Welfare Reform:

Early Fiscal Effects of the TANF Block Grant

AIMD-98-137: Published: Aug 18, 1998. Publicly Released: Sep 8, 1998.

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Pursuant to a congressional request, GAO reviewed the states' fiscal decisions for the Temporary Assistance for Needy Families (TANF) block grant and whether states are taking steps to prepare for the effects of future economic downturns on their welfare programs, focusing on: (1) how state budgetary resources, including federal aid, have been allocated since states have had access to TANF funds; (2) what plans states are making to ensure programmatic stability in times of fiscal and economic stress; and (3) the extent to which states have used, or plan to use, the program's federal Contingency Fund for State Welfare Programs and the Federal Loans for State Welfare Programs (Loan Fund) which are available for downturns or other emergencies affecting states.

GAO noted that: (1) more federal and state resources are available for states' low-income family assistance programs since welfare reform passed in 1996 than would have been available under the previous system of financing welfare programs consolidated in the TANF block grant; (2) GAO's estimates showed that, taking caseload declines into account, 46 states would have more total resources--both state and federal--for their low-income family assistance programs than they would have had under the previous welfare programs; (3) states are transforming the nation's welfare system into a work-focused, temporary assistance program for needy families and generally chose to spend these resources to expand programs and benefits by shifting the emphasis from entitlement to self-sufficiency, enhancing support services, and increasing work participation rates; (4) states also have achieved budgetary savings by reducing state funds to the statutory maintenance-of-effort level of 75 or 80 percent of previous state spending levels; (5) while states have gained greater resources under the block grant, they also take greater responsibilities for fiscal risks should program costs increase in the future; (6) most states, including 7 of the 10 GAO visited, also have a general fund budget stabilization or rainy day funds that could be used to augment program spending during an economic downturn, but welfare programs would have to compete for these resources with other state funding priorities; (7) the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) includes features that could provide federal funding to cover future increases in program needs; (8) states can carry forward unused TANF funds without fiscal year limitation; (9) as of September 30, 1997, states had left about $1.2 billion in unspent balances in their accounts with the U.S Treasury, or about 9 percent of the total grant; (10) it is unclear whether these balances will remain, shrink, or increase as states gain experience with the problem; (11) PRWORA also creates two federal safety-net mechanisms--the Contingency Fund and the Loan Fund--that were designed to provide states with access to additional funds during times of economic downturn or fiscal stress; (12) as of February 1998, neither the Contingency nor the Loan Funds had been used by any state; (13) officials in states GAO visited said they did not view the Contingency Fund as a viable source of additional resources; and (14) officials in many states GAO visited indicated they did not believe their states would borrow from the Loan Fund during an economic downturn.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: The Department of Health and Human Services (HHS) concurred with GAO's recommendation. Since the issuance of the report, the Department's Administration for Children and Families (ACF) has compiled data concerning state expenditures for the TANF program for fiscal years 1997 and 1998. HHS/ACF is also working through its regional offices to request data from the 13 states with the largest TANF balances to learn more about the states' plans for using these balances in the future.

    Recommendation: The Secretary of Health and Human Services should consult with the states and explore various options to enhance information regarding states' plans for their unused TANF balances. Such information might include explicit state plans for setting aside TANF-funded reserves for the future. Allowing for more transparency regarding states' fiscal plans for TANF funds could enhance congressional oversight over the multi-year timeframe of the grant and provide states with an opportunity to more explicitly consider their long-term fiscal plans for the program.

    Agency Affected: Department of Health and Human Services


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