This is the accessible text file for GAO report number GAO-03-977 entitled 'Welfare Reform: Information on Changing Labor Market and State Fiscal Conditions' which was released on July 15, 2003. This text file was formatted by the U.S. General Accounting Office (GAO) to be accessible to users with visual impairments, as part of a longer term project to improve GAO products' accessibility. Every attempt has been made to maintain the structural and data integrity of the original printed product. Accessibility features, such as text descriptions of tables, consecutively numbered footnotes placed at the end of the file, and the text of agency comment letters, are provided but may not exactly duplicate the presentation or format of the printed version. The portable document format (PDF) file is an exact electronic replica of the printed version. We welcome your feedback. Please E-mail your comments regarding the contents or accessibility features of this document to Webmaster@gao.gov. 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Senate: United States General Accounting Office: GAO: July 2003: Welfare Reform: Information on Changing Labor Market and State Fiscal Conditions: GAO-03-977: Contents: Letter: Appendix I: Briefing Slides: Appendix II: GAO Contacts and Staff Acknowledgments: GAO Contacts: Staff Acknowledgments: Related GAO Products: Abbreviations: AFDC: Aid to Families with Dependent Children: HHS: Department of Health and Human Services: TANF: Temporary Assistance for Needy Families: United States General Accounting Office: Washington, DC 20548: July 15, 2003: The Honorable Charles E. Grassley Chairman The Honorable Max Baucus Ranking Minority Member Committee on Finance United States Senate: With the enactment of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA), the Congress made sweeping changes to federal policy for needy families. PRWORA ended the Aid to Families with Dependent Children (AFDC) program and created the Temporary Assistance for Needy Families (TANF) block grant to states. The Department of Health and Human Services (HHS) oversees the TANF block grant program, which provides grants to states totaling up to $16.5 billion each year and requires states to maintain a historical level of state spending on welfare reform programs. Under TANF, states have greater flexibility and face greater uncertainty than they did under AFDC. States have greater flexibility to design, finance, and implement programs for low-income families, including determining who is to be served and what services to provide. TANF also emphasizes the transitional nature of assistance and the importance of employment for welfare recipients. Because the amount of the TANF block grant is fixed, as caseloads decline--as they did in all states through the late 1990s--states have had additional resources that they have used to expand their programs, achieve some budgetary savings, and create reserves; however, states bear most of their TANF program's fiscal risks if their programs' costs rise as a result of higher caseloads or other factors. Welfare reform was initially implemented in a time of economic growth, when there was a strong demand for labor and the fiscal situation of the states was favorable. More recently, the economy has slowed and welfare reform is being implemented in less favorable economic conditions. To obtain information on welfare reform under changing labor market and fiscal conditions, you asked us to determine (1) how labor market conditions have changed in recent years; (2) how cash public assistance caseloads and the employment activities of current and former welfare recipients have changed in recent years; (3) how the fiscal situation of states has changed in recent years; and (4) to what extent states have made changes to their welfare programs as a result of fiscal changes. To address your first and second questions, we obtained data on national and state unemployment rates and the national labor force participation rate, as well as qualitative information on recent economic conditions for five states, selected judgmentally to reflect variation in geographic location and welfare-to-work approaches (Arizona, Iowa, Montana, Pennsylvania, and Wisconsin). We also obtained data on cash public assistance caseload changes for the nation and the selected states, as well as qualitative information on caseload patterns and the ability of TANF recipients to enter employment from the selected states and three nongovernmental welfare-to-work organizations. To address your third and fourth questions, we obtained publicly available information on the current fiscal situation of the states from national organizations representing states and publicly available budget documents on state TANF programs and on proposals for changes to their TANF programs. In addition, we obtained information from budget officials in the selected states as well as TANF financial data submitted by states to HHS. We conducted our work from February to May 2003 in accordance with generally accepted government auditing standards. Data used in this analysis were those readily available as of April 30, 2003. On May 13, 2003, we presented your staff with this descriptive information on changing economic conditions and welfare reform. This report formally conveys the information provided during that briefing. In summary, we reported: The recent economic downturn is reflected in key national and state labor market statistics and in the reports of state officials. The national unemployment rate, for example, increased from 4.0 percent in January 2000 to 5.8 percent in March 2003. Although changes in unemployment rates have varied across industrial sectors and for workers of different levels of educational attainment, unemployment rates have generally increased across sectors and education levels in recent years. Unemployment rates varied across the five selected states, ranging from 4.0 percent in Iowa and Montana to 6.2 percent in Pennsylvania in February 2003. Despite these differences, officials in each state felt that their state has experienced an economic downturn. While the loss of jobs in manufacturing and the continued importance of service sector employment for TANF recipients were common features of the downturn across the five states, other important characteristics of the downturn differed. Changes in cash public assistance caseloads and the employment activities of welfare recipients also varied across the five states. Although the national welfare caseload declined from December 2000 to December 2002, only one of the five states (Pennsylvania) experienced caseload declines in both years of this time period. Caseload patterns differed across the five states in terms of any geographic concentration of caseload changes or the length of time recipients stayed on cash assistance. Information on how the downturn has affected the employment prospects of TANF recipients also differed across the states and by the type of organization interviewed. Some reported