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Report to Congressional Requesters: United States General Accounting Office: GAO: August 2003: Workforce Investment Act: Potential Effects of Alternative Formulas on State Allocations: GAO-03-1043: Contents: Letter: Appendix I: Briefing Slides: Related GAO Products: Abbreviations: AFCARS: Adoption and Foster Care Analysis and Reporting System: ASU: Area of Substantial Unemployment: CPS: Current Population Survey: JTPA: Job Training Partnership Act: LAUS: Local Area Unemployment Statistics: MLS: Mass Layoff Statistics: NVSS: National Vital Statistics System: SAIPE: Small Area Income and Poverty Estimates: TANF: Temporary Assistance for Needy Families: UI: Unemployment Insurance: WIA: Workforce Investment Act: United States General Accounting Office: Washington, DC 20548: August 28, 2003: The Honorable Judd Gregg Chairman The Honorable Edward M. Kennedy Ranking Minority Member Committee on Health, Education, Labor, and Pensions United States Senate: About $3.3 billion in funds were allocated to states in fiscal year 2003 for Youth, Adult, and Dislocated Worker employment and training programs under the Workforce Investment Act (WIA) of 1998. The formulas used to distribute these funds are generally the same as those used to distribute funds under the Job Training Partnership Act (JTPA) of 1982, although WIA target populations and program goals differ from those of JTPA. In anticipation of the reauthorization of WIA, you asked us to assess current and proposed formulas for allocating funds to states for these programs and identify potential alternative allocation formulas. We identified various issues with the current funding formulas in our April 2003 report.[Footnote 1] For this review, we focused on three questions: (1) Are there alternative formula factors that are better aligned with current programs and are based on reliable and more current data? (2) How might changes to the current formulas affect the distribution of WIA funds among the states? (3) What are the implications of proposed program and formula changes in the House's WIA reauthorization bill (H.R. 1261) for state allocations and what are some alternatives to these formulas? Our review was limited to assessing the formulas for allocating funds to the states and did not include an assessment of formulas used by states to allocate funds to local areas. To identify alternatives to the current formulas, we interviewed experts and reviewed relevant literature and data sources. To determine how formula changes might affect the distribution of WIA funds, we calculated how various alternative formulas might have affected states' allocations and funding volatility over the last 5 program years[Footnote 2] (program years 1999 - 2003). Finally, we analyzed the provisions of H.R. 1261[Footnote 3] and interviewed Department of Labor officials to obtain further information about these provisions. We conducted our field work from December 2002 to July 2003. Our work was conducted in accordance with generally accepted government auditing standards. On July 9, 2003, we briefed your offices on the results of our work. This report conveys the information provided in that briefing. We identified a set of formula factors that are more clearly aligned with WIA target populations and are based on reliable and more timely data than those in the current and proposed formulas. We used these factors to develop potential alternative formulas that would better target funds to eligible populations.[Footnote 4] In general, these alternatives would result in some redistribution of funds due to the elimination of two factors that measure concentrated unemployment,[Footnote 5] which tend to skew allocations, and less year-to-year funding volatility than the current formulas. Finally, we found that the formulas proposed in H.R. 1261 would not address most of the issues we identified; in fact, most program funds would continue to be allocated according to the current rather than the proposed formulas, because of provisions that limit the use of the proposed formulas. In our assessment of the current and proposed formulas, we identified several formula factors that were not well aligned with WIA Youth, Adult and Dislocated Worker program target populations or were based on data with long time lags. We then identified several potential formula factors that would be better aligned with current WIA target populations and for which more timely and reliable data are available. Specifically, the relative numbers of low-income youth and adults (key target populations for the Youth and Adult programs) could be better measured with more timely data from the Census Bureau's Small Area Income and Poverty Estimates (SAIPE).[Footnote 6] Other potential factors for the Youth Program formula--jobless out-of-school youth, high school dropouts, births to teens,[Footnote 7] and youth in foster care--would be more direct measures of specific target groups for that program, although the first two of these potential factors would require averaging over several years to meet a reasonable level of reliability for some small states. Additional potential factors for the Adult Program formula that we identified include measures of the civilian labor force, which would reflect the broader group of adults eligible for core services; total unemployment, which would reflect the majority of those actually served; and public assistance recipients, who may receive priority for intensive and training services. The alternative Dislocated Worker factors that we identified--"insured unemployment,"[Footnote 8] "permanent job losers,"[Footnote 9] and "workers affected