Health and nonhealth spending from both federal and state sources  increased over the decade, a reflection of the strong fiscal partnership  between the federal government and states in supporting low-income  individuals. Our analysis of state expenditures showed that the spending  increases evident since 1995 were substantially supported by both federal  and state funds in the health and nonhealth areas in both time periods. Spending Priorities Shifted Away from Cash Assistance

The overall increases in spending for nonhealth services in the nine states  mask some substantial shifts over the decade in how states spent federal  and state funds for low-income people. Second, this expansion in noncash  spending was strongest from 1995 to 2000, and spending increased  further—but more slowly—from 2000 to 2004. Spending Priorities for Low- Income Programs Changed Significantly from 1995 to 2004

By 2004, the nonhealth portion of state spending (from federal and state  sources) for low-income services looked substantially different than it did  in 1995. First, many states increased their efforts to engage more  welfare families in work or work-related activities in keeping with key  TANF program requirements. This shift to noncash assistance was curtailed somewhat from 2000 to 2004,  when cash assistance caseloads and related spending increased in several  of the states, associated with a contraction of spending for other forms of  aid and services, as shown in figure 6. During this period, state officials  generally had to make different choices about what services and programs  they could support with TANF and MOE funds to ensure they had enough  funds to support the core cash assistance program. States are using substantial portions of  their block grants and MOE funds as large, flexible funding streams to meet  their priorities in many areas of their budgets for low-income families, yet  much remains unknown at the national level about how these federal TANF  and state MOE funds are used to meet the overall goals of welfare reform. A key  challenge is to strike an appropriate balance between flexibility for states  and accountability for federal goals. Objectives, Scope, and Methodology

In order to provide information on welfare-related spending over the  decade since welfare reform, we designed our study to (1) examine  changes in the overall level of welfare-related spending for nonhealth and  health services in the periods before and after the recession in 2001 and  over the decade since 1995, (2) examine changes in spending priorities for  nonhealth welfare-related services during the same time periods, and   (3) review the contribution of Temporary Assistance to Needy Families  (TANF) funds to states’ spending for welfare-related services. For the purposes of this report, we focused on spending for  working-age adults and children and excluded spending for the elderly,  long-term care, and institutional care. State budget structures differ across states.
Why GAO Did This Study

Under the Temporary Assistance for Needy Families (TANF) block grant created as part of the 1996 welfare reforms, states have the authority to make key decisions about how to allocate federal and state funds to assist low-income families. States also make key decisions, through their budget processes, about federal and state funds associated with other programs providing assistance for the low-income population. States' increased flexibility under TANF as well as the budgetary stresses they experienced after a recession draw attention to the fiscal partnership between the federal government and states. To update GAO's previous work, this report examines (1) changes in the overall level of welfare-related spending; (2) changes in spending priorities for welfare-related nonhealth services; and (3) the contribution of TANF funds to states' spending for welfare-related services. GAO reviewed spending in nine states for state fiscal years 1995, 2000, and 2004 and focused on spending for working-age adults and children, excluding the elderly, long-term and institutional care.

What GAO Found

GAO found that spending for low-income people for health and nonhealth services in nine states generally increased in real terms from 1995 to 2000 and from 2000 to 2004. Health spending, excluding spending for the elderly, outpaced nonhealth spending over the decade and now consumes an even greater share of total spending for low-income people, mirroring a nationwide expansion in health care costs. Spending increases were substantially supported by both federal and state funds in the health and nonhealth areas in each time period, reflecting the important federal-state partnership supporting these low-income programs. Overall, spending increases reflected changes in eligible populations and needs, increasing costs, as well as policy changes. While nonhealth spending increased in real terms, spending priorities shifted away from cash assistance to other forms of aid, particularly work supports, in keeping with welfare reform goals. The largest increases for noncash services occurred from 1995 to 2000, with smaller increases from 2000 to 2004, when some state officials cited challenges in maintaining services. By 2004, states used federal and state TANF funds to support a broad range of services, in contrast to 1995 when spending priorities focused more on cash assistance. However, reporting and oversight mechanisms have not kept pace with the evolving role of TANF funds in state budgets, leaving information gaps at the national level related to numbers served and how states use funds to meet welfare reform goals, hampering oversight. Any efforts to address these gaps should strike an appropriate balance between flexibility for state grantees and accountability for federal funds and goals.