This is the accessible text file for GAO report number GAO-03-636 entitled 'Workforce Investment Act: Issues Related to Allocation Formulas for Youth, Adults, and Dislocated Workers' which was released on April 25, 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. Report to Congressional Requesters: United States General Accounting Office: GAO: April 2003: Workforce Investment Act: Issues Related to Allocation Formulas for Youth, Adults, and Dislocated Workers: GAO-03-636: Contents: Letter: Appendix I: Workforce Investment Act Allocation Formulas: Appendix II: Current Federal Job Training Allocation Formulas: Appendix III: Program Year 2002 Youth and Adult Allocations (Increases and Decreases): Appendix IV: States Have Some Discretion in Substate Allocation Formulas: Appendix V: State Dislocated Worker Allocations, PY 1997--PY 2002: Related GAO Products: Abbreviations: ASU: Area of Substantial Unemployment: JTPA: Job Training Partnership Act of 1982: WIA: Workforce Investment Act: This is a work of the U.S. Government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. It may contain copyrighted graphics, images or other materials. Permission from the copyright holder may be necessary should you wish to reproduce copyrighted materials separately from GAO's product. United States General Accounting Office: Washington, DC 20548: April 25, 2003: The Honorable Judd Gregg Chairman The Honorable Edward M. Kennedy Ranking Minority Member Committee on Health, Education, Labor, and Pensions United States Senate: The Workforce Investment Act (WIA) of 1998 required states to streamline employment and training services and established three separate funding streams for serving youth, adults, and dislocated workers, for which about $3.3 billion was appropriated for fiscal year 2003. The formulas for distributing these funds to the states were left largely unchanged from those used to distribute funds under the Job Training Partnership Act (JTPA) of 1982, which served a different set of target populations. In anticipation of the upcoming debates on WIA's reauthorization, you asked us to review these formulas in the context of current program goals. Specifically, you asked us to assess the formulas used to distribute funds to the states, identifying any mismatches that might exist between the formulas and WIA's program goals and populations served and identifying where the formulas are most vulnerable to wide fluctuations in funding levels from year to year. To identify issues associated with the current formulas, we: (1) summarized relevant provisions of the WIA statute and compared formula factors with target populations for each program, (2) analyzed the U.S. Department of Labor's formula calculations and states' historical allocations to identify factors that contribute to fluctuations in yearly funding levels, and (3) interviewed key experts and program stakeholders and reviewed relevant literature on federal workforce training policy and federal funding formulas. We conducted our work from December 2002 to February 2003 in accordance with generally accepted government auditing standards. On February 28, 2003, we briefed your offices on the results of our work. This report conveys the information provided during that briefing. We identified issues associated with the current formulas in three areas: misalignment between some of the formula factors used to allocate funds and the target populations for these programs, time lags in the data used to determine these allocations, and excessive funding volatility associated with the Dislocated Worker Program unrelated to fluctuations in the target populations. As a result, states' funding levels may not always be consistent with their underlying need for services. The first issue we identified is that some of the factors used in the formulas to allocate funds are not clearly aligned with the programs' modified target populations. This may limit the ability to achieve a key goal of federal allocation formulas, which is to distribute program funds to areas based on their relative shares of people eligible to receive services. Specifically, the Youth program now serves a more specific group of low-income youth with certain barriers to employment.[Footnote 1] However, two-thirds of its funds are distributed based on two factors that measure general unemployment rather than youth unemployment.[Footnote 2] The remaining third is distributed according to the number of low-income youth in states, but even this factor does not measure low-income youth who face barriers to employment. The target population and formula for the WIA Adult program also are misaligned. The Adult program under WIA is targeted to a broader population than was targeted under JTPA--WIA is open to all adults regardless of income for basic services, while low-income adults and public assistance recipients have priority for training and other more intensive services. However, the WIA Adult allocation formula is more narrowly focused on states' relative shares of excess unemployment, unemployment in Areas of Substantial Unemployment (ASUs), and low-income adults. Finally, the Dislocated Worker Program is targeted to several specific categories of individuals, including those eligible for unemployment insurance and workers affected by mass layoffs. The factors used to distribute Dislocated Worker funds are not, however, specifically related to these populations. Two-thirds of program funds are distributed according to factors that measure general unemployment.[Footnote 3] One-third is distributed according to the number of long-term unemployed, a group that is no longer automatically eligible for the program. The second issue is that there are time lags between when the data are collected and when the allocations are available to states, so that the allocations may not reflect current labor market conditions. The oldest data are those used in the Youth and Adult program formulas to measure the relative numbers of low-income individuals in the states. The decennial Census is the source for these data, and allocations under this factor through 2002[Footnote 4] are based on data from the 1990 Census.[Footnote 5] The data used to measure two of three factors for both the Youth and Adult programs are more recent, but are still as much as 12 months out of date.