by mass layoffs"--are more direct measures of dislocated workers than the currently used total unemployment and excess unemployment factors. Using these factors, we developed several alternative formulas for each of the three WIA programs and assigned relative weights to these factors that reflect, to a limited extent, what is known about the relative costs of serving different target groups and their likely participation rates. In general, we found that these alternatives would have resulted in a reduction in year-to-year funding volatility for all three programs and a redistribution of funds from several states that have unemployment that is more concentrated in Areas of Substantial Unemployment (ASUs), to a higher number of states where unemployment is not concentrated in ASUs. States are allowed to define ASUs, which they do in a way that maximizes the number of unemployed who are counted as being in ASUs, which then enables them to receive more funds based on the concentrated unemployment factors. The redistribution of funds is due primarily to the exclusion of these factors, which rely to a great extent on how ASUs are defined and which are now used to distribute two-thirds of Youth and Adult funds and one-third of Dislocated Worker funds.[Footnote 10] However, because our calculations of the effects of alternative funding formulas are based on historical employment and demographic data, these outcomes are examples of potential outcomes rather than definitive predictions. If the distribution of unemployment or poverty were to change in the future, the actual outcomes for states under these alternatives could be very different from the potential outcomes reported here. H.R. 1261 would significantly change the structure of current WIA programs and the formulas used to allocate program funds to the states, although these changes will probably not result in large shifts in the distribution of funds among states. Generally, the proposed formulas are better aligned with the proposed target populations. However, provisions that limit the amount of funds subject to the proposed formulas and instead allow some states to have their allocations determined by the old formulas would limit the impact of the new formulas. For the Youth Program, H.R. 1261 proposes that a majority of program funds, no less than 70 percent, be spent on out-of-school youth with barriers to employment and the remaining percentage spent on low- income, in-school youth. The proposed formula includes three, equally weighted factors: total unemployment, disadvantaged youth, and youth civilian labor force. Overall, the proposed formula is better aligned with the program's target population because two of the proposed formula factors would specifically reflect the youth population, and it eliminates the two concentrated unemployment factors. However, the total unemployment factor does not specifically measure youth unemployment, and none of the proposed factors would directly measure the primary target group: out-of-school youth. Also, the disadvantaged youth factor continues to rely on infrequently updated decennial census data.[Footnote 11] However, even with the proposed changes, most program funds would continue to be allocated based on the current Youth Program formula, because the new formula would only apply to funds in excess of fiscal year 2003 state allocations.[Footnote 12] We identified several potential alternative formulas for the proposed Youth Program that address the issues cited above. H.R. 1261 would consolidate the WIA Adult, WIA Dislocated Worker, and Wagner-Peyser[Footnote 13] programs into a single Comprehensive Program for Adults. Dislocated workers would no longer be a designated target group, although unemployed individuals, including those who are unemployed due to dislocations, would have priority for some services. The bill proposes a two-part formula for the Comprehensive Program for Adults that generally simplifies and consolidates the current formulas and is better targeted to the proposed target populations. The first part of the formula essentially replaces the current Wagner-Peyser formula, whereas the second part of the formula consolidates the formulas for the Adult and Dislocated Worker programs into a single, combined formula. The first part of the proposed formula would distribute 26 percent of program funds to states according to their share of fiscal year 2003 Wagner-Peyser funds; amounts in excess of the fiscal year 2003 level would be distributed based on their relative shares of the civilian labor force.[Footnote 14] The second part of the formula would distribute 74 percent of funds based on states' relative shares of total unemployment (60 percent), excess unemployment (25 percent), and disadvantaged adults (15 percent). Three of the proposed factors--civilian labor force, total unemployment, and economically disadvantaged adults--measure groups that would be eligible for basic services or prioritized for intensive and training services. However, the formula retains the statewide excess unemployment factor that is most problematic in the current Dislocated Worker formula, and the disadvantaged adults factor would continue to rely on decennial census data, which are updated only once a decade. As with the proposed Youth formula, the bill limits the impact of the proposed formulas. The phase-in provision for the Adult program would ensure that no state would receive a smaller allocation than it would under the current WIA Adult, WIA Dislocated Worker, and Wagner-Peyser formulas. The provision also provides that any state that would receive more under the proposed formulas than it would under the