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Welfare Reform Homepage

State of State TANF Spending, 2001

Jack Tweedie, Andrea Wilkins, and Courtney Jarchow
November 2002

Most states' TANF programs face a challenging new situation-limited TANF resources, a weakened economy, tight state budgets and the uncertainty of TANF reauthorization. FFY2001 was the first year that states overall spent more TANF funds than they received. Most states have reached full TANF spending levels, but others still have some financial

Combined state and federal TANF spending totaled $29.7 billion in federal fiscal year 2001

Federal fiscal year 2001 was the first year that states spent more than they received in new TANF grants.

The percent of TANF funds spent on cash assistance has decreased from 73 percent in 1995 to 38 percent of total spending in 2001.

Tightening state budgets and the current economic decline will cause states to re-evaluate previous years' funding decisions.

flexibility left. All states face the challenge of maintaining their
current TANF services in these uncertain budget times. And each needs to examine its own situation as we move from an era of new programs and spending to one focused on sustainability and, for many states, program cuts.

Federal and State TANF Funds 

The 1996 Personal Responsibility and Work Opportunity Reconciliation Act created the Temporary Aid to Needy Families (TANF) block grant. The block grant eliminated welfare as an entitlement program and replaced it with a flexible, state-run funding stream to serve needy families. Block grant funding meant that states had substantial resources available for new programs when caseloads dropped as a result of the strong economy and welfare reform. The federal reforms allowed states to spend TANF money on programs that served any of the four broad TANF purposes, so states could develop a variety of services for low-income families such as expanded child care, supports for working parents, child welfare services, and afterschool programs.

States could spend the funds for any program serving a TANF purpose or transfer it to the child care or social services block grants. Unspent funds from one federal fiscal year carried over into the next did not affect the amount of the following year's grant.

The TANF block grant has provided a total of $16.5 billion per year to the states (from FY 1997 to FY 2002). Each state's block grant is based on state public assistance spending between 1992 and 1995 when caseloads were at their highest. Seventeen states also received supplemental grants to make up for population gains or low welfare spending levels per poor child ($319 million in FFY 2001). States also compete for $200 million per year in high performance bonuses tied to accomplishments in job placement, job retention and earnings gains and $100 million for reducing out-of-wedlock births. TANF block grants, supplemental grants and bonuses totaled $17.1 billion Each state's block grant is based on state public assistance spending between 1992 and 1995 when caseloads were at a historic high. in FFY 2001. (State TANF grants are listed in Table 1.)

States are required to spend a minimum level of state funds (called "maintenance of effort" or "MOE") to qualify for their full TANF grant. States' MOE requirements are based on their state welfare spending in the year their TANF block grant was calculated. Most states reported spending near their minimum level-totaling slightly over $11 billion in FFY 2001. (State MOE spending levels for FFY2001 are reported in Table 2.)

From Cash Assistance to Services for Low-Income Families

States have transformed their TANF programs from cash assistance programs to a program focused on work and services to low-income families. The nature of state spending has changed dramatically. States now spend much less on cash assistance and have increased spending substantially on child care (both directly in the TANF program and through transfers to the child care block grant), work preparation and other services including teen pregnancy prevention and family support. States cut cash assistance spending by more than half (from $22.7 billion in FFY 1995 to $10.9 billion in FFY 2001). They have greatly increased the use of TANF funds for child care-from a portion of the $1.5 billion for the JOBS program in FFY 1995 to over $5 billion in FFY 2001. The graphic below illustrates the shift in state spending between FFY 1995 and FFY 2001.

This flexibility and available resources in the TANF block grant has permitted states to use TANF and MOE funds to provide services for low-income families who are not part of the traditional welfare caseload. States have struggled to figure out how to count the additional families receiving TANF-funded services. In the two states (Indiana and Wisconsin) that were able to compare families receiving cash assistance to those receiving other services, analysts at the U.S. General Accounting Office (GAO) estimated that the actual "TANF caseload" was more than twice the states' cash assistance caseload. In a more conservative approach, GAO focused on the service that reached the most families in each of 25 states (usually child care). It estimated that a minimum of 46 percent more families than are counted in the reported TANF caseload are receiving services funded, in part, by TANF or MOE. ¹

State spending from the TANF block grant has increased steadily as states gradually recognized the available resources and the flexibility of TANF funds. While states spent or transferred only 70 percent of the available money in FFY 1998 (the first full year of the TANF block grant), spending and transfers rose an average of 17 percent a year from that year to FFY2001 (the last full year for which data is available). FFY2001 was the first year that states overall spent more TANF funds than they received.

This pattern is reflected in spending by individual states. Twenty-six states and the District of Columbia spent more TANF funds in FFY 2001 than they received in their block grant, that is they drew on unspent TANF funds from prior years to support their TANF programs.² Three other states spent their full block grant. Only eight states spent less than 90 percent of their FFY 2001 block grant.

