Welfare Reform: HHS' Progress in Implementing Its Responsibilities
(Letter Report, 02/02/98, GAO/HEHS-98-44).

Pursuant to a congressional request, GAO reviewed the Department of
Health and Human Services' (HHS) implementation of the mandates
resulting from the Personal Responsibility and Work Opportunity
Reconciliation Act of 1996, focusing on the: (1) extent to which HHS
reduced its full-time equivalent (FTE) staff levels to the levels
prescribed by the law; (2) clarity, timeliness, and usefulness of HHS'
guidance and technical assistance to the states in implementing the
Temporary Assistance for Needy Families (TANF) program; (3) status of
HHS' work in establishing performance measures to use in implementing
the high-performance bonus program; and (4) status of HHS' welfare
research and evaluation efforts.

GAO noted that: (1) between August 1995 and July 1997, HHS reduced by
245 its authorized FTE level for programs that were connected to block
grants, and it reduced its authorized FTE level for managerial positions
by more than 60 within the Department; (2) HHS achieved the 245 FTE
reductions by reassigning almost three-quarters of them to other
programs; (3) through GAO's survey, it found that states are generally
satisfied with HHS' guidance but are concerned about the delay in TANF
regulations, which HHS plans to issue in spring 1998; (4) HHS concedes
that its rulemaking process to issue the regulations is lengthy because
it requires the Department to obtain comments from many interested
groups; (5) in the absence of regulations, states reported difficulties
in designing and implementing their programs; (6) HHS missed the
statutory deadline for implementing the high-performance bonus program;
(7) while the law requires HHS to have implemented this program by
August 1997, HHS is still writing regulations that will define the
specific measures against which states are to be assessed; (8) HHS does
not expect to issue final rules for the high-performance bonus program
until the end of fiscal year (FY) 1998; (9) HHS attributes the delay to
the inherent difficulties in developing performance measures; the large
number of groups with whom HHS consulted, including advocacy and local
government groups; and its limited number of staff with which to develop
both TANF and bonus program regulations; (10) however, to be eligible
for FY 1999 bonus money--the first year bonuses will be
distributed--states are required to submit FY 1998 data; (11) HHS'
funding for its welfare research generally follows the mandates outlined
in the law; (12) a key effort for HHS in meeting these mandates is
continuing the evaluations of state programs that were granted waivers
from requirements that applied under the Aid to Families with Dependent
Children program; (13) of the $44 million appropriated to Administration
for Children and Families in FY 1997 for research, approximately $9
million has been awarded to 17 states for waiver evaluations; (14)
several of these states will be evaluating the effect of time limits and
mandatory work requirements on their programs, as well as other topics;
(15) in addition to the waiver evaluations, HHS has awarded
approximately $12 million for studies of employment issues focused on
welfare and former welfare clients; and (16) technical assistance to
states and child impact studies are other areas of research that were
funded.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  HEHS-98-44
     TITLE:  Welfare Reform: HHS' Progress in Implementing Its 
             Responsibilities
      DATE:  02/02/98
   SUBJECT:  Federal/state relations
             Block grants
             Federal agency reorganization
             Federal downsizing
             State-administered programs
             Reductions in force
             Social sciences research
             Program evaluation
             Employment or training programs
             Welfare benefits
IDENTIFIER:  Aid to Families with Dependent Children Program
             Job Opportunities and Basic Skills Training Program
             HHS Temporary Assistance for Needy Families Program
             AFDC
             JOBS Program
             
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Cover
================================================================ COVER


Report to the Chairman, Committee on Finance, U.S.  Senate and the
Chairman, Subcommittee on Human Resources, Committee on Ways and
Means, House of Representatives

February 1998

WELFARE REFORM - HHS' PROGRESS IN
IMPLEMENTING ITS RESPONSIBILITIES

GAO/HEHS-98-44

HHS Oversight of Welfare Reform

(116003)


Abbreviations
=============================================================== ABBREV

  ACF - Administration for Children and Families
  AFDC - Aid to Families With Dependent Children
  APWA - American Public Welfare Association
  BLS - Bureau of Labor Statistics
  CPDF - Central Personnel Data File
  FTE - full-time equivalent
  HHS - Department of Health and Human Services
  JOBS - Job Opportunities and Basic Skills Training
  NGA - National Governors' Association
  OFA - Office of Family Assistance
  OMB - Office of Management and Budget
  OPM - Office of Personnel Management
  TANF - Temporary Assistance for Needy Families
  UI - unemployment insurance

Letter
=============================================================== LETTER


B-277610

February 2, 1998

The Honorable William V.  Roth, Jr.
Chairman, Committee on Finance
United States Senate

The Honorable E.  Clay Shaw, Jr.
Chairman, Subcommittee on Human Resources
Committee on Ways and Means
House of Representatives

The Personal Responsibility and Work Opportunity Reconciliation Act
of 1996 fundamentally changed the nation's welfare policy, ending
individual entitlement to welfare benefits under the Aid to Families
With Dependent Children (AFDC) program.  The act established
Temporary Assistance for Needy Families (TANF), a block grant program
for which federal funds are capped at $16.4 billion a year through
fiscal year 2002.  Through these block grants, the new law granted
broad discretion to the states for designing their welfare programs. 
The law also limited the Department of Health and Human Services'
(HHS) regulatory authority over the states' welfare programs. 

The new welfare law, however, still requires HHS to fulfill many
important mandates.  Among these new mandates, it directs HHS to
reduce its staffing level by 245 full-time equivalent (FTE)\1

positions for those programs converted to block grants under the
law--essentially the AFDC and Job Opportunities and Basic Skills
Training (JOBS) programs\2 --and to reduce its FTE levels for
managerial positions by 60 within the Department.  And while the law
significantly narrowed HHS' regulatory authority, HHS remains the
primary federal agency responsible for providing oversight of states'
welfare programs.  For example, HHS is responsible for developing
regulations for specific areas, including establishing various state
reporting requirements and penalties for noncompliance with the law. 
The law also requires HHS to develop a formula to reward "high
performing" states--those that achieve the goals of the law.  In
addition, HHS is to conduct research on the benefits, costs, and
effects of the new welfare law.  The Department may also assist
states in developing innovative approaches for reducing welfare
dependency and increasing child well-being and is responsible for
evaluating these approaches. 

Given the significant change in HHS' role, you asked us to review
HHS' implementation of the new mandates.  Specifically, you asked
that we report on (1) the extent to which HHS reduced its FTEs to the
levels prescribed by the law; (2) the clarity, timeliness, and
usefulness of HHS' guidance and technical assistance to the states in
implementing TANF; (3) the status of HHS' work in establishing
performance measures to use in implementing the high-performance
bonus program; and (4) the status of HHS' welfare research and
evaluation efforts. 

To address these objectives, we conducted interviews with staff from
the budget and program offices in HHS' Office of the Secretary and
Administration for Children and Families (ACF) and staff from
national state association groups headquartered in Washington, D.C. 
We also reviewed fiscal year 1995, 1996, and 1997 documentation from
these offices.  To address the first objective, we reviewed time and
attendance data and staff rosters from the Office of the Secretary
and ACF and personnel data from the Office of Personnel Management
(OPM).  Since the law does not specify how HHS was to accomplish its
FTE reductions, we ascertained HHS' interpretation of the law and the
actions it took to accomplish the reductions and analyzed and
verified the reductions that it made.  Principles of administrative
law generally allow the executive agency charged with carrying out
the law to interpret the legislation.  To address the second
objective, we examined HHS' policy memorandums, letters to states,
and other written material and discussed state issues about the
guidance with national state associations.  We also surveyed state
welfare directors in the 50 states and the District of Columbia to
gather their opinions about HHS' guidance and help.  State responses
reported in our study reflect states' opinions prior to HHS' issuance
of proposed TANF regulations in November 1997.  For objective three,
we examined concept papers by HHS, the American Public Welfare
Association (APWA), and the National Governors' Association (NGA). 
To address objective four, we reviewed research funding announcements
and descriptive compendiums and budget documents.  To augment our
work at the national level, we conducted site visits with two of HHS'
regional offices and one state in each of the two regions.  Appendix
I provides additional details about the scope and methodology of our
work.  Our work was conducted between April and November 1997 in
accordance with generally accepted government auditing standards. 


