How Much Additional TANF Spending Can New York Afford?

March 27, 2000. New from the Center on Budget and Policy Priorities, and specific to New York:

How Much Additional TANF Spending Can New York Afford?
New York Can Increase Use of TANF Funds While Maintaining A Rainy Day Reserve

Early in 1999, Congresswoman Nancy Johnson, chair of the Human Resources subcommittee of the Ways and Means committee, sent a letter to all governors that urged them to spend more of their TANF funds or risk having Congress take some portion back. This warning was made more concrete by several congressional attempts later in the year to rescind some unspent TANF funds, even though none of these attempts was successful. In March 2000, Representative Johnson sent another letter to the governors, noting that progress had been made in increasing the use of TANF funds but again suggesting that future TANF funding would be safeguarded only if states continue to make efforts to spend the funds they are now receiving.

This message, however, appears to have made some states less likely, rather than more likely, to support additional TANF investments. The possibility that TANF funding could be reduced in the relatively near future — through a rescission of unspent funds or a reduction in future allocations when TANF is reauthorized in 2002 — has left some policymakers concerned that states could be left holding the bag for any new initiatives or additional spending on existing programs. In some states, the threat of future TANF cuts appears to be a serious impediment to productive and innovative uses of TANF funds.

States that avoid spending their full TANF allocation for fear of future congressional cutbacks may be creating a self-fulfilling prophecy. All of the 1999 congressional proposals to rescind TANF funds would have distributed the cuts based on each state’s share of total unobligated balances for all states. Thus, states that had left substantial amounts of TANF unspent would have faced deep cuts, while states that had spent or transferred all of their TANF funds would not have had funding reduced. In other words, the more a state’s unspent TANF balance continues to grow because annual spending remains below the annual allocation, the greater the likelihood that the state’s TANF funds will be reduced in future congressional action.

This suggests that the best way for a state to protect its TANF funding is to use more TANF funds in the very near future. The question then arises as to what level of increased spending is appropriate and safe. If a state were to increase TANF spending up to the full amount of the annual block grant, it would still retain all unspent TANF funds accumulated in prior years. These surplus funds could be kept as a rainy day reserve, but they also could be spent on one-time non-recurring expenses without creating an unsustainable future funding obligation. At the same time, increasing spending so that it equals the annual TANF grant amount would give a state a strong argument that its annual TANF allocation should not be reduced at the time of reauthorization.

The remainder of this paper analyzes New York’s use of TANF funds in federal fiscal year 1999 and compares this with each state’s TANF allocation for federal fiscal year 2000, as a way of assessing the opportunity for increased TANF investment in the state. This paper also analyzes the amount of funds New York transferred from TANF to the social services block grant or child care block grant in 1999. As discussed below, many states transferred a substantial amount of TANF funds to these other block grants last year. The analysis relies primarily on data from the ACF-196 TANF financial reports that states are required to submit to the U.S. Department of Health and Human Services.

The difference between 1999 spending and 2000 allocations provides a sense of how much the state might be able to increase its use of TANF funds without dipping into funds accumulated in prior years. The results of this comparison, however, should be viewed as an approximation and not a precise illumination of the room for additional investment. For several reasons, spending in FY 2000 could differ from the FY 1999 level. For example, spending in FY 2000 could be higher than in FY 1999 as a result of state contracts with service providers that include cost-of-living adjustments, wage increases for state or local employees working on TANF programs, implementation of new services or benefits, or the continued implementation of previously authorized program expansions such as in child care. On the other hand, further reductions in cash assistance caseloads or the elimination of programs or services could reduce spending in 2000 relative to 1999.

Despite these limitations, the comparison of 1999 spending and 2000 allocations provides an important indication of the availability of funds for additional investment. Table I below suggests that New York could increase the use of TANF funds.