States accumulated substantial unspent TANF money funds in the early years of the program, a total of $8.6 billion by the end of FFY 2000. These funds were created as state spending on cash assistance decreased and before states could build new programs using the available funds. Unspent funds are either unobligated funds or unliquidated obligations. State accounting practices vary widely, particularly with unliquidated obligations. Unliquidated obligations include funds that are legally obligated but which have not yet been expended by the state. These obligations include contracts and intergovernmental transfers, such as state funds being transferred to counties in a county-run program. Because a number of large states have substantial funds that have been transferred to counties but not yet spent as unliquidated obligations, the best national measure of available funds is the sum of unliquidated obligations and unobligated funds. This sum is an overstatement in many states as some funds are obligated for services already delivered. In individual states, the best measure of available TANF funds may be only unobligated funds.

Beginning in FFY 2000, TANF funds from earlier years could only be used for basic assistance, but states with available funds have used the carried-over TANF funds to pay cash assistance and freed up current block grant funds which may be used more flexibly. 

Thirty-eight states reported unobligated funds at the end of FFY 2001 and a further ten states reported unliquidated obligations, so all but three states had some unspent TANF funds. Nationwide, states' unspent funds totaled 26 percent of their total TANF spending in FFY 2001 (both state and federal). Seven states have more than 50 percent of their FFY 2001 TANF spending as unspent funds, including two that had more than 100 percent. Twenty states had less than 20 percent of last year's spending in reserve funds, even under the broadest interpretation of unspent funds.

One key purpose of keeping TANF funds in reserve is to prepare for an increase in welfare caseloads, particularly in the event of a weak economy. States use a variety of approaches, but one benchmark is funding sufficient to withstand a one-year increase of 50 percent in spending on basic assistance (cash assistance plus the child care, transportation and other supportive services for those receiving cash assistance). Nationwide, states' unspent funds total 62 percent of their basic assistance spending in FFY 2001, but states vary widely. Twenty-three states do not have sufficient unspent funds to cover a 50 percent increase in basic assistance spending for one year. On the other hand, 17 states have unspent funds of more than one full year's basic assistance spending.

The current economic decline is likely to provide challenges for state policy makers as they make TANF spending allocations in the coming year. Unspent TANF funds from previous years may provide a solution for states with sufficient reserves. States lacking reserves sufficient to cover the increased expense associated with rising caseloads may need to consider shifting resources from work support programs, supplementing TANF funding with state money or cutting services.³ For example, state officials in Indiana have estimated that $60 million must be cut from the state's welfare program. Areas likely to be affected include child care, job training programs and child welfare services.
 

Current TANF law permits states to transfer a portion of the TANF block grant to the Child Care Development Fund (CCDF) and/or the Social Services Block Grant (SSBG). States transferred a total of $2.7 billion in fiscal year 2001.⁴ These funds are not required by law to be spent in the year they are transferred. Funds transferred into CCDF may be spent over three years and funds transferred into SSBG may be spent over two years.

States are permitted to transfer up to 30 percent of their TANF funds block grants to the CCDF. Forty-one states reported transferring an average of 10 percent of the TANF block grant to the CCDF in FFY 2001, an increase from seven percent in FFY 2000. Similarly, states are permitted to transfer up to 10 percent of their TANF block grant to SSBG. Forty-four states reported transferring an average of four percent of their TANF block grant to the SSBG. The percent of funds transferred to the SSBG remained constant at about four percent in fiscal years 2000 and 2001. Just under $1 billion was transferred to SSBG in fiscal year 2001. 

Federal law requires states to spend a minimum level of state funds (the MOE requirement) to qualify for their full TANF grant. States' MOE requirements are calculated as 75 percent or 80 percent (depending on whether the state has met the federal work participation rate requirement) of their state public assistance spending in the year their TANF block grant was calculated. (For most states, this is FFY 1994.) If penalized for falling short of the MOE spending level, a state must make up the deficiency from the previous year plus continue to keep current MOE spending at the required level. States failing to meet their work participation rates are subject to a 5 percent reduction in their federal block grant.

Most states have been required to spend at the lower 75 percent MOE level because they have been able to meet their work participation rate requirement. The caseload reduction credit states receive has substantially reduced the effective participation rates for most states. No state has failed to meet the all-family rate, while a few states have fallen short of the higher two-parent work rate. (Eighteen states avoided the two-parent rate by funding their two-parent programs out of separate state funds and thereby excepting their programs from the two-parent requirement.)

Unlike block grant spending, state MOE spending has remained relatively constant. In FFY 2001, states reported spending $11 billion dollars, down by less than 3 percent from their highest level in FFY 1999. State MOE spending reports may be difficult to interpret because states have no incentive to report more than the MOE requirement so they may not be including spending that could be counted or spending for programs and services similar to what was reported in other years.

As of FFY 2001, no state has failed to meet its MOE requirement. Just as the block grant has resulted in maintaining high levels of federal funding even though caseloads have dropped by more than half, the MOE requirement has resulted in state spending remaining higher than it would have been under a federal matching program as welfare had been before 1996.