--------------------
\1 According to Office of Management and Budget guidance, an FTE
generally equates to 260 compensable days or 2,080 hours per year. 

\2 The Emergency Assistance Program was also converted to a block
grant under TANF. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

Between August 1995 and July 1997, HHS reduced by 245 its authorized
FTE level for programs that were converted to block grants, and it
reduced its authorized FTE level for managerial positions by more
than 60 within the Department.  HHS achieved the 245 FTE reductions
by reassigning almost three-quarters of them to other programs,
including child support enforcement, child care, and Head Start.  The
remaining reductions were achieved primarily through retirements,
resignations, or eliminating vacancies.  HHS accounted for meeting
the managerial FTE reductions through downsizing and reorganization
efforts in the Office of the Secretary, holding that the Office of
the Secretary provides overall management of the entire Department. 
HHS reduced Office of the Secretary staff that hold management
responsibility primarily by relocating entire offices and their staff
to other places in the Department and through resignations and
retirements. 

Through our survey, we found that states are generally satisfied with
HHS' guidance but are concerned about the delay in TANF regulations,
which HHS plans to issue in spring 1998.  HHS concedes that its
rulemaking process to issue the regulations is lengthy because it
requires the Department to obtain comments from many interested
groups.  In the absence of regulations, states reported difficulties
in designing and implementing their programs.  Furthermore, states
are concerned that if the decisions they have made, such as
accounting for administrative costs, are contrary to the final
regulations issued by HHS, they may be penalized or incur additional
costs to modify their programs to comply with the final regulations. 
However, HHS contends that states will not be penalized and that
compliance with the final regulations will apply prospectively.  In
lieu of regulations, HHS has provided guidance through policy
memorandums and letters, conferences, conference calls, and the
Internet to assist states in designing and implementing their
programs under the new law.  While there are issues critical to
states for which HHS has not issued guidance, states reported that
existing guidance has generally met their needs, particularly
information related to the completeness of their state TANF plans and
the amount of their TANF grant. 

HHS missed the statutory deadline for implementing the
high-performance bonus program.  While the law requires HHS to have
implemented this program by August 1997, HHS is still writing
regulations that will define the specific measures against which
states are to be assessed.  HHS does not expect to issue final rules
for the high-performance bonus program until the end of fiscal year
1998.  HHS attributes the delay to the inherent difficulties in
developing performance measures; the large number of groups with whom
HHS consulted, including advocacy and local government groups; and
its limited number of staff with which to develop both TANF and bonus
program regulations.  However, to be eligible for fiscal year 1999
bonus money--the first year bonuses will be distributed--states are
required to submit fiscal year 1998 data.  Given HHS' time line for
issuing the regulations, states are concerned that they may not have
enough time to design programs and data collection systems to achieve
the outcomes that the bonus program will measure and reward.  HHS
distributed a brief concept paper that outlined some measures and
data sources it was considering, as did APWA and NGA, the groups with
whom HHS is required to consult.  While the proposals generally agree
on most measures, there are differences about the data sources that
should be used to judge state performance on these measures. 

HHS' funding for its welfare research generally follows the mandates
outlined in the law.  A key effort for HHS in meeting these mandates
is continuing the evaluations of state programs that were granted
waivers from requirements that applied under the AFDC program, such
as permitting time limits on receiving welfare benefits.  Of the $44
million appropriated to ACF in fiscal year 1997 for welfare, child
care, and child welfare research, approximately $9 million has been
awarded to 17 states for waiver evaluations.  Several of these states
will be evaluating the effect of time limits and mandatory work
requirements on their programs, as well as other topics.  In addition
to the waiver evaluations, HHS has awarded approximately $12 million
for studies of employment issues focused on welfare and former
welfare clients.  The largest of these is a $10 million grant awarded
to Goodwill Industries to test an approach for placing chronically
unemployed individuals into unsubsidized employment.  Technical
assistance to states and child impact studies are other areas of
research that were funded. 


   BACKGROUND
------------------------------------------------------------ Letter :2


      ADMINISTRATION OF HHS'
      WELFARE PROGRAMS
---------------------------------------------------------- Letter :2.1

While the law shifted responsibility to the states for designing and
implementing TANF programs, HHS remains the primary federal agency
responsible for assisting states with the development of these
programs.  ACF administers and oversees TANF and other programs
related to the economic and social well-being of families, children,
and individuals.  Oversight of TANF is carried out through ACF's
Office of Family Assistance (OFA), which previously had
administration and oversight responsibility for AFDC and JOBS, the
predecessors to TANF.  HHS provides help and oversight to the states
through staff located at its headquarters office in Washington, D.C.,
and HHS' 10 regional offices. 


      MECHANISMS FOR PROVIDING
      ASSISTANCE TO STATES: 
      GUIDANCE AND REGULATIONS
---------------------------------------------------------- Letter :2.2

Federal departments and agencies develop regulations and guidance to
provide states and the general public the agency's interpretation of
a statute's provisions and to assist them in complying with the law. 
Regulations are first issued in draft form to allow interested groups
to provide comments, which the agency must consider before publishing
the final rule.  Final rules carry the force of law; for example,
states could be penalized for not complying with them.  The time it
takes an agency to develop regulations depends on a number of
factors, such as the complexity of the statute, the number of
comments an agency receives, and the length of time it takes for the
Office of Management and Budget (OMB) to review and approve them. 

To help ensure states comply with a statute as they develop or change
their programs, states and the general public need basic information
about the agency's interpretation of the statute's provisions prior
to the regulations' publication.  Agencies may provide such
information through guidance to states and others, which can be both
written and oral.  For example, guidance can be provided through
written memorandums distributed to all states; agency-sponsored
conferences; or responses to individual inquiries by phone, letter,
or the Internet.  However, guidance does not have the force of law as
regulations do; essentially, it is the agency's opinion or answer at
that time, which could change during the regulatory process as the
agency gathers and assesses the comments of knowledgeable parties. 


   HHS REDUCED FTE LEVELS FOR
   WELFARE PROGRAMS AND MANAGEMENT
   POSITIONS
------------------------------------------------------------ Letter :3

While the 1996 welfare reform law requires HHS to reduce its FTE
levels by specific amounts, it does not direct HHS on how to
implement this requirement.  To address this provision, HHS reduced
by 245 its authorized FTE levels within OFA.  These reductions were
achieved primarily through reassigning staff to other programs and
eliminating vacant positions.  HHS also reduced FTE levels by more
than 60 in the Office of the Secretary to satisfy the mandated
reduction in managerial positions.  These reductions were achieved
primarily through relocating organizational units within the Office
and their staff to other places in HHS. 


      REDUCTIONS IN OFA MADE
      PRIMARILY THROUGH
      REASSIGNMENTS
---------------------------------------------------------- Letter :3.1

HHS reduced authorized FTE levels in OFA by 245 between August 1995
and July 1997.  While the law did not specify start and end dates for
these reductions, the Department used August 1995 as the base year
for calculating its reductions.\3 HHS used July 1, 1997, as the
target date for reducing FTE levels because that date is the final
submission date for all TANF state plans and, thus, the effective
starting date for TANF.  As shown in table 1, ACF had reduced the
number of authorized FTEs by 245 in OFA by July 1997 for headquarters
and regional offices but had reduced actual FTE levels by 199.5 FTEs. 
Approximately two-thirds of the number of authorized and actual FTEs
were eliminated from the regional offices, commensurate with the FTE
distribution for headquarters and regional offices. 



