However, this same study noted that changes in family structure and welfare policies can significantly mitigate the impact of an economic downturn on caseloads. State officials told us that there is concern that accumulating unspent TANF balances might signal that the funds are not needed and that they have been under considerable pressure to spend their TANF balances more quickly to avoid the accumulation of large unspent balances in the U.S. Treasury. States have accumulated a portion of their own funds in general purpose rainy day funds, but welfare would have to compete with other claims for these dollars when these dollars are released from state treasuries. Therefore, federal policymakers lack reliable information to help assess states’ plans for economic contingencies, whether the levels of available funds are adequate, and whether all states have access to these funds. Design of Federal Contingency Mechanisms Is Complex and Restrictive

While the ability to carry forward TANF balances is likely viewed as the principle mechanism by which states can prepare for a rainy day, PRWORA also created two safety-net mechanisms for states to access additional federal resources in the event of a recession or other emergency—the $2 billion Contingency Fund for State Welfare Programs (Contingency Fund) and the $1.7 billion Federal Loan Fund for State Welfare Programs (Loan Fund). Options to Increase States’ Incentives to Save

There are other options that could strengthen states’ incentives to save.
Why GAO Did This Study

This testimony discusses states' plans for operating their Temporary Assistance for Needy Families (TANF) programs in the event of an economic downturn.

What GAO Found

GAO found that the data available on the levels and adequacy of states' reserves is insufficient and misleading. Furthermore, most states have done little planning for economic contingencies. Many states cite obstacles to saving money for possible economic downturns. Although TANF funds can be set aside in a budgetary reserve, state officials said that they are concerned that the accumulation of unspent TANF funds might signal that the funds are not needed. Another option for states would be to save their own funds in a general purpose rainy day account, but state officials said that welfare would have to compete with other state priorities when these funds are released from state treasuries. There are now federal contingency mechanisms for states to access additional federal resources in the event of a recession or other emergency--the Contingency Fund for State Welfare Programs and the Federal Loan for State Welfare Programs. However, states generally found these programs too complex and restrictive, and would most likely find other ways to sustain their welfare programs.