current formulas will receive the new formula amount, but only up to 3 percent over what it would have received under the current formulas. We identified several potential alternative formulas for the Comprehensive Program for Adults that do not include the phase-in provision or the excess unemployment factor. We provided a draft of this report to the Department of Labor for technical review and made changes as appropriate. We are sending copies of the report to the Secretary of Labor and other interested parties. We will also make copies available to others upon request. The report is also available at no charge on GAO's Web site at www.gao.gov. If you or your offices have any questions about this report, please contact me or Andrew Sherrill at (202) 512-7215. Regina Santucci, Lorin Obler, and Jerry Fastrup also made key contributions to this report. Sigurd R. Nilsen Director, Education, Workforce, and Income Security Issues: Signed by Sigurd R. Nilsen: [End of section] Appendix I: Briefing Slides: [See PDF for images] [End of figure] [End of section] Related GAO Products: Workforce Investment Act: Exemplary One-Stops Devised Strategies to Strengthen Services, but Challenges Remain for Reauthorization. GAO-03- 884T. Washington, D.C.: June 18, 2003. Workforce Investment Act: One-Stop Centers Implemented Strategies to Strengthen Services and Partnerships, but More Research and Information Sharing is Needed. GAO-03-725. June 18, 2003. Workforce Investment Act: Issues Related to Allocation Formulas for Youth, Adults, and Dislocated Workers. GAO-03-636. Washington, D.C.: April 25, 2003. Labor Market Information: Trends and Issues in Funding of State Programs. GAO-03-336. Washington, D.C.: December 20, 2002. Workforce Investment Act: States' Spending Is on Track, but Better Guidance Would Improve Financial Reporting. GAO-03-239. Washington, D.C.: November 22, 2002. Workforce Investment Act: Interim Report on Status of Spending and States' Available Funds. GAO-02-1074. Washington, D.C.: September 5, 2002. Workforce Investment Act: Better Guidance and Revised Funding Formula Would Enhance Dislocated Worker Program. GAO-02-274. Washington, D.C.: February 11, 2002. Formula Grants: Effects of Adjusted Population Counts on Federal Funding to States. GAO/HEHS-99-69. Washington, D.C.: February 26, 1999. Federal Grants: Design Improvements Could Help Federal Resources Go Further. GAO/AIMD-97-7. Washington, D.C.: December 18, 1996. FOOTNOTES [1] U.S. General Accounting Office, Workforce Investment Act: Issues Related to Allocation Formulas for Youth, Adults, and Dislocated Workers, GAO-03-636 (Washington, D.C.: Apr. 25, 2003). [2] A program year runs from July 1 to June 30. For example, program year 2003 began on July 1, 2003. [3] The Workforce Reinvestment and Adult Education Act of 2003 (H.R. 1261) was passed by the House of Representatives on May 8, 2003. [4] Some of the data sources suggested as alternatives for use in national to state allocations might not be available at the local level for use in state to local allocations. [5] These factors are excess unemployment and unemployment in Areas of Substantial Unemployment. [6] The SAIPE provides estimates of the number of children under age 18 in poverty but does not provide estimates for the specific target group of the current WIA Youth Program--youth ages 14 to 21. We relied on the estimated number of children under age 18 in poverty as a proxy for the number of youth in poverty. Labor officials told us that the Census Bureau would have to develop new estimation models for the SAIPE to estimate the number of low-income youth in the age group targeted for the WIA Youth Program. [7] We used data on the number of births to teens ages 14 to 19 as a proxy for the WIA target group of parenting youth. These data do not directly measure the number of parenting youth, but rather, the number of teen births in a given year. [8] Insured unemployment measures individuals who successfully applied for Unemployment Insurance benefits in the past year, remain unemployed, and have not exhausted benefits. [9] Permanent job losers are defined as unemployed individuals who have some attachment to the workforce, are not on temporary layoff, and did not leave their jobs voluntarily. [10] One of these factors, excess unemployment, may or may not rely on how ASUs are defined, depending on the program. For the Dislocated Worker Program, excess unemployment is calculated based on statewide unemployment; for Youth and Adult programs, excess unemployment may be based on either statewide or ASU unemployment. [11] The Census Bureau has proposed that beginning in 2010 the decennial census long-form questionnaire, which collects unemployment and income data, would be replaced by the American Community Survey. If approved, this new survey would provide state-level unemployment and poverty data annually. [12] The amount of funds allocated to states by formula in fiscal year 2003 is $976,945,172. [13] The Wagner-Peyser program funds a variety of labor exchange services, including vocational assessments, job search assistance, and job referrals and is an integral part of the one-stop service delivery system established by WIA. [14] This partly reflects the current Wagner-Peyser formula, which allocates two-thirds of program funds based on states' relative shares of the total civilian labor force and one-third based on states' relative shares of unemployment. 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. Obtaining Copies of GAO Reports and Testimony: The fastest and easiest way to obtain copies of GAO documents at no cost is through the Internet. 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