                          Table 1
          
          Authorized and Actual Reductions in FTE
               Levels in the Office of Family
                    Assistance, 1995-97

                                  Number of FTES
                        ----------------------------------
                        Start date    End date      Amount
                         Aug. 1995   July 1997   decreased
----------------------  ----------  ----------  ----------
Headquarters
----------------------------------------------------------
Authorized                     118          30          88
Actual                          96          30          66
Vacancies                       22           0          22

Regional offices
----------------------------------------------------------
Authorized                     209          52         157
Actual                         183        49.5       133.5
Vacancies                       26         2.5        23.5

Totals
----------------------------------------------------------
Authorized                     327          82         245
Actual                         279        79.5       199.5
Vacancies                       48         2.5        45.5
----------------------------------------------------------
HHS accomplished reducing the number of authorized FTEs by 245
primarily by reassigning 176 FTEs to other program offices and
eliminating 45.5 that represented vacant FTE positions; an additional
21 FTEs were reduced through staff resigning or retiring.  Figure 1
provides further details of these numbers for headquarters and
regional offices.\4

   Figure 1:  Reductions in FTE
   Levels by Type of Action

   (See figure in printed
   edition.)

Overall, the Child Support Enforcement program acquired 37 FTEs, the
largest proportion--about 21 percent--of reassigned FTEs.  The
distribution among programs of reassigned FTEs differed, however,
between headquarters and the regional offices.  At headquarters, 22
FTEs, or 38 percent, went to the Child Support Enforcement program;
in the regional offices, approximately half of the FTEs were
reassigned to the Child Care and Head Start programs.  (See table 2.)



                          Table 2
          
          Programs and Offices to Which OFA's FTEs
            Were Reassigned, August 1995 to July
                            1997

                        Reassigned
                              from  Reassigned
Program/office          headquarte        from  Total FTEs
reassigned to                   rs     regions  reassigned
----------------------  ----------  ----------  ----------
Children, Youth, and             6           0           6
 Families
Administrative/                  3        17.6        20.6
 Program Support
Child Support                   22          15          37
 Enforcement
Community Services              11           0          11
Child Care                       0        32.6        32.6
Child Welfare                    0          15          15
Head Start                       0          26          26
Integrated Programs              0         8.8         8.8
Runaway Homeless Youth           0         1.5         1.5
Refugee Resettlement             1           0           1
Developmental                    0           1           1
 Disabilities
Planning, Research,             11           0          11
 and Evaluation
Regional Operations              2           0           2
Regions II, IV                   2           0           2
==========================================================
Totals                          58       117.5       175.5
----------------------------------------------------------

--------------------
\3 We asked officials in HHS' Office of the General Counsel and ACF
for the Department's interpretation of the requirement to reduce FTE
levels by 245, since the law does not precisely specify criteria for
the reductions and under principles of administrative law, executive
branch departments are responsible for interpreting the law that they
implement.  HHS told us that in August 1995, the Assistant Secretary
for Children and Families responded to Senator Daniel P.  Moynihan's
request to provide FTE levels for ACF.  As of August 1995, ACF had a
total number of 327 FTEs in the AFDC and JOBS programs for
headquarters and field offices.  At that time, the Congress was
considering a provision requiring a 75-percent reduction in staff
working on AFDC programs.  This provision was included in the law
along with the specific requirement that the number of FTEs be
reduced by 245 for the programs converted to a block grant under the
act.  Because 245 is 75 percent of 327, HHS concluded that the
provision was based on data supplied in the letter to Senator
Moynihan and that August 1995 should be the start date and 327 the
FTE level from which to measure reductions. 

\4 As figure 1 indicates, the Department retained 2.5 vacant FTE
positions for the regional offices. 


      MANAGERIAL FTE LEVELS
      REDUCED IN THE OFFICE OF THE
      SECRETARY
---------------------------------------------------------- Letter :3.2

While the law does not define "management," HHS considered that all
staff in the Office of the Secretary satisfied the term because of
the Office's general management responsibility for the entire
Department, including TANF and its predecessor programs, AFDC, and
JOBS.  Using this definition, HHS considered that it had met the
requirement to reduce FTE levels for managerial positions by 60
through staff reductions in the Office of the Secretary. 

Between fiscal years 1995, 1996, and 1997, the Office of the
Secretary reduced its authorized FTE level by 613; its reduction in
the number of actual FTEs was approximately 354.\5 This reduction in
FTE levels resulted from a number of changes initiated before and
after the passage of the welfare reform law.  These changes included
the Federal Workforce Restructuring Act of 1994, which required
agencies governmentwide to reduce their workforce, and major
restructuring efforts that occurred in HHS' Office of the Secretary
during this period, such as separating the Social Security
Administration from HHS; consolidating the Office of the Assistant
Secretary for Management and Budget and the Office of the Assistant
Secretary for Personnel Administration; abolishing the Office of the
Assistant Secretary for Health and creating a new Office of Public
Health and Science; and transferring responsibility for personnel,
finance, and contract operations from the Office of the Secretary to
HHS' new Program Support Center. 

By March 1997, the numerous downsizing and reorganization efforts
within HHS had affected the number of staff in the Office of the
Secretary holding senior and mid-level management responsibility.\6

Between September 1995 and March 1997, there was a net increase in
the number of staff with senior management responsibility, but there
was a net reduction in the number of staff with mid-level management
responsibility, as shown in table 3.\7 By March 1997, there were 15
more of the most senior management staff than in September 1995 and
94 fewer staff with mid-level management responsibility, including 57
fewer staff in grades 14 and 15 and 27 fewer in grades 12 and 13. 
(See tables 3 and 4.)



                          Table 3
          
              Changes in Staff With Management
            Responsibility in the Office of the
                     Secretary, 1995-97

                               Number of staff
                    --------------------------------------
Responsibility         Sept.     Sept.     March    Change
level                   1995      1996      1997   1995-97
------------------  --------  --------  --------  --------
Senior management         89       105       104       +15
Mid-level                520       432       426       -94
 management
All other              2,274     2,049     2,126      -148
 personnel
==========================================================
Total                  2,883     2,586     2,656      -227
----------------------------------------------------------


                          Table 4
          
            Grades of Staff in the Office of the
            Secretary With Mid-level Management
                  Responsibility, 1995-97

Employment             Sept.     Sept.     March
category                1995      1996      1997    Change
------------------  --------  --------  --------  --------
Grades 14-15             443       396       386       -57
Grades 12-13              61        32        34       -27
Grades 9-11                9         3         4        -5
Grades 1-8                 5         1         2        -3
Other\a                    2         0         0        -2
==========================================================
Total                    520       432       426       -94
----------------------------------------------------------
\a Two supervisory staff in the federal service whose status is not
included in the general schedule. 

Unlike in OFA, HHS reduced staff in the Office of the Secretary
primarily through discharging staff who did not have permanent
appointments and realigning entire units of staff by moving them to
other locations in HHS.  All discharges occurred, however, among
staff considered nonmanagerial by civil service definitions.  Among
staff with senior management responsibility, 80 percent left by
retiring or resigning.  Of the mid-level management staff, 54 percent
left as part of the realignments and 21 percent retired.  (See table
5.) Overall, 1,640 staff left the Office of the Secretary between
September 1995 and March 1997--174 of whom held positions defined as
senior and mid-level management.  Of these 174 staff, about half were
relocated elsewhere in the Department while almost one-third retired
or resigned. 



                          Table 5
          
           Reductions of Managerial Staff in the
                  Office of the Secretary

                      Percentage of staff reduced\a
                ------------------------------------------
                                             All
Staff                                      other       All
reduction           Senior   Mid-level  personne  personne
actions         management  management         l         l
--------------  ----------  ----------  --------  --------
Discharges               0           0        55        49
Resignations            44           3         6         7
Retirements             36          21         6         8
Reassignments            4           6         1         2
Realignments            12          54        25        28
Promotions               0           4         2         2
Other\b                  4          12         4         5
----------------------------------------------------------
\a Columns do not necessarily add to 100 percent due to rounding. 