TABLE I: New York’s Use of TANF in Federal Fiscal Year 1999 As Reported on ACF-196 TANF Financial Reports
(all $ figures are in millions)

TANF expenditures and transfers, FY 1999 FY 2000 TANF grant FY 2000 grant compared with adjusted FY 1999 total Difference as a percent of adjusted 1999 total Unspent TANF funds as of the end of FY 1999
$2,020.2 $2,450.9 $430.7 21% $1,122.9

The table shows that New York use of TANF funds in FY 1999 totaled $2,020.2 million. This figure includes direct spending and any transfers from TANF to the social services and child care block grant that were made in 1999. It reflects use of funds from the state’s 1999 block grant allocation plus any spending or transfers from carryover funds that occurred during fiscal year 1999.

Table I shows that New York’s TANF allocation for FY 2000 totals $2,450.9 million, which is $430.7 million higher than the total for FY 1999 after the adjustment for the large transfer amount. [The FY 2000 grant amount presented here includes the state’s basic TANF allocation plus an $8 million High Performance Bonus for FY 1998, awarded in December 1999.] This suggests that New York’s FY 2000 TANF grant could support an increase in spending of 21 percent over the fiscal year 1999 level. If the state were to increase TANF spending to equal its annual TANF allocation, the state would be able to retain the $1,122.9 million in unspent TANF funds it reported at the end of FY 1999.

TANF Funds Transferred to the Child Care and Social Service Block Grants

The ACF-196 TANF financial reports reveal that transfers to the social services block grant (SSBG) and the child care block grant (CCDF) increased substantially in 1999 and represented a significant share of the use of TANF funds in many states. This occurred in large part because the TANF regulations established a prohibition on the transfer of TANF from carryover funds, beginning in fiscal year 2000, but allowed states to make such transfers in fiscal year 1999.

It is useful to identify the transfer amounts for two reasons. First, these transfers were made by administrative action in some states and thus may not have been well publicized. Second, because some states transferred TANF funds to avoid the new restriction, they may not have had concrete plans on how and when to spend those funds. While the ACF-196 reports identify transfer amounts, they do not provide information on the portion of transferred funds that were spent in 1999.

Fortunately, other TANF financial data — HHS data on TANF funds states drew down from the federal treasury as reimbursement for TANF-allowable expenditures — can help identify whether states spent the funds they transferred in 1999. When a state transfers TANF funds to SSBG or CCDF, those funds are not drawn down from the federal treasury. Instead, the transfer of funds effectively is a transfer of spending authority. States can draw down TANF funds transferred to SSBG or CCDF only when allowable expenditures within those block grants are made. Thus, if the amount of TANF funds the state drew down from the federal treasury — a reflection of actual TANF outlays that were made during the year — is well below the total amount of expenditures and transfers reported on the ACF-196 reports, it is possible that the difference reflects funds that were transferred but not spent.

Table II provides information on TANF transfer amounts in New York and an indication of the extent to which transferred funds were actually spent.

TABLE II: New York’s TANF Transfer Amounts in Fiscal Year 1999
(all $ figures are in millions)

Transfers to the Child Care Block Grant Transfers to the Social Services Block Grant Total expenditures and transfers (from ACF-196 reports) Actual TANF Outlays Does it appear state spent most of the transferred funds?
$269.6 $244.0 $2,020.2 $1,646.5 No

The table shows that the New York transferred $269.6 million of TANF funds to the child care block grant and $244.0 million to SSBG in fiscal year 1999, for a total of $513.6million. [The figures reflect transfers from fiscal year 1999 TANF grants, as well as any transfers to the Child Care Block Grant from FY 1997 and FY 1998 carryover funds that were made during fiscal year 1999.] These transfers reflect a substantial share of the overall use of TANF funds, $2,020.2 million, as indicated by the state’s ACF-196 TANF financial report. Data from HHS on TANF funds received by the state indicate that actual TANF outlays totaled $1,646.5 million. Because the difference between actual outlays and reported expenditures and transfers is roughly $370 million, while the total transfer amount was $513.6 million, it appears that New York may not have spent most of TANF funds that it transferred to SSBG and CCDF.