	Background

The TANF block grant was created by the Personal Responsibility and  Work Opportunity Reconciliation Act of 1996 (PRWORA) and was  designed to give states the flexibility to provide both traditional welfare  cash assistance benefits as well as a variety of other benefits and  services to meet the needs of low-income families and children. TANF  has four broad goals: (1) provide assistance to needy families so that  children may be cared for in their own homes or homes of relatives; (2)  end dependence of needy parents on government benefits by promoting  job preparation, work, and marriage; (3) prevent and reduce out-of- wedlock pregnancies; and (4) encourage two-parent families. PRWORA ended low-income  families’ entitlement to cash assistance by replacing the Aid to Families  with Dependent Children (AFDC) program— for which the federal grant  amount was based on the amount of state spending—with the TANF  block grant, a $16.5 billion per year fixed federal funding stream to states. PRWORA coupled the block grant with an MOE provision, which requires  states to maintain a significant portion of their own historic financial  commitment to their welfare programs as a condition of receiving their full  federal TANF allotments. The most recent data available, for fiscal year 2010, show that the federal  government and states spent almost $36 billion  on benefits and services  meeting one or more of the TANF goals. These requirements are  an important element of TANF—if a state fails to meet its MOE  requirement for any fiscal year, HHS is required by law to reduce dollar- for-dollar the amount of a state’s basic TANF grant for the following fiscal  year. Figure 1 shows the  federal programs with related state spending that were included in  establishing the fixed annual amount of the TANF block grant and state  maintenance-of-effort level for each state. The required percentages of these previous state spending levels vary  under different conditions:
80 percent—To receive its federal TANF funds, a state must generally  spend state funds in an amount equal to at least 80 percent of the  amount it spent on welfare and related programs in fiscal year 1994. MOE Spending Has Increased Significantly, But the Extent to Which It Represents Increased Service Levels Is Unclear

		MOE Levels Have Increased in Recent Years

State MOE levels remained stable for many years and then increased  more recently for several reasons. For example, in fiscal  year 2009, the most recent year for which data are available, less than 50  percent of TANF cash assistance families participated in work activities  for the specified number of hours each week in 44 states, according to  HHS. However, various policy and funding options in federal law and  regulations allowed most of these states to meet their work participation  rates. Factors that influenced states’ abilities to meet the work  participation rates included not only the number of families receiving  TANF cash assistance who participated in work activities, but also  decreases in the number of families receiving TANF cash assistance, and  state MOE spending beyond what is required, for example. In each year since  TANF was created, many states have used caseload declines to help  them lower the required work participation rates. In fiscal year 2009, 32 of the 45 states that met their  required work participation rates for all TANF families claimed excess  state MOE spending toward their caseload reduction credits. While one state had used MOE expenditures toward its caseload  reduction credit before fiscal year 2007, over half of the states (27) relied  on these expenditures to increase their credits and help them meet their  required work participation rates in one or more years between fiscal  years 2007 and 2009. However, the extent to which states have  relied on these expenditures to help them meet work participation rates  as well as meeting MOE generally highlights the importance of having  reasonable assurances that current oversight is working. Based on our previous work on federal grant design  as well as more recent work on some MOE provisions under the  Recovery Act, it is clear that such provisions are important mechanisms  for helping ensure that federal spending achieves its intended effect. While MOE provisions may be imperfect tools, with  appropriate attention to design, implementation, and monitoring issues,  such provisions are one way to help strike a balance between the  potentially conflicting objectives of increasing state and local flexibility  while attaining certain national objectives, including efficient use of federal  resources in today’s fiscal environment.
Why GAO Did This Study

The $16.5 billion TANF block grant, created in 1996, is one of the key federal funding streams targeted to assist low-income families. While the block grant provides states with a fixed amount of federal dollars annually, it also includes state MOE requirements, which require states to maintain a significant portion of their own historic financial commitment to welfare-related programs. Over the last 15 years, this federal-state partnership has seen multiple program and fiscal changes, including a dramatic drop in the number of families receiving monthly cash assistance, as well as two economic recessions. To provide information for its potential extension or reauthorization, this testimony draws primarily on previous GAO work to focus on (1) the key features of the state MOE requirements and (2) how the role of state MOE spending has changed over time. To address these issues, GAO relied on its prior work on TANF block grant and state MOE spending issued between 2001 and 2010, including the May 2010 report examining how state MOE spending affects state TANF programs work participation rates. To develop the spending-related findings in this body of work, GAO reviewed relevant federal laws, regulations, and guidance, state TANF data reported to the U.S. Department of Health and Human Services (HHS), and related financial data from selected states. GAO also interviewed relevant officials from HHS and selected states.

What GAO Found

The Temporary Assistance for Needy Families (TANF) block grants maintenance of effort (MOE) provisions include specified state spending levels and general requirements on the use of funds. For example, these provisions generally require that each state spend at least 80 percent (75 percent if the state meets certain performance standards) of the amount it spent on welfare and related programs in fiscal year 1994, before TANF was created. If a state does not meet its MOE requirements in any fiscal year, the federal government will reduce dollar-for-dollar the states federal TANF grant in the following year. In order to count state spending as MOE, funds must be spent on benefits and services to families with children that have incomes and resources below certain state-defined limits. Such benefits and services must generally further one of TANFs purposes, which broadly focus on providing financial assistance to needy families; promoting job preparation, work, and marriage; reducing out-of-wedlock births; and encouraging the formation of two-parent families. Within these broad goals, states have significant flexibility to design programs and spend their funds to meet families needs.
Total MOE spending reported by states remained relatively stable around the required minimum spending level of $11 billion through fiscal year 2005, and then increased to about $4 billion higher than this minimum in fiscal years 2009 and 2010. Several reasons likely accounted for these increases, including states reliance on MOE spending to help them meet TANF work participation rates. Work participation rates identify the proportion of families receiving monthly cash assistance that participate in allowable work activities for a specified number of hours each week. Federal law generally requires that at least 50 percent of families meet the work requirements; however, most states have engaged less than 50 percent of families in required activities in each year since TANF was created, according to HHS data. Various policy and funding options in federal law and regulations, including credit for state MOE expenditures that exceed required spending levels, have allowed most states to meet the rate requirements even with smaller percentages of families participating. States generally began relying on MOE spending to get credit toward meeting TANF work participation rates in fiscal year 2007 because of statutory changes to the rate requirements enacted in 2006. For example, for fiscal year 2009, the most recent data available, 16 of the 45 states that met the TANF work participation rate would not have done so without the credit they received for excess state MOE spending.
The expanded role of MOE in state TANF programs highlights the importance of having reasonable assurance that MOE spending reflects the intended commitment to low-income families and efficient use of federal funds. GAOs previous work makes clear that MOE provisions are often difficult to administer and oversee, but can be important tools for helping ensure that federal spending achieves its intended effect. This work also points out that with appropriate attention to design, implementation, and monitoring issues, such provisions are one way to help strike a balance between the potentially conflicting objectives of increasing state and local flexibility while attaining certain national objectives.