\b Includes staff who were temporary, reinstated elsewhere,
transferred, converted to another position, or who died.  Also
includes staff whose reason for leaving was not documented. 


--------------------
\5 Appendix I describes our methodology for calculating this
estimate. 

\6 Because the Office of the Secretary did not track the number of
FTEs by civil service grade or level of management responsibility for
each of the restructuring activities or for the 1996 welfare law, we
examined the Office's staffing profile between September 1995 and
March 1997 to determine the change in the number of managers, in
terms of civil service definitions.  We recognized that there is not
always a one-to-one correlation between the number of FTEs and the
number of staff.  For example, two half-time staff would account for
one FTE for the year.  However, the number of FTEs and staff are
related, and the number of staff can be used as a proxy measure for
FTEs.  To determine whether or not staff had management
responsibilities and to measure the change in staff over time who had
management responsibilities, we considered the definitions and data
that HHS provided as well as the definitions and data used in the
federal personnel management system.  For this analysis, we
established two categories of staff with management responsibility: 
(1) senior, including both staff in the Senior Executive Service and
the most senior executives in the federal service, and (2) mid-level,
including staff at any grade level who exercised supervisory or
managerial responsibilities.  (See app.  I for more details on our
methodology.)

\7 HHS' Office of the Secretary actually began reducing staff before
the 1996 federal welfare law was passed, with the greatest change
occurring between September 1994 and September 1995, when the net
reduction was over 1,500 staff.  While the number of staff with
senior management responsibility began to increase after September
1995, the net change from September 1994 to March 1997 was a
reduction both in the total number of staff and in the number of
staff at each level, including 416 staff holding senior and mid-level
management responsibility, because of the substantial restructuring
that had occurred during fiscal year 1995. 


   STATES CONCERNED ABOUT LACK OF
   TANF REGULATIONS BUT GENERALLY
   SATISFIED WITH HHS GUIDANCE
   PROVIDED
------------------------------------------------------------ Letter :4

Although states are concerned that TANF regulations are not yet
published, they are generally satisfied with HHS' TANF guidance, both
written and oral.\8 Due to the amount of time the regulatory process
takes, HHS does not expect to issue final TANF regulations until
spring 1998--more than 18 months after some states began implementing
their new welfare programs.  States reported difficulties in
designing their programs without the final regulations; they also are
concerned about the possibility of being penalized for actions that
they took in the absence of regulations or incurring additional costs
to restructure their data systems to meet the requirements of the
published regulations. 


--------------------
\8 State responses cited in the report reflect their opinions at the
time of our survey, which was July 1997, prior to HHS' issuance of
draft regulations in November 1997. 


      HHS EXPECTS REGULATIONS TO
      BE ISSUED IN 1998
---------------------------------------------------------- Letter :4.1

HHS plans to issue regulations related to data collection, reporting,
penalties, and bonuses.  While the law does not specify a date by
which the regulations must be promulgated, HHS expects that final
regulations will be published in spring 1998.  Department officials
are expecting to receive thousands of comments on the proposed rules
from states, local governments, advocacy groups, and other interested
parties, which they must read and consider in drafting the final
regulations.  HHS officials noted that they are using the standard
rulemaking process in order to consider comments from the many
interested parties and that this process takes time to carry out. 


      LACK OF REGULATIONS CAUSES
      STATES DIFFICULTIES IN
      DESIGNING PROGRAMS; RAISES
      CONCERNS ABOUT NEEDING TO
      REDESIGN PROGRAMS AND
      INCURRING PENALTIES
---------------------------------------------------------- Letter :4.2

Twenty-nine of the 49 states responding to our survey reported that
the lack of regulations was causing them moderate to very great
difficulty in designing or implementing their programs.\9 For
example, one state reported difficulty determining which clients to
select for placement in a state-funded TANF program because HHS
guidance has been unclear as to whether clients in such a program
would still have to meet certain TANF requirements, such as time
limits or work hours.  HHS' final regulations on such requirements
could change the type of client the state would select for such a
program.  Twenty-nine states also reported design and implementation
problems for data collection and reporting.  For example, one state
official listed a number of unanswered questions that remained
because of the absence of regulations regarding data collection and
reporting, sampling, consequences of leaving reporting fields blank,
and how to provide in the interim required data elements that the
state's current system does not capture. 

States were also concerned about the potential cost of having to
redesign their information systems that collect and report data for
managing their program if such action is needed to come into
compliance with HHS regulations when they are published.  Twelve
states commented specifically that they wanted to avoid the expense
of designing their systems twice yet assumed they will need to make
modifications once the regulations are published.  One state official
explained to us that his state was converting to an automated data
system and that modifications to the system would be expensive, but
he is assuming they will have to make some once the final regulations
are issued.  According to a state welfare director, lead time is
needed to develop the automated systems, given the type and amount of
data to be reported under TANF.  He said that "historically, state
data systems were developed to generate checks to clients and to
perform quality control functions.  [Now] there are enormous data and
reporting requirements in the [law].  Most states don't have the
information systems available to collect data such as whether a
client has been on welfare before.  This requires data systems to
communicate across counties and across states."

In addition to program design and implementation problems, states are
concerned about being penalized for noncompliance with the
regulations for program decisions they made before the final issuance
of the regulations.  In our survey, 14 states mentioned this specific
concern.  They told us that the potential difficulty with the lack of
regulations is that HHS will provide its own interpretation of the
law through the regulations, which may be inconsistent with the
approaches states took.  According to HHS officials, interim guidance
distributed in a January 1997 policy announcement signaled to states
that penalties will not be imposed for early program decisions if
they were based on a reasonable interpretation of the law and that
before a final rule is available, penalties will be imposed only for
violations of the statute.  Further, the guidance specifies that
statutory interpretations in the final rules will apply prospectively
only.\10


--------------------
\9 The number of states that responded to each survey question
varies. 

\10 In its proposed regulations issued in November 1997, HHS states
that until final rules are promulgated, states will be judged against
"a reasonable interpretation of the law."


      STATES REPORT GENERAL
      SATISFACTION WITH HHS
      GUIDANCE
---------------------------------------------------------- Letter :4.3

HHS' guidance to the states since August 1996, the date the new
welfare reform law was enacted, has been provided through a variety
of means, including its January 1997 policy announcement, letters to
state directors providing HHS' answers to frequently asked questions,
conference calls to groups of states, conferences, and one-on-one
calls between states and their respective HHS regional
representatives.  In considering HHS guidance, both written and oral,
33 of the 49 states responding to our survey reported that the
guidance, for the most part, met their needs for information. 

For issues covered by HHS' written guidance, the states were
particularly satisfied with guidance for process-related issues.  For
example, 37 of 44 states indicated that HHS' guidance mostly or
completely met their needs for information about what must be
described in a state TANF plan for HHS to consider the plan complete,
as required by TANF.\11 Similarly, HHS guidance on how it calculated
the amount of each state's block grant met the information needs of
37 of 41 states, and guidance on prorating the amount of states' TANF
block grant based on when their plan was submitted and deemed
complete met the information needs of 32 of 39 states.  States were
least satisfied with HHS' guidance on financial management controls;
only 13 of 30 states indicated that HHS' guidance on this subject
mostly or completely met their information needs. 

State welfare directors and national organizations we contacted
mentioned other issues of significance to the states that were not
covered by HHS' written guidance.  Among these issues were the
application of minimum wage laws to TANF participants, exempting
domestic violence victims from time limits, and TANF requirements for
a cap on administrative costs.  From our survey, we determined that
at least 25 states received no guidance from HHS on these issues.  Of
those states that reported receiving oral guidance, most said the
guidance met their needs for information.  For example, 9 of 13
states that reported receiving oral guidance regarding the
application of minimum wage laws to TANF participants stated that the
guidance met their state's information needs.  Similarly, for 16
states that received oral guidance about the time-limit exemption for
domestic violence victims, 10 reported that it met their needs.  For
the remaining issue--TANF requirements for a cap on administrative
costs--18 of 24 said their information needs were met. 


