This is the accessible text file for GAO report number GAO-03-1094 entitled 'Welfare Reform: Information on TANF Balances' which was released on September 08, 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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Report to the Chairman, Subcommittee on Human Resources, Committee on Ways and Means, House of Representatives: United States General Accounting Office: GAO: September 2003: Welfare Reform: Information on TANF Balances: GAO-03-1094: Contents: Letter: Appendix I: Briefing Slides: United States General Accounting Office: Washington, DC 20548: September 8, 2003: The Honorable Wally Herger Chairman, Subcommittee on Human Resources Committee on Ways and Means House of Representatives: Dear Mr. Chairman: The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 made sweeping changes to the nation's key welfare program for needy families. It established the $16.5 billion Temporary Assistance for Needy Families (TANF) block grant, which provides to the states federal funds to support low-income families and help these families reduce their dependence on welfare. TANF provides states significant flexibility--within federal guidelines--to determine who is to be served and what services to provide. States also have the flexibility to transfer up to 30 percent of their TANF block grant each year to their child care or social services block grants.[Footnote 1] Along with this flexibility, states must meet federal requirements designed to ensure that TANF assistance is transitional in nature and that parents receiving aid take steps to become employed. The welfare legislation also fundamentally changed how the federal government funds assistance for low-income families, shifting much of the fiscal risk for welfare programs to the states. Before welfare reform, any increased costs for states' welfare programs were shared by the federal government and the states. Under TANF, however, states receive a fixed amount of TANF funds each year and, if costs rise, states must find a way of financing the additional costs. To manage these fiscal risks, states may, in any given year, set aside or reserve some of their annual TANF block grant funds for times when the annual grants are insufficient to cover current spending needs.[Footnote 2] To better understand states' spending patterns for TANF funds as the Congress debates the program's reauthorization,[Footnote 3] you asked us to provide information on (1) TANF balances, including the amount of funds transferred to states' child care and social services block grants, that remain unspent and (2) the extent to which these balances reflect reserves available for future use. To address these questions, we interviewed program and finance officials at the Department of Health and Human Services (HHS), which oversees the TANF, child care,[Footnote 4] and the social services block grants. We reviewed U.S. Treasury balance reports as of July 31, 2003, the most recent available, and used this information to estimate TANF balances through September 30, 2003 (the end of fiscal year 2003). While states can save some of their federal funds each year, they are not allowed to draw those funds from the U.S. Treasury until they actually spend those funds.[Footnote 5] While balances recorded by Treasury provide some information on the level of unspent TANF funds, they do not distinguish TANF funds transferred to the other block grants from those that remained within the TANF program. To determine the amount of unspent TANF transfers, we reviewed the data states reported to HHS on their annual financial reports for each of the three block grants for the fiscal year ending September 30, 2002, the most recent state reports available. Although state reports on the child care and social service block grant balances do not identify the TANF transfers, per se, we were able to estimate them, based on the assumption that states were likely to use the more restricted child care and social service dollars before spending the more flexible TANF funds.[Footnote 6] The fiscal year 2002 reports also provided information on the range of balances among the states, which was not readily available from the more recent Treasury balance reports. We conducted this review in accordance with generally accepted government auditing standards from July 2003 through August 2003. On September 2, 2003, we briefed you on the results of our analysis. This report formally conveys the information provided during that briefing. In summary, we found the following: Based on spending through July 31, 2003--the most recent data available--we estimate that the TANF balance will be about $5.6 billion on September 30, 2003. While data were not readily available to project how much of the balance might be comprised of TANF transfers to the child care and social services block grants, we did estimate that unspent transfers represented about 30 percent of the TANF balance for fiscal year 2002. The information available on TANF balances is not sufficient to assess the availability of reserves to help states meet future needs. We found that the current reporting requirements do not provide reliable, consistent information regarding states' plans for their balances.