[Footnote 6] The time lags for the data used to calculate Dislocated Worker allocations range from 9 months to 18 months. To the extent that they are available, more current data may reflect more accurately the nationwide shifts in unemployment and poverty that may affect states' workloads for these programs. The third issue we identified is excessive volatility in funding for the Dislocated Worker Program.[Footnote 7] That funding was significantly more volatile--as much as 3 times more so--than funding for either the Youth or Adult program. Some states have reported that this volatility makes program planning difficult. While some degree of change in funding is to be expected due to changing dislocations in the workforce, changes in funding do not necessarily correspond to these changes. For example, changes in the numbers of workers affected by mass layoffs from year to year--one measure of dislocation activity-- ran counter to changes in Dislocated Worker allocations in several states we examined. Several aspects of the Dislocated Worker formula contribute to funding volatility and to the seeming lack of consistency between dislocation and funding. The excess unemployment factor has a "threshold" effect--states may or may not qualify for the one-third of funds allocated under this factor in a given year, based on whether or not they meet the threshold condition of having at least 4.5 percent unemployment statewide.[Footnote 8] As a result, small changes in unemployment can cause large changes in funding, and when the economy is strong and few states have unemployment over 4.5 percent, the states that do qualify for this pot of funds may experience large funding increases even if their unemployment falls. In addition, the Dislocated Worker formula is not subject to the additional statutory provisions that mitigate volatility in Youth and Adult program funding. These provisions include "hold harmless" and "stop gain" constraints that limit changes in funding to within 90 and 130 percent of each state's prior year allocation and also "small state minimums" that ensure that each state receives at least 0.25 percent of the total national allocation. While these provisions prevent dramatic shifts in funding from year to year, they also result in allocations that may not as closely track changes in the program target populations.[Footnote 9] Developing alternative funding formulas to address the issues we have identified is an important but challenging task. This task is complicated by the need to strike an appropriate balance among various objectives, such as using formula factors that are best aligned with program target populations and reducing time lags in data sources, while also using available data sources to measure these factors as accurately as possible. In addition, there have been proposals for reauthorizing WIA that would substantially modify the program target populations and funding streams, which in turn would have consequences for revising the funding formulas. 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 staff have any questions about this report, please contact me or Andrew Sherrill at (202) 512-7215. Regina Santucci and Lorin Obler 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: Workforce Investment Act Allocation Formulas: [See PDF for image] [End of figure] [End of section] Appendix II: Current Federal Job Training Allocation Formulas: [See PDF for image] [End of figure] [End of section] Appendix III: Program Year 2002 Youth and Adult Allocations (Increases and Decreases): [See PDF for image] [End of figure] [End of section] Appendix IV: States Have Some Discretion in Substate Allocation Formulas: [See PDF for image] [End of figure] [End of section] Appendix V: State Dislocated Worker Allocations, PY 1997--PY 2002: [See PDF for image] [End of figure] [End of section] Related GAO Products: Multiple Employment and Training Programs: Funding and Performance Measures for Major Programs. GAO-03-589. Washington, D.C.: April 18, 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. Workforce Investment Act: Improvements Needed in Performance Measures to Provide a More Accurate Picture of WIA's Effectiveness. GAO-02-275. Washington, D.C.: February 1, 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] Barriers to employment include being a school dropout; deficient in basic literacy skills; homeless, runaway, or in foster care; pregnant or a parent; an offender; or requiring help completing an educational program or securing and holding a job. Up to 5 percent of youth may be non low-income if they have barriers to school completion or employment. [2] These two factors are unemployment in ASUs (contiguous areas with populations of 10,000 or more and unemployment greater than 6.5 percent) and excess unemployment (unemployment greater than 4.5 percent either statewide or in ASUs). [3] These two factors are total unemployment and excess unemployment. [4] Data from the 2000 Census will be used to calculate this factor for the 2003 program year. However, under current procedures, these data will not be updated for successive program years until the 2010 Census data become available. [5] Data collected for the 1990 Census reflect income levels in calendar year 1989. [6] These factors are excess unemployment and unemployment in ASUs. [7] We initially identified this problem in an earlier report: U.S. General Accounting Office, Workforce Investment Act: Better Guidance and Revised Funding Formula Would Enhance Dislocated Worker Program, GAO-02-274 (Washington, D.C.: Feb. 11, 2002). [8] In contrast, the threshold condition for excess unemployment in the Youth and Adult programs can be met either by having at least 4.5 percent unemployment statewide or 4.5 percent unemployment in one or more ASUs. However, the use of ASU unemployment levels has been criticized by experts as introducing an element of inconsistency in the formulas for the Youth and Adult programs arising from states' ability to draw their own ASU boundaries. [9] These additional provisions have a significant effect on states' final allocations for the Youth and Adult programs, compared to what states would have received in the absence of these provisions. In 2002, these provisions resulted in allocation adjustments for the Youth program ranging from an 18-percent reduction to a 379-percent increase; for the Adult program, adjustments ranged from a 15-percent reduction to a 255-percent increase. 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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