--------------------
\11 TANF requires states to submit their plans to HHS for a review of
plan completeness.  Plans must describe the goals of the program, the
public's involvement in helping design the program, the measures to
be used to ensure accountability, and definitions of eligibility. 


      STATE ASSOCIATIONS RAISE
      CONCERNS ABOUT DECISIONS
      REFLECTED IN HHS GUIDANCE
---------------------------------------------------------- Letter :4.4

Although states generally indicated in our survey that they were
satisfied with the clarity, timeliness, and usefulness of the HHS
guidance they received, national associations indicated that the
states are struggling with certain positions taken by HHS in its
guidance.  NGA and APWA stated that some of the positions taken that
may adversely impact states included the application of minimum wage
laws to welfare clients who obtain work; requirements for receiving,
or "drawing down," TANF funds; and the methods for allocating
administrative costs for the TANF program.  In general, NGA and APWA
believed that certain of these positions limit the flexibility that
the law intended to provide states in developing their new welfare
programs and, in some cases, may significantly increase the costs to
states of implementing these programs. 


   HIGH-PERFORMANCE BONUS MEASURES
   NOT SPECIFIED BY DEADLINE
------------------------------------------------------------ Letter :5

Under the new welfare law, $1 billion is to be awarded over 5 years
to high performing states, beginning fiscal year 1999.  The awarded
bonuses will be based on a set of measures to be developed by HHS. 
Although the law requires HHS to develop these measures no later than
August 1997--1 year after enactment of the law--HHS has not yet
specified how states' performance will be assessed or how bonus funds
will be distributed.  Given that the first bonus funds are to be
awarded in fiscal year 1999, states are concerned that they will not
have enough time to either design their program activities or collect
the data necessary to compete for the bonuses. 

HHS expects to have a final rule on bonus regulations by the end of
fiscal year 1998.  Having elected to develop the performance measures
through regulations, HHS is still in the initial stage of writing the
regulations.\12 HHS asserts that the delay in issuing regulations is
due to the complexities in developing performance measures, the need
to consult a number of groups in the process, and HHS' limited staff
resources to work on both TANF and bonus program regulations.  HHS,
APWA, and NGA have developed concept papers that generally agree on
the key measures to be used, but they differ about the source of the
data to assess states' achievement of the measures. 


--------------------
\12 The law requires the Secretary of HHS to develop a formula for
measuring state performance in operating TANF, but it does not
require that regulations be issued to implement the formula. 


      FINAL BONUS REGULATIONS TO
      BE ISSUED IN 1998
---------------------------------------------------------- Letter :5.1

While HHS developed a preliminary proposal for performance measures
in July 1997, it does not expect to have its notice of proposed
rulemaking ready for comment until March 1998 and a final rule
published until the end of fiscal year 1998--over a year after the
statutory deadline for implementing the high-performance bonus
program.  These time frames are of significant concern to APWA
officials and its member state officials.  They stated that since the
regulations will be final so late in fiscal year 1998, states will
have little time to develop their TANF programs or data collection
systems to compete for the bonus money.  According to APWA officials,
states suggested to HHS that it develop early interim measures to
assess states for the first year's bonus money so that states would
have time to collect data and then modify them, as needed, once final
measures were implemented. 

HHS officials acknowledged missing the deadline stipulated in the
law.  However, they contend that the development of the performance
measures is very complex with difficult measurement and data problems
and limitations to address.  For example, HHS and those with whom
they are consulting are having difficulty determining how to measure
increases in "child well-being"--one goal of the new welfare reform
law--and whether national data sets exist that would enable states to
make such measurements.  Officials also stated that the process is
taking time because HHS' consultations with APWA and NGA, a
requirement of the law, have been thorough.  HHS also consulted with
representatives of the states and other groups to ensure that any
technical problems with the proposed measures were solved and that
agreement was reached with TANF stakeholders.  Officials also noted
that HHS management had to decide which set of regulations--TANF or
the bonus formula--would receive priority, given the agency's
staffing.  Since TANF became operational before the bonus formula,
HHS focused first on TANF guidance and regulations. 


      HHS AND STATE GROUPS AGREE
      ON MOST MEASURES BUT
      DISAGREE ON DATA SOURCES
---------------------------------------------------------- Letter :5.2

APWA and NGA have drafted a joint proposal for the high-performance
bonus program, which generally agrees with HHS' concept paper about
what the measures should emphasize--work and self-sufficiency--and
what the key measures should be.\13 However, HHS' paper and the joint
proposal by APWA and NGA differ about which sources of data should be
used for measuring performance.  HHS believes that the Bureau of
Labor Statistics' (BLS) unemployment insurance (UI) database should
be used for the work measures,\14 while APWA and NGA think that state
administrative data should be used. 

According to HHS' paper, the UI database provides an "objective data
source that would be less subject to reporting bias .  .  .  and is
uniformly collected across states." It further states that UI data
would allow states to track people who have left the welfare rolls
and thus provide states with data about the continued
self-sufficiency of their clients.  States would be able to track
clients by matching the social security numbers of clients who have
left with those in the database.  Finally, HHS argues that using the
UI database would avoid creating an additional administrative burden
on states for data collection. 

APWA and NGA cited states' concerns that UI data would not be an
accurate measure.  One problem with the UI database is that it does
not capture information for seasonal or state government employees or
for clients in subsidized jobs or community service.  Another problem
is that some states' laws prevent the use of UI data for privacy
reasons; this is the case in New York and Minnesota.  States that
would need to change their laws to gain access to these data are also
concerned about the time available to collect the data.  Because many
state legislatures are out of session, states would need to wait for
a new legislative session to address these issues.  Moreover, there
is no guarantee that enabling legislation would be enacted.  HHS
officials acknowledge the UI database's limitations and are
contracting for a study of its limitations and gaps. 

APWA and NGA have suggested that state TANF administrative data or a
combination of UI and administrative data be used instead of UI data. 
These groups believe that states' administrative data are a viable
alternative and are now available to all states.  APWA officials
contend that state administrative data will be used by HHS to
sanction states for noncompliance; hence, they could also be used for
awarding bonus money.  However, HHS is concerned that the uniformity
and regularity of state administrative data across all 50 states have
not yet been documented. 


--------------------
\13 Three of the four core measures identified by HHS are work
related, including measures on employment, job retention, and wage
progression; a fourth measure is focused on teen pregnancy.  The
joint proposal by APWA and NGA has almost identical measures, except
it does not propose a measure on wage progression.  In addition, both
proposals suggest measuring state performance by a combination of two
sets of measures:  core measures, against which all states would be
assessed, and optional measures that states could choose from a
preestablished list, against which their performance could be
assessed.  Also, both proposals suggest that the formula should
reward states on both achievements and improvements in moving
recipients from welfare to work. 

\14 Data for the UI database are compiled for all states, the
District of Columbia, Puerto Rico, and the Virgin Islands by BLS, a
bureau in the Department of Labor.  BLS summarizes employment and
wage data for workers covered by state unemployment insurance laws
and for civilian workers covered by the Unemployment Compensation
Program for Federal Employees.  Data are submitted by the states to
BLS on a quarterly basis. 


