Overview: Under the new welfare law, the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, states are required to submit quarterly reports to HHS detailing how they are spending federal funds. FY 1997 was the first full year of state financial reporting.

FY 1997 was a transition year, with many states ending welfare programs under AFDC and JOBS rules and beginning Temporary Assistance to Needy Families (TANF) programs. However, in FY 1997, states made significant investments in their welfare programs. In FY 1997, nearly half of the states spent more than the minimum state funds required toward their welfare programs, and states made work a part of their spending in nearly every feature of their welfare programs. In addition, states made significant investments in child care —- a critical support for families moving from welfare to work.

FY 1997 Highlights

Maintenance of Effort. The new welfare reform law requires states to continue to spend state funds at a level equal to at least 80 percent of their FY 1994 levels. If states meet the minimum work participation rates, the law also allows them to reduce their minimum spending requirement to 75 percent. The Clinton Administration has strongly encouraged states to spend more than the minimum maintenance of effort to invest in the welfare-to-work activities and supports that welfare parents need to successfully transition to work. In FY 1997, 22 states, or 43 percent, reported state spending above 80 percent. Five states — Alaska, Arkansas, Delaware, Missouri and South Dakota — expended 100 percent or more. Since states are not required to report any expenditure of state funds in excess of the maintenance of effort requirement, states may actually be spending more than reported.

Child Care. Child care is a critical support for families moving from welfare to work. In FY 1997, states made significant investments in child care, spending $748 million of their own funds. In addition, states moved a total of $175 million in TANF funds to the child care block grant, and spent $13.5 million in TANF funds directly on child care. States are submitting separate reports on child care spending that will offer more information on state investments.

Work Activities. The goal of the new welfare law is to move welfare parents into work. Many states have changed their welfare programs to help parents get into jobs immediately, prioritizing work itself over other activities. Some states, such as Wisconsin, have effectively transformed cash assistance into work based assistance, for example, requiring employment or community service as a condition of welfare receipt. In FY 1997, states reported spending $665 million in federal TANF and state funds specifically on work activities. However, since states were transitioning from AFDC to TANF rules in FY 1997, states were still expending JOBS funds (the former welfare-to-work program related to AFDC). When the two sets of funds are combined, states actually invested over $1 billion in work activities. And — since states are making work part of all their welfare activities — actual state spending on work-related activities may be even higher.

Cash and Work-Based Assistance. States spent $7.7 billion, or 57 percent, of their federal TANF funds on cash assistance and work-based assistance. These work-based activities may include community service and subsidized employment.

Transferring TANF Funds. The new welfare law gives states the authority to transfer portions of their TANF grant to either the Child Care and Development Block Grant or the Social Services Block Grant. Eleven states reported transferring funds in amounts ranging from 2.2 to 30 percent. In total, $175 million or 1.3 percent of TANF funds were transferred to the child care block grant, and $304 million or 2.3 percent was transferred to the Social Services Block Grant.

Administrative Costs. States are also investing more in and expecting more from those who administer their welfare programs. States are transforming their welfare offices into employment centers, and eligibility workers are being trained as job counselors. In FY 1997, state administrative expenditures amounted to only $841 million, or 8.5 percent of total Federal TANF expenditures — far below the TANF limit of 15 percent.

Separate State Programs. Seventeen states chose to fund programs with separate state funds. Expenditures on separate programs as a percentage of total state spending ranged from 1.1 to 52 percent. States with separate programs spent most of their separate state program funds — 54 percent — on child care, with 4 states spending all of their dollars on child care. Most of the remaining funds were spent on cash and work-based assistance. In that category, 3 states assisted two-parent families and 4 states provided benefits to qualified legal immigrants. Other uses of the separate state program funds included a focus on low-income working families and added housing subsidies for low-income owners and renters.

Other Expenditures. States reported spending $860 million in federal TANF funds and $911 million in state maintenance of effort funds on other expenditures, which included fraud control programs, emergency assistance (e.g. one-time benefits to divert families from having to rely on welfare), staff training, domestic violence services, and child welfare programs.

Unobligated Balances. States can carry forward unallocated TANF funds for use in future years. In FY 1997, states obligated all but $1.2 billion or 9 percent of the total funds awarded. The unobligated funds remain in the federal treasury until states decide to draw down the dollars. Some states did obligate or commit funds — $1.7 billion — but had not yet finished spending them.