
California              $7,297 $8,666       $7,883 $9,834   $9,138 $11,631 
Colorado                   346    346          373    580      474     493 
Louisiana                  764    277          476    444      611     449 
Maryland                   905  1,273          939  1,279    1,220   1,505 
Michigan                 2,455  2,171        2,312  2,265    2,674   2,256 
New York                 4,776  9,846        5,488  8,926    7,153   9,340 
Oregon                     540    352          604    398      634     413 
Texas                    1,722  1,649        2,193  1,737    2,393   1,729 
Wisconsin                  578    895          660    863      804     926 

Source: GAO survey and analysis of state spending data.

Notes: Includes federal, state, and local spending captured in our survey.
The nonhealth category reflects total spending from the following
previously defined GAO categories: cash assistance, employment services
and training, work and other supports, and aid for the at-risk. See app. I
for a further explanation of these categories.

Table 17: Percentage Change in Welfare-Related Health Spending from
Federal and State Sources

                                        

    Based on 2004                                                       
       dollars                                                          
                   1995-2000       2000-2004         1995-2004 
        State        Federal State           Federal     State  Federal State 
California              1     3                47        29       48    33 
Colorado              114   147                42        22      203   201 
Louisiana               5    18                58        26       65    49 
Maryland               10     7                60        31       76    40 
Michigan                0     6                41        21       41    29 
New York               31    -3                38        41       81    37 
Oregon                119   131                30        11      183   156 
Texas                  48    60                60        66      137   165 
Wisconsin              16    14                65        50       92    71 
Median                 16    14                47        29       81    49 
Maximum               119   147                65        66      203   201 
Minimum                 0    -3                30        11       41    29 

Source: GAO survey and analysis of state spending data.

Notes: Includes federal, state, and local spending captured in our survey.
See app. I for a further explanation of the health category, which
excludes spending for long-term care, institutional care, and the elderly.

Table 18: Percentage Change in Welfare-Related Nonhealth Spending from
Federal and State Sources

                                        

    Based on 2004                                    
       dollars                                       
                   1995-2000       2000-2004         1995-2004 
        State        Federal State           Federal     State  Federal State 
California              8    13                16        18       25    34 
Colorado                8    67                27       -15       37    42 
Louisiana             -38    60                28         1      -20    62 
Maryland                4     0                30        18       35    18 
Michigan               -6     4                16         0        9     4 
New York               15    -9                30         5       50    -5 
Oregon                 12    13                 5         4       18    17 
Texas                  27     5                 9         0       39     5 
Wisconsin              14    -4                22         7       39     4 
Median                  8     5                22         4       35    17 
Maximum                27    67                30        18       50    62 
Minimum               -38    -9                 5       -15      -20    -5 

Source: GAO survey and analysis of state spending data.

Notes: Includes federal, state, and local spending captured in our survey.
The nonhealth category reflects total spending from the following
previously defined GAO categories: cash assistance, employment services
and training, work and other supports, and aid for the at-risk. See app. I
for a further explanation of these categories.

Appendix IV

Welfare-Related Nonhealth Spending by Spending Category

Table 19: Total Cash Assistance Spending

                                        

    2004 dollars in                                       
       millions                                           
                      SFY           Percentage 
                                      change   
         State         1995    2000       2004  1995-2000 2000-2004 1995-2004 
California        $6,903 $ 3,174    $ 3,213        -54         1       -53 
Colorado             171      49         62        -71        26       -64 
Louisiana            195      80         78        -59        -2       -60 
Maryland             380     119        128        -69         7       -66 
Michigan           1,183     360        406        -70        13       -66 
New York           4,887   3,341      2,179        -32       -35       -55 
Oregon               230      87         89        -62         3       -61 
Texas                574     270        215        -53       -20       -62 
Wisconsin            416      82        128        -80        56       -69 

Source: GAO survey and analysis of state spending data.

Notes: Includes federal, state, and local spending captured in our survey.
See app. I for a further explanation of the cash assistance category.

Table 20: Total Employment Services and Training Spending

                                        

     2004 dollars in                                      
        millions                                          
                        SFY         Percentage 
                                      change   
          State         1995   2000       2004  1995-2000 2000-2004 1995-2004 
California           $843 $1,463     $1,381         74        -6        64 
Colorado               11     11         31          0       173       172 
Louisiana             162    105        142        -35        35       -13 
Maryland              109    156         63         43       -59       -42 
Michigan              283    400        263         41       -34        -7 
New York            1,222  1,149      1,502         -6        31        23 
Oregon                 71     90         67         28       -26        -5 
Texas                 527    541        639          3        18        21 
Wisconsin              69    165         93        138       -44        34 

Source: GAO survey and analysis of state spending data.

Notes: Includes federal, state, and local spending captured in our survey.
See app. I for a further explanation of the employment services and
training category.

Table 21: Total Work and Other Supports Spending

                                        

    2004 dollars in                                       
        millions                                          
                       SFY          Percentage 
                                      change   
         State          1995   2000       2004  1995-2000 2000-2004 1995-2004 
California         $2,812 $4,765     $5,605         69        18        99 
Colorado              158    383        360        143        -6       129 
Louisiana             383    265        329        -31        24       -14 
Maryland              451    622        773         38        24        71 
Michigan            1,365  1,429      1,567          5        10        15 
New York            3,246  3,221      4,748         -1        47        46 
Oregon                214    351        402         64        15        88 
Texas                 887  1,412      1,469         59         4        66 
Wisconsin             576    760      1,002         32        32        74 

Source: GAO survey and analysis of state spending data.

Notes: Includes federal, state, and local spending captured in our survey.
See app. I for a further explanation of the work and other supports
category.