   HHS RESEARCH FUNDING FOLLOWS
   MANDATES
------------------------------------------------------------ Letter :6

HHS' funding of its welfare research generally follows the research
and evaluation requirements described in the new welfare law.  The
Congress appropriated a total of $44 million to HHS, in part, to
conduct research on the benefits, effects, and costs of the state
programs funded under the new law and to evaluate innovative programs
designed to decrease welfare dependency and increase child
well-being.\15 HHS' key effort in pursuing this mandate is its
continued funding of evaluations of waiver programs.  These
evaluations were approved under the previous welfare law to assess
state performance of innovations to their welfare programs, such as
time-limited benefits and work requirements.  In addition to the
waiver studies, HHS is funding research efforts on employment-related
issues of welfare clients, various technical assistance grants to
help states obtain needed expertise or technical assistance to
develop their welfare assistance programs, and child well-being
studies.  Table 6 shows the general areas of research that HHS funded
with the $44 million for fiscal year 1997. 



                          Table 6
          
          Research Funding Under the 1996 Welfare
                   Law, Fiscal Year 1997

                    Amount
Research area       funded  Description
--------------  ----------  ------------------------------
Demonstration      $15,680  Evaluations of the Goodwill
 projects                    Industries demonstration
                             project and the Family
                             Support Centers project, and
                             data collection on energy
                             assistance for low-income
                             households.\a
TANF                18,270  State waiver evaluations and
                             projects focused on
                             employment interventions, the
                             effects on child well-being,
                             and a wide range of field-
                             initiated research projects.
TANF technical       1,880  Projects and mechanisms to
 assistance                  provide technical assistance
 and                         and dissemination of
 dissemination               evaluation findings to states
                             and local program grantees on
                             effective welfare reform
                             practices.
Child care,          8,540  Research and evaluation not
 child                       related to provisions of
 welfare,                    TANF, such as a national
 miscellaneous               study of low-income child
                             care and labor force
                             participation and child care
                             and a longitudinal study on
                             child maltreatment and
                             kinship care services.
==========================================================
Total FY 1997      $44,000
----------------------------------------------------------
\a Funding for these demonstration projects is authorized by
legislation other than the 1996 welfare law. 


--------------------
\15 Originally, the law authorized $15 million for the research and
evaluation requirements contained in section 413 of the law for each
fiscal year starting in 1997.  However, the Congress rescinded this
amount and appropriated $44 million in its place for fiscal year 1997
for both the welfare research outlined in the law and for other
areas, such as child care and child welfare.  In addition to the $44
million, the Assistant Secretary for Planning and Evaluation funded
four other welfare research projects in fiscal year 1997 totaling
approximately $600,000. 


      HHS EVALUATIONS OF
      INNOVATIVE PROGRAMS FOCUS ON
      WAIVER STUDIES
---------------------------------------------------------- Letter :6.1

HHS is pursuing its research and evaluation mandates, in part, by
providing states approximately $9 million in fiscal year 1997 to
continue their evaluations of their waiver programs, which is
specified as an allowable area of research under the new law.  Under
section 1115 of the Social Security Act, HHS was authorized to grant
states waivers of certain statutory requirements that governed AFDC
programs.  While this authority gave states flexibility to test
innovations, it also required them to have an independent
organization rigorously evaluate the outcomes of these innovations. 
According to HHS officials, the waiver programs were a key area of
research because they implemented some of the ideas that were
subsequently embodied in the new law, such as time limits and work
participation requirements.  Moreover, because many states have
chosen to structure their TANF programs to fully or mostly continue
their waiver program policies, HHS officials assert that the
information collected from the waiver evaluations will provide early
information about welfare programs being implemented under TANF. 

A number of states had not completed their evaluations before the
enactment of the new welfare reform law but were interested in doing
so.  Hence, HHS organized its continued funding of these evaluations
in two tracks.  Under track one, selected states could receive an
initial award for a 12-month period; under track two, states could
receive a two-phased award, with an initial award for a planning
period of up to 6 months followed by a second award to fund the first
12 months of the actual evaluation.  Track one proposals are a
continuation of a state's original waiver evaluation with minor
research modifications.  Track two funding is used when a state
proposes to make substantial modifications to the waiver evaluation,
significantly modifying either the evaluation scope or
methodology--or, in some cases, both--originally prescribed in the
waiver terms and conditions.  Nine states have been approved to fully
continue their current evaluations as part of ACF's track one
research program, and 10 states have been approved for track two
funding.\16

The amount of funding for fiscal year 1997 to each track one awardee
ranged from approximately $300,000 to $900,000; track two amounts
ranged from $30,000 to over $500,000.  The research questions vary,
but several states planned to focus their evaluations on the effects
of time limits and mandatory work requirements.  Other research
topics include program effects of family caps, child care services,
financial incentives, and limiting benefits to unwed teens. 


--------------------
\16 States that received track one funding were Arizona, Connecticut,
Florida, Indiana, Iowa, Minnesota, Texas, Vermont, and Wisconsin. 
States that received track two funding were Illinois, Iowa, Maryland,
Minnesota, Nebraska, New Hampshire, North Carolina, North Dakota,
Ohio, and Virginia. 


      OTHER RESEARCH FUNDING
      FOCUSES ON EMPLOYMENT,
      TECHNICAL ASSISTANCE, AND
      CHILD WELL-BEING
---------------------------------------------------------- Letter :6.2

HHS' research efforts related to TANF cover a wide array of topics,
including employment, technical assistance, and child well-being. 
HHS spent approximately $12 million in fiscal year 1997 on four
research projects examining employment issues and welfare recipients. 
These evaluations are (1) the Goodwill Industries demonstration
project that places the chronically unemployed into unsubsidized,
private sector employment; (2) a 1-year analysis of employment and
wage patterns of welfare recipients; (3) a study of four
comprehensive, community-based employment programs for public housing
tenants, funded by HHS, the Department of Housing and Urban
Development, and the Rockefeller Foundation; and (4) the JOBS
evaluation, a study examining alternative approaches for moving
welfare recipients into work. 

HHS also funded a number of technical assistance projects for
approximately $2 million in fiscal year 1997 to distribute research
and data results as well as to support other areas.  The technical
assistance projects include activities such as local welfare staff
training, conferences of federal and state practitioners and
researchers that focus on their research efforts, and
community-college-based workshops to design short-term employment
training programs for welfare recipients.  Some of this money also
funds contracts to develop technical assistance networks and advisory
group projects, which primarily focus on disseminating research and
evaluation findings and transferring successful practices. 

Finally, HHS provided funds to sustain an existing research effort to
look at child well-being at a cost of almost $1.5 million.  The
project provides money to selected states with welfare reform
evaluations to augment the outcome measures for children and assess
the effects of different welfare reform approaches on child
well-being.  HHS funds other studies that include some research on
child well-being, but the dollar amount for the child well-being
component could not be determined.  These studies are the National
Evaluation of Welfare-to-Work Strategies, which examines employment
strategies in seven sites; several field-initiated studies; and some
of the track one and track two welfare evaluations. 


   CONCLUSIONS
------------------------------------------------------------ Letter :7

In response to the new law, HHS has reduced its FTE levels and is
pursuing its research and evaluation mandates.  However, the
Department is having difficulty meeting its responsibility for
developing and issuing the TANF and high-performance bonus
regulations.  While a statutory deadline for the TANF regulations was
not provided, the need for HHS to quickly issue the regulations
became apparent given that states could, and did, begin implementing
their TANF programs shortly after the law was enacted.  Yet HHS did
not issue proposed TANF regulations until November 1997, and final
regulations are not expected to be issued until sometime in spring
1998.  This same need for early direction arose with the bonus
regulations because states wanted to be sure that the data collection
systems they were putting in place would collect the data needed to
compete for a bonus.  Given the status of states' implementation of
welfare reform, the prompt issuance of the TANF and high-performance
bonus regulations is of utmost importance so that states' investment
in systems and programs can be made wisely. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :8

HHS commented on a draft of this report and generally concurred with
our findings.  However, in summarizing our findings regarding the
Department's efforts to reduce its FTEs, HHS' letter too broadly
construed the findings presented by the report.  In this letter, HHS
states that "GAO was supportive of the Department's assumptions about
the number of FTEs required to be reduced and the time frames." This
is not the case.  We did not endorse the manner in which HHS
accomplished its FTE reductions but simply determined HHS'
interpretation of the FTE provision, described their interpretation,
and analyzed both FTE and staff data in the context of that
interpretation and other alternative criteria.  Our report also
points out that in cases where a statute is unclear, principles of
administrative law allow the agency charged with carrying out a law
to make such interpretations. 