[Footnote 7] As a result, it is difficult to determine what portion of any reported balance is already committed or how much is reserved for future use on TANF-related expenditures. The importance of distinguishing between a committed balance and a real reserve becomes more apparent when comparing states. Although we cannot tell from state reports how much of their balance is committed, when we analyzed state TANF balances as of September 30, 2002, including our estimates of unspent TANF transfers, we found they varied considerably. While many states had large balances, others did not. The variations suggest that, at the end of fiscal year 2002, some states may have been better positioned than others to meet current and future needs. While the fixed block grant structure creates opportunities for states to establish reserves for the future and/or expand programs or develop new services when welfare caseloads fall, states can face fiscal challenges when their caseloads or program costs rise.[Footnote 8] We recently reported that states are in one of the most challenging fiscal crises to confront them in years.[Footnote 9] In a limited review of five states--Arizona, Iowa, Montana, Pennsylvania, and Wisconsin--we reported that each of the five planned to dip into some of their unspent TANF balances to fund their programs during the next fiscal year. Welfare reform ushered in a new fiscal partnership between the states and the federal government in supporting the nation's low-income families and helping them avoid welfare dependence. In this new fiscal partnership, sound fiscal management practices suggest that it would be prudent for states to develop some contingency plans--including establishing reserves from federal funds to meet the needs of their low-income families over time. However, the data currently required of states do not provide sufficient information to help the Congress and federal oversight officials assess the adequacy of states' reserves. Moreover, we have previously reported on state officials' concerns that leaving large TANF balances--without any way to identify the amount of funds set aside as reserves--might signal that these funds were not needed and, as a result, state officials felt pressures to spend down their balances quickly. In our earlier work, we provided your committee with options, including improving reporting requirements, that might provide states with more incentives to save.[Footnote 10] We are reiterating our recommendation that the Secretary of HHS work with the states to provide for more transparent reporting of their plans for their unspent balances. Reporting requirements should enable collection of data that will assist policymakers in their oversight responsibilities and, while care should be taken to avoid unnecessary reporting burdens on the grant recipients, comparable data on state obligations, expenditures, and reserves of federal funds are critical for effective oversight of federal programs. 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 at no charge on GAO's Web site at http://www.gao.gov. If you or your staff have any questions please contact Cynthia M. Fagnoni at (202) 512-7215 or Paul L. Posner at (202) 512-9573. Gale C. Harris and Bill J. Keller also made key contributions. 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 image] [End of figure] [End of section] FOOTNOTES [1] Maximum transfers to the Social Services Block Grant (SSBG) have been set at 10 percent of federal TANF funds since 1997. [2] Reserved funds must be used to provide ongoing, basic aid (such as cash assistance) to needy families, and therefore lose some of their flexibility. [3] Since October 1, 2002, the TANF program has been operating under extensions. On June 30, 2003, the President signed a bill that extended TANF and other related programs, on fiscal year 2002 terms, through September 30, 2003. (P.L. 108-40). [4] This block grant represents only one of the funding streams considered part of the Child Care and Development Fund that provides states federal funds to subsidize child care for low-and moderate- income families and to promote child care quality. [5] This provision is in accordance with the Cash Management Improvement Act of 1990. This act settled a long-standing dispute between the federal government and the states over disbursement of funds for federal programs administered by the states. The act helps to ensure that neither party incurs unnecessary interest costs in the course of federal government disbursements. See U.S. General Accounting Office, Financial Management: Implementation of the Cash Management Improvement Act, GAO/AIMD-96-4 (Washington, D.C.: Jan. 8, 1996). [6] Once TANF funds are transferred to the Child Care and Development Block Grant (CCDBG) and SSBG they cannot be saved indefinitely; each grant has specific and different rules governing the time frame within which states must obligate and spend any transferred funds. However, as established in program guidance, states can transfer funds back to TANF, within specific time frames, to avoid losing access to those funds. [7] See U.S. General Accounting Office, Welfare Reform: Challenges in Maintaining a Federal-State Fiscal Partnership, GAO-01-828 (Washington, D.C.: Aug. 10, 2001). [8] In contrast to the federal government that can run budget deficits, states face limitations--including legislative restrictions, constitutional balanced budget mandates, or conditions imposed by the bond market--on their ability to increase spending, especially in times of fiscal stress. [9] U.S. General Accounting Office, Welfare Reform: Information on Changing Labor Market and State Fiscal Conditions, GAO-03-977 (Washington, D.C.: July 15, 2003). [10] 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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