Table 22: Total Aid for the At-Risk Spending

                                        

    2004 dollars in                                       
        millions                                          
                       SFY          Percentage 
                                      change   
         State          1995   2000       2004  1995-2000 2000-2004 1995-2004 
California         $5,413 $8,314    $10,569         54        27        95 
Colorado              352    508        513         44         1        46 
Louisiana             300    470        512         57         9        71 
Maryland            1,237  1,322      1,761          7        33        42 
Michigan            1,794  2,387      2,694         33        13        50 
New York            5,268  6,702      8,063         27        20        53 
Oregon                377    474        488         26         3        30 
Texas               1,383  1,707      1,799         23         5        30 
Wisconsin             412    516        507         25        -2        23 

Source: GAO survey and analysis of state spending data.

Notes: Includes federal, state, and local spending captured in our survey.
See app. I for a further explanation of the aid for the at-risk category.

Table 23: Total Noncash Assistance Spending

                                        

    2004 dollars in                                       
       millions                                           
                      SFY           Percentage 
                                      change   
         State         1995    2000       2004  1995-2000 2000-2004 1995-2004 
California        $9,067 $14,543    $17,555         60        21        94 
Colorado             521     902        904         73         0        74 
Louisiana            845     840        983         -1        17        16 
Maryland           1,797   2,100      2,597         17        24        45 
Michigan           3,442   4,216      4,524         22         7        31 
New York           9,736  11,072     14,313         14        29        47 
Oregon               662     915        957         38         5        44 
Texas              2,797   3,660      3,907         31         7        40 
Wisconsin          1,057   1,441      1,602         36        11        52 

Source: GAO survey and analysis of state spending data.

Notes: Includes federal, state, and local spending captured in our survey.
Noncash assistance spending reflects total spending from the following
previously defined GAO categories: employment services and training, work
and other supports, and aid for the at-risk. See app. I for a further
explanation of these categories.

Appendix V

Survey Instrument

Appendix VI

Comments from the Department of Health and Human Services

Appendix VII

GAO Contacts and Staff Acknowledgments

David D. Bellis (415) 904-2272 or [email protected]  Stanley J. Czerwinski
(202) 512-6520 or [email protected]

In addition to the contacts named above, Paul Posner, Gale Harris, Tom
James, Sandra Beattie, Rebecca Hargreaves, Cheri Harrington, Dorian
Herring, Brittni Milam, and Keith Slade made key contributions to this
report. In addition, Gregory Dybalski and Jerry Fastrup provided key
analytical and technical support; Wesley Dunn provided legal support; and
Katherine Bittinger, Allen Chan, Reid Jones, Tahra Nichols, Rudy Payan,
John Rose, and Suzanne Sterling-Olivieri assisted with fieldwork in
states.

(450358)

www.gao.gov/cgi-bin/getrpt? GAO-06-414 .

To view the full product, including the scope

and methodology, click on the link above.

For more information, contact David D. Bellis at (415) 904-2272 or Stanley
J. Czerwinski at (202) 512-6520.

Highlights of GAO-06-414 , a report to the Chairman, Committee on Finance,
U.S. Senate

March 2006

WELFARE REFORM

Better Information Needed to Understand Trends in States' Uses of the TANF
Block Grant

GAO found that spending for low-income people for health and nonhealth
services in nine states generally increased in real terms from 1995 to
2000 and from 2000 to 2004. Health spending, excluding spending for the
elderly, outpaced nonhealth spending over the decade and now consumes an
even greater share of total spending for low-income people, mirroring a
nationwide expansion in health care costs. Spending increases were
substantially supported by both federal and state funds in the health and
nonhealth areas in each time period, reflecting the important
federal-state partnership supporting these low-income programs. Overall,
spending increases reflected changes in eligible populations and needs,
increasing costs, as well as policy changes.

While nonhealth spending increased in real terms, spending priorities
shifted away from cash assistance to other forms of aid, particularly work
supports, in keeping with welfare reform goals. The largest increases for
noncash services occurred from 1995 to 2000, with smaller increases from
2000 to 2004, when some state officials cited challenges in maintaining
services. By 2004, states used federal and state TANF funds to support a
broad range of services, in contrast to 1995 when spending priorities
focused more on cash assistance. However, reporting and oversight
mechanisms have not kept pace with the evolving role of TANF funds in
state budgets, leaving information gaps at the national level related to
numbers served and how states use funds to meet welfare reform goals,
hampering oversight. Any efforts to address these gaps should strike an
appropriate balance between flexibility for state grantees and
accountability for federal funds and goals.

Welfare-Related Nonhealth and Health Spending in Nine States since 1995

Notes: Includes federal, state, and local spending captured in our survey
of expenditures about which states make key budgetary decisions. Excludes
spending for long-term care, institutional care, and the elderly.

Under the Temporary Assistance for Needy Families (TANF) block grant
created as part of the 1996 welfare reforms, states have the authority to
make key decisions about how to allocate federal and state funds to assist
low-income families. States also make key decisions, through their budget
processes, about federal and state funds associated with other programs
providing assistance for the low-income population.

States' increased flexibility under TANF as well as the budgetary stresses
they experienced after a recession draw attention to the fiscal
partnership between the federal government and states. To update GAO's
previous work, this report examines (1) changes in the overall level of
welfare-related spending; (2) changes in spending priorities for
welfare-related nonhealth services; and (3) the contribution of TANF funds
to states' spending for welfare-related services. GAO reviewed spending in
nine states for state fiscal years 1995, 2000, and 2004 and focused on
spending for working-age adults and children, excluding the elderly,
long-term and institutional care.

What GAO Recommends

Congress may wish to obtain additional information on the number of
persons served by TANF and how funds are used to meet welfare reform goals
to improve its access to useful information for oversight and
policy-making purposes.
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