HHS also provided technical comments, which we addressed in the
report, as appropriate. 


---------------------------------------------------------- Letter :8.1

As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
from the date of this letter.  At that time, we will send copies to
the Secretary of HHS; Chairmen and Ranking Minority Members of the
House Committees on Ways and Means and Education and the Workforce;
the Ranking Minority Member of the Subcommittee on Human Resources,
House Committee on Ways and Means; Chairman and Ranking Minority
Members of the Senate Committee on Labor and Human Resources; and the
Ranking Minority Member of the Senate Committee on Finance.  We also
will make copies available to others on request. 

If you or your staff have any questions about this report, please
contact me on (202) 512-7215.  Other staff who contributed to this
report are listed in appendix II. 

Sincerely yours,

Mark V.  Nadel
Associate Director
Income Security Issues


SCOPE AND METHODOLOGY
=========================================================== Appendix I

This appendix discusses in more detail our approach and methodology
for answering our objectives about HHS' FTE reductions and its
guidance and technical assistance to the states. 


   FTE REDUCTIONS
--------------------------------------------------------- Appendix I:1

The 1996 welfare law directs HHS to reduce the number of FTEs by (1)
245 in the welfare block grant programs and (2) 60 managerial
positions in the Department.\17 To determine the extent to which HHS
had accomplished these reductions, we analyzed FTE reductions in the
Office of Family Assistance (OFA)--which is responsible for the AFDC,
JOBS, and Emergency Assistance programs--and both FTE and staff
reductions in the Office of the Secretary using the number of staff
on board as a surrogate measure for FTEs.\18 We first specified
measurement criteria, then collected and analyzed the FTE and
staffing data. 


--------------------
\17 According to OMB guidance, an FTE generally equates to 260
compensable days or 2,080 hours per year. 

\18 HHS targeted the Office of the Secretary to incur the management
reductions.  (See footnote 6 for a discussion of the use of number of
staff as a surrogate measure for FTEs.)


      CRITERIA FOR MEASURING FTE
      REDUCTIONS
------------------------------------------------------- Appendix I:1.1

While the law stipulates a precise number of FTEs to be reduced, it
does not provide criteria by which to measure whether HHS has
achieved the reductions.  In order to define the law's FTE reduction
requirement in a way that it could be measured, we considered such
additional criteria as (1) the programs subject to the reductions;
(2) the type of FTE, either authorized or actual; (3) the start and
end dates for measuring the reductions; and (4) the definition of
"managerial position." In addition, when a statute does not include
detailed criteria for implementation, under principles of
administrative law, the executive branch department is responsible
for interpreting the law's provisions.  Therefore, in developing a
framework for measuring whether the FTE reductions had taken place,
we asked HHS for the Department's interpretation of the required FTE
reduction and used additional criteria that we considered reasonable,
as discussed below. 


         PROGRAMS AND OFFICES
         SUBJECT TO FTE REDUCTIONS
----------------------------------------------------- Appendix I:1.1.1

The law did not name the programs in which 245 FTEs should be reduced
but referred to them as programs "converted into a block grant."
Thus, from examining the legislative history and correspondence
between the Administration for Children and Families (ACF) and
Senator Daniel Patrick Moynihan, we limited consideration of programs
subject to FTE reductions to AFDC, JOBS, and Emergency Assistance,
which ACF considers part of AFDC when allocating FTEs.  Further,
because the law allowed HHS to designate the organizational unit or
program where the reductions in managerial positions would be made,
we measured the reductions in managerial positions only for the
Office of the Secretary, the office that HHS had selected for these
reductions. 


         AUTHORIZED AND ACTUAL FTE
         LEVELS
----------------------------------------------------- Appendix I:1.1.2

Neither the law nor the legislative history indicated whether the
reduction in 245 FTEs in ACF or the 60 FTEs in managerial positions
was to be in authorized or actual FTEs.  Because the authorized FTE
level establishes an upper boundary or ceiling on FTE usage and the
actual FTE level indicates how many FTEs are being used, we measured
the reduction in both types of FTEs to determine whether ACF and the
Office of the Secretary had reduced the upper boundary as well as the
actual number of FTEs. 


         START AND END DATES FOR
         REDUCTIONS
----------------------------------------------------- Appendix I:1.1.3

We considered three potential dates as the starting point for the
reductions:  August 1995, the date of the FTE level for ACF that was
reported to Senator Moynihan and the start date that ACF used; August
1996, the date the new welfare law was enacted; and January 1995, the
date HHS identified as the initiation of FTE reductions in the Office
of the Secretary, which included major downsizing activity under the
Federal Workforce Restructuring Act of 1994.  HHS counted this
reduction as addressing the provision in the federal welfare reform
law.  We decided to measure the FTE changes in OFA and the Office of
the Secretary annually, beginning fiscal year 1995, in order to
develop a complete picture of the changes that occurred.  We used the
month of September as the starting point in each year to establish
the end of the fiscal year as a baseline and to make the reduction
time periods in these two offices comparable. 

With respect to an end date for achieving the FTE reductions, ACF
recommended a target date of July 1, 1997.  This is the final
submission date for all TANF state plans and thus the effective
starting date for TANF.  The Office of the Secretary did not object
to this date, pointing out that most of its reductions had been made
during fiscal year 1995.  Because the effective starting date for
TANF was the effective ending date for AFDC and JOBS, we considered
this a reasonable date for completing the reduction of FTEs that the
federal welfare reform law deemed were no longer needed to administer
the new welfare program.  Thus, we measured changes in FTE levels in
OFA up to July 1, 1997. 

For the Office of the Secretary, we used different end dates because
the full year total was not yet available at the time of our
review.\19 We measured the Office's FTE level through September 1997,
based on an estimate for the actual FTE total for the last quarter of
fiscal year 1997.  In addition to FTE data, we examined staffing data
as a surrogate measure for the FTEs.\20 The end date used for changes
in staff was March 31, 1997--the most current date for which staffing
data were available. 


--------------------
\19 We estimated actual FTEs for the last quarter of fiscal year
1997, by obtaining billing data for staff in the office of the
Secretary for the first 3 quarters of fiscal year 1997 from HHS'
Program Support Center.  We then estimated FTEs for the entire 1997
fiscal year by adding one third of the total number of hours billed
for 3 quarters to the total for 3 quarters and dividing the sum by
2,080 hours.  The estimated number of 354 is the difference between
the Office of the Secretary's actual FTEs for fiscal 1995 (2,751) and
our estimated actual FTEs for fiscal year 1997 (2,397). 

\20 See footnote 6. 


         DEFINITION OF MANAGERIAL
         POSITION
----------------------------------------------------- Appendix I:1.1.4

The 1996 welfare law does not precisely define the term "managerial
position," which can have more than one meaning in federal civil
service.  The civil service classification system considers civil
service staff in grades 12 and above as eligible for management
positions, although not all staff in these grades hold management
responsibility.  Further, staff in lower civil service grades may
serve as supervisors--a position with responsibilities similar to
those of managers but which the civil service qualification standard
does not classify as "managerial." However, both managerial and
supervisory positions are defined in terms of responsibilities rather
than in terms of grade levels.  HHS considered all staff
positions--regardless of grade level and responsibilities--in the
Office of the Secretary to be managerial because of the Office's
general management responsibility for the Department. 