that TANF recipients had greater difficulty finding jobs as a result of changing economic conditions, while others said that entry-level jobs- -those most likely to employ TANF recipients--were still generally available. State officials in the five states reported that changes had not been made to state welfare-to-work programs in response to recent economic changes, but some states have had to curtail, or expect to curtail, services and/or cut cash benefits because of fiscal difficulties. States are facing one of their most challenging fiscal situations in years, in part, due to the economic downturn and state fiscal responses to this downturn. Most states are required to balance their budgets and since their revenues have been much lower than forecast, state officials have struggled to bring expenditures in line with available resources. A state's need to cut spending or increase revenues during a downturn can be mitigated if it has accumulated surplus balances in reserve and states accumulated unprecedented reserves during the late 1990s. However, these reserves have dropped appreciably as states address their fiscal crises. For the TANF program specifically, we found that each of the five states in our review planned to use their reserves of unspent federal TANF funds[Footnote 1] to maintain their TANF programs and they also planned to use the program's flexibility to reallocate some resources to higher priority TANF needs. Nationwide, states reported that over $5.8 billion in federal TANF funds remained unspent at the end of federal fiscal year 2002. However, the levels of TANF reserves vary considerably among the 50 states. For example, 3 states' reserves of unspent funds are equal to or greater than their annual grant amount whereas 3 other states have no reported reserves. Many states began to draw down some of their reserves in federal fiscal years 2001 and 2002, in part due to concerns that accumulating unspent balances might signal that these funds were not needed.[Footnote 2] In using reserve funds to augment the annual block grant, states assumed some risks. Because the amount of federal funding is fixed and does not vary based on the number of people served or changing program costs, states that used their reserves to augment their annual block grant would face challenges maintaining this level of funding if program costs rose as a result of higher caseloads or other factors. These risks are compounded by the current fiscal situations in the states that make it difficult for them to increase their own funding for these programs. Four of the 5 states we reviewed faced difficult budget challenges in their TANF programs this year. In Montana, for example, program budget officials said the state used most of its TANF reserves to fund short-term projects. When the fiscal situation worsened this year, program officials worked to terminate these programs early and reallocated the program funds to address shortfalls in other higher priority TANF-funded programs. In Pennsylvania, on the other hand, program budget officials said that the state's TANF program is relatively well protected from the state budget crisis and that based on current expenditure rates the state's TANF reserves could last through 2006. We provided a draft of this briefing to officials at HHS for their technical comments and incorporated their comments where appropriate. We are sending copies of this report to relevant congressional committees and other interested parties and will make copies available to others upon request. This report will also be available on GAO's Web site at http://www.gao.gov. If you or your staff have any questions about this: report, please contact Cynthia M. Fagnoni at (202) 512-7215 or Paul L. Posner at (202) 512-9573. Additional GAO contacts and acknowledgments are listed in appendix II. Cynthia M. Fagnoni, Managing Director Education, Workforce, and Income Security Issues: Paul L. Posner, Managing Director Federal Budget Issues and Intergovernmental Relations: Signed by Cynthia M. Fagnoni and Paul L. Posner: [End of section] Appendix I: Briefing Slides: [See PDF for images] [End of figures] [End of section] Appendix II: GAO Contacts and Staff Acknowledgments: GAO Contacts: Gale Harris (202) 512-7235 or harrisg@gao.gov Tom James (202) 512-2996 or Jamest@gao.gov: Staff Acknowledgments: In addition to those named above, Elspeth Grindstaff, Bill Keller, Leah Nash, and Janice Peterson made key contributions to this report. [End of section] Related GAO Products: Child Care: Recent State Policy Changes Affecting the Availability of Assistance for Low-Income Families. GAO-03-588. Washington, D.C.: May 5, 2003. Welfare Reform: Former TANF Recipients with Impairments Less Likely to Be Employed and More Likely to Receive Federal Supports. GAO-03-210. Washington, D.C.: December 6, 2002. Welfare Reform: With TANF Flexibility, States Vary in How They Implement Work Requirements and Time Limits. GAO-02-770. Washington, D.C.: July 5, 2002. Welfare Reform: Federal Oversight of State and Local Contracting Can Be Strengthened. GAO-02-661. Washington, D.C.: June 11, 2002. Welfare Reform: States Provide TANF-Funded Work Support Services to Many Low-Income Families Who Do Not Receive Cash Assistance. GAO-02- 615T. Washington, D.C.: April 10, 2002. Welfare Reform: States Are Using TANF Flexibility to Adapt Work Requirements and Time Limits to Meet State and Local Needs. GAO-02- 501T. Washington, D.C.: March 7, 2002. Welfare Reform: Moving Hard-to-Employ Recipients Into the Workforce. GAO-01-368. Washington, D.C.: March 15, 2001. Welfare Reform: Challenges in Maintaining a Federal-State Fiscal Partnership. GAO-01-828. Washington, D.C.: August 10, 2001. Welfare Reform: Challenges in Saving for a Rainy Day. GAO-01-674T. Washington, D.C.: April 26, 2001. Welfare Reform: Early Fiscal Effects of the TANF Block Grant. AIMD-98- 137. Washington, D.C.: August 18, 1998. FOOTNOTES [1] States are allowed to keep unspent TANF funds without fiscal year limitation. They are required to report unspent balances as either an unobligated balance or an unliquidated obligation. While the latter implies that there is an underlying commitment on these funds, we reported in 2001 that it is difficult to tell from the states' reports whether these funds have actually been committed or whether they might be available to use in the future. See U.S. General Accounting Office, Welfare Reform: Challenges Maintaining a Federal-State Fiscal Partnership, GAO-01-828 (Washington D.C.: Aug. 10, 2001). [2] For more information, see U.S. General Accounting Office, Welfare Reform: Challenges in Saving for a "Rainy Day," GAO-01-674T (Washington, D.C.: Apr. 26, 2001). GAO's Mission: The General Accounting Office, the investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. GAO examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. GAO's commitment to good government is reflected in its core values of accountability, integrity, and reliability. 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