Combining federal and state TANF funds, state spending totaled more than $28.69 billion in FFY 2001.⁵ This is an increase over past years. State spending of federal and state welfare funds has increased by almost 9 percent a year since 1998.⁶

State budgets came under increasing pressure in state FY 2002 and signs indicate increasing problems in most states for FY 2003 and beyond. Forty-three states had budget gaps in FY 2002 where their revenues fell short of their projected spending. In 12 states, the shortfall was more than 10 percent of the budget. Sharp drops in states tax collections and increases in tax refunds in April 2002 indicate a deepening of states' budget problems. And many states drew heavily on rainy day funds and tobacco settlement dollars to balance their budgets in FY 2002 without sharp budget cuts. Those remedies will be less available in FY 2003.

Despite their tight budgets, few states reported cutting TANF funds in FY 2002 or FY 2003. Only five states reported TANF cuts in FY 2002 and only 3 in FY 2003. States may have to revisit their decisions if revenues continue to drop and state spending on programs such as Medicaid continues to increase.⁷

The weak economy has not resulted in substantial caseload increases in most states, but there are exceptions. Five states have seen their caseloads increase by more than 20 percent from their low points in the TANF program, including Nevada which has had a 101 percent increase since January 2000 and Indiana where caseloads have risen 47 percent since May 2000. Nine other states have had caseload increases from 10 to 20 percent. But cash assistance caseloads are currently at their lowest point in fifteen states and 11 other states have seen increases of less than 5 percent. Nationwide caseloads have risen from their low of 2.1 million families in July 2001 to 2.2 million families currently. The moderate increases in the economic downturn of 2001 indicate that caseloads may not be as sensitive to the economy and unemployment as we feared. While states may need a reserve fund for a caseload increase, most states should not experience much financial pressure from caseloads unless circumstances change dramatically.

The federal debate over TANF reauthorization adds another layer of uncertainty in state planning. The TANF block grant was authorized through September 2002 and Congress is currently considering how to reauthorize it. Recent events make it unlikely that reauthorization will be completed this year. Two elements of reauthorization could have substantial effects on state TANF budgets-the funding level and new requirements that require spending increases. The proposals currently being discussed include continued full funding for the block grants, but no increases. If reauthorization is put off into the future, the deteriorating federal budget picture could result in block grant reductions. And the current reauthorization proposals include big increases in states' work participation rates that would require states to devote effort and resources to insuring that parents receiving cash assistance are engaged in work activities. Proposals in the House are estimated to require almost $10 billion in new spending for increased child care and costs of administering the programs. Proposals in the Senate would affect state spending less and also include substantial new funding for child care.

Support services have been paramount to the states' successes in moving so many families from welfare to work, the future of these services may be in jeopardy as caseloads rise and available reserves decline. State spending on services for working families and for intensive services to help hard-to-employ parents may be in jeapordy if caseloads rise and available funds decline. Child care services seem particularly at risk. A recent GAO report found that 21 of the 25 states surveyed reported that child care, one of the supports most necessary to maintaining employment, was the most expensive non-cash service provided by these states in FY 2000.⁸

Many states are only now developing services to help parents deal with barriers such as substance abuse, domestic violence and mental health issues. These services can be very costly, so it will be difficult for states to increase the number of slots with tight state budgets and limited available TANF funds.

Most states' TANF programs are entering a difficult time. State budgets are tight and budget officials will be looking for cuts rather than new investments. Most states are fully using their TANF funds or are spending at levels they cannot maintain much longer without increased TANF funds. The economy remains weak, so states have to watch for caseload increases and how to help workers who lose jobs or hours. TANF reauthorization adds uncertainty to states' TANF budgets, both because of questions about funding levels in the future and the possibility of new requirements that will drive new state spending.

All this occurs as states' TANF programs are at a critical stage-where they seek to sustain their current progress and continue to help families into jobs. It is important for states to both continue their investment in programs training and support services that help low-income families become self-sufficient and to maintain a safety net for those who find themselves in need of public assistance. The flexibility of the TANF block grant and the ability of the states to build reserve funds may help states cope with the declining economy and potential caseload increases. However, in fiscal year 2001, most states began spending down their reserve funds to maintain their current existing level of support services. They do not have as much fiscal flexibility within the TANF program and state spending is likely to come under increased pressure as policymakers try to balance the state budget in tough times.

___________________________________________

¹ GAO Report. "Welfare Reform. States Provide TANF-Funded Services", 2
² Neuberger, Zoe. TANF Spending in Federal Fiscal Year 2001. Washington, D.C.: Center on Budget and Policy Priorities, 2002.
³ Ibid, 32.
⁴ Ibid
⁵ Neuberger, Zoe. "TANF Spending".
⁶ Neuberger, Zoe. "TANF Spending".
⁷NCSL Report. State Fiscal Update. Denver, CO: National Conference of State Legislatures, 2002.
⁸ GAO Report. "Welfare Reform. States Provide TANF-Funded Services", 2