The data source we employed to measure changes in the number of
staff--the Office of Personnel Management's Central Personnel Data
File (CPDF)--contains separate variables for a staff member's civil
service grade, their level of management responsibility, and the
organizational location in which they worked.  Use of all three
variables allowed us to look at staff changes from three
perspectives:  changes in the number of all staff in the Office of
the Secretary, changes in the number of staff with management
responsibility, and the civil service grades of staff that held
management responsibility.  However, the CPDF variable for management
responsibility defined this term very broadly because it included
staff in both managerial and supervisory positions. 


      DATA SOURCES
------------------------------------------------------- Appendix I:1.2

To develop our information, we interviewed representatives from ACF
and the Office of the Secretary about HHS' interpretation of the FTE
reduction provision, other downsizing and reorganization activities,
planned FTE reductions, and data sources.  We gathered FTE data from
both offices to address our measurement criteria; we also gathered
billing data and staff rosters to verify the FTE data.  To learn more
about federal downsizing, we consulted with federal workforce
analysts in GAO's General Government Division.  These analysts also
assisted us in using CPDF staff data as a surrogate measure for the
FTE data,\21 since the Office of the Secretary did not maintain staff
FTE data by civil service grade or level of management
responsibility.  We also discussed the FTE requirements with
officials at OMB and OPM. 


--------------------
\21 For this study, we used data from two CPDF files:  (1) the status
file, which provides a snapshot of federal employment on a specific
date, and (2) the dynamics file, which describes personnel actions
taken during specified time periods.  The status file has 61 data
elements that describe individual employees as of the file's most
recent update, including such variables as the type of work
performed, pay, grade, supervisory status, and years of education. 
Data elements in the dynamics file describe each personnel action
taken during the time period covered by the file.  The file includes
information about the action being taken--hires, promotions,
reassignments, pay changes, resignation, or retirements--the
organization; the position, pay, and supervisory status; as well as
other information about individual employees.  This file also
includes information about employees' positions and organizational
locations before and after the personnel action was taken.  GAO's
General Government Division maintains a copy of major portions of
both of these CPDF files. 


      DATA ANALYSIS PROCEDURES
------------------------------------------------------- Appendix I:1.3

To determine the reduction HHS made in the non-managerial FTE level
in AFDC and JOBS, we compared the authorized and actual FTE levels
for the start date with the authorized and actual FTE levels for the
end date, for both headquarters and regional offices and in total. 
We then tabulated the data ACF provided on the disposition of
headquarters and regional office FTEs.  To determine the reduction of
the managerial FTE level in the Office of the Secretary, we first
compared, for all positions, the authorized and actual FTE levels for
the start date to the authorized and actual FTE levels for the end
date to measure the change in the FTE level in terms of HHS'
definition of managerial positions. 

Using CPDF staff data as a surrogate measure for FTEs to identify the
number of staff in the Office of the Secretary that were managers in
terms of civil service definitions, we first calculated the net
change in the number of staff on board, broken out by level of
management responsibility.  Using cross-tabulations, we then examined
the civil service grade distribution for the net change in staff that
held mid-level management responsibility--the group of management
staff whose numbers decreased.  Finally, using cross-tabulations
again, we calculated the disposition of staff that had left the
Office of the Secretary between the end of September 1995 and March
1997, broken out by level of management responsibility. 


      VERIFYING FTE LEVELS
------------------------------------------------------- Appendix I:1.4

To verify FTE information provided to us, we looked at the hours that
staff in OFA and the Office of the Secretary charged to the programs
affected by the reductions, divided the total hours billed by
2,080--the number of hours in a year for one FTE--and compared it
with the values for actual FTEs that ACF and the Office of the
Secretary submitted.  The hours that HHS staff charged to programs
are captured through time and attendance data submitted for payroll
purposes and maintained by HHS' Program Support Center. 


   HHS GUIDANCE AND TECHNICAL
   ASSISTANCE
--------------------------------------------------------- Appendix I:2

Our primary method for obtaining state opinions about the clarity,
usefulness, and timeliness of HHS guidance to the states was through
a mail survey of TANF directors.  To develop a list of the critical
TANF implementation issues facing states for the survey instrument,
we interviewed staff at several associations in Washington, D.C.,
including the American Public Welfare Association, the National
Governors' Association, the National Association of Counties, the
National Conference of State Legislatures, the Council of State
Governments, and the Center for Law and Social Policy.  We also
interviewed agency officials at ACF in headquarters, staff working on
TANF in two HHS regions, and state TANF officials in two
states--Pennsylvania and Illinois.  In addition to our interviews, we
reviewed all policy guidance that HHS distributed to the states,
including its January 1997 policy memorandum; April 1997 Compilation
of Implementation Materials, which included summaries of the various
sections of the law, HHS and other federal agency contacts, and
letters from the Acting Assistant Secretary for Children and Families
answering frequently asked implementation questions; and other
miscellaneous program instructions and memorandums to states. 

The survey questionnaire asked questions about the timeliness,
clarity, and usefulness of HHS' January 1997 policy memorandum and
other HHS guidance that covered issues identified in our review as
critical to the states.  For some of these critical issues, HHS had
not provided any formal guidance to the states.  Regarding these
issues, the survey asked states if they had received any oral
guidance from HHS and whether it was useful.  The survey was faxed to
the TANF director in each of the 50 states and the District of
Columbia; we received 49 responses.  In addition to data provided
through the survey responses, we also called 11 states to gather more
detailed information about some of their answers. 


GAO CONTACTS AND STAFF
ACKNOWLEDGMENTS
========================================================== Appendix II

GAO CONTACTS

David P.  Bixler, Assistant Director, (202) 512-7201
Janet L.  Mascia, Evaluator-in-Charge, (202) 512-7263

ACKNOWLEDGMENTS

In addition to those named above, the following individuals made
important contributions to this report:  Sara Edmondson, Ellen
Soltow, and John Vocino took the lead in designing the job,
collecting and analyzing data, and writing the report; James Wright
and John Smale, Jr., provided survey and design support; Gregory
Wilmeth gave analytical and technical assistance in working with
OPM's personnel database; Robert Goldenkoff provided technical advice
on FTE data and federal workforce issues; and Robert DeRoy provided
the computer programming for analyzing OPM's database. 

RELATED GAO PRODUCTS

Welfare Reform:  Implications of Increased Work Participation for
Child Care (GAO/HEHS-97-75, May 29, 1997). 

Welfare Reform:  States' Early Experiences With Benefit Termination
(GAO/HEHS-97-74, May 15, 1997). 

Welfare Reform:  Three States' Approaches Show Promise of Increasing
Work Participation Rates (GAO/HEHS-97-80, May 30, 1997). 

Welfare Waivers Implementation:  States Work to Change Welfare
Culture, Community Involvement, and Service Delivery
(GAO/HEHS-96-105, July 2, 1996). 

Employment Training:  Successful Projects Share Common Strategy
(GAO/HEHS-96-108, May 7, 1996). 

Welfare to Work:  Approaches That Help Teenage Mothers Complete High
School (GAO/HEHS/PEMD-95-202, Sept.  29, 1995). 

Welfare to Work:  Child Care Assistance Limited; Welfare Reform May
Expand Needs (GAO/HEHS-95-220, Sept.  21, 1995). 

Welfare to Work:  State Programs Have Tested Some of the Proposed
Reforms (GAO/PEMD-95-26, July 14, 1995). 

Welfare to Work:  Most AFDC Training Programs Not Emphasizing Job
Placement (GAO/HEHS-95-113, May 19, 1995). 

Welfare to Work:  Participants' Characteristics and Services Provided
in JOBS (GAO/HEHS-95-93, May 2, 1995). 

Welfare to Work:  Measuring Outcomes for JOBS Participants
(GAO/HEHS-95-86, Apr.  17, 1995). 

Welfare to Work:  Current AFDC Program Not Sufficiently Focused on
Employment (GAO/HEHS-95-28, Dec.  19, 1994). 

Child Care:  Current System Could Undermine Goals of Welfare Reform
(GAO/HEHS-94-238, Sept.  20, 1994). 


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