TANF-ACF-PI-2008-04 (Federal TANF Contingency Funds)

TO: 

State agencies administering the Temporary Assistance for Needy Families (TANF) program under title IV-A of the Social Security Act (Act) and other interested parties.

SUBJECT:

Federal TANF Contingency Funds.

REFERENCES:

Section 403(b) of the Act, Section 409(a)(10) of the Act, 45 CFR 260.30, 45 CFR 264.0, and 45 CFR 264.70 — 264.77

PURPOSE:

This Program Instruction (PI) provides basic information about Contingency Fund eligibility requirements and application procedures.  This PI describes the requirements to apply for, receive, and retain contingency funds.

                      
BACKGROUND:

The Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996 (P.L. 104-193, as amended) created a $2 billion Contingency Fund to assist States in meeting the need for welfare assistance during periods of economic downturn. PRWORA initially authorized the TANF program through fiscal year (FY) 2002. When the Deficit Reduction Act of 2005 (P.L. 109-171) reauthorized the TANF program through FY 2010, it retained the Contingency Fund.

TANF Program Instruction TANF-ACF-PI-97-8, dated October 1997 provided the initial guidance to States on the requirements for receiving Contingency Funds and instructions for applying for these funds. That PI has been superseded by the Contingency Fund requirements in the TANF regulations at 45 CFR 264, Subpart B.

Recently, we have received questions from States about receiving contingency funds. This PI addresses the application procedures as well as the basic requirements for receiving, retaining, and remitting contingency funds. We have provided a basic application form, a table that shows each State’s 100 percent Contingency Fund Maintenance-of-Effort (MOE) requirement, and a link to obtain each State’s Federal Medical Assistance Percentage (FMAP) for applicable fiscal years.

POLICY:

Contingency Funds are additional Federal funds available to States, at their request, when unfavorable economic conditions exist. They are considered provisional payments, according to section 403(b)(3)(A) of the Act. This is because the exact amount of Contingency Funds that the State may actually keep is not determined until after the fiscal year ends, not when payment is made. A State that receives a provisional payment must meet specific spending requirements to keep some or all of the Contingency Funds.

I.     Applicability:

Per section 403(b)(7) of the Act and 45 CFR 264.70(c), only the 50 States and the District of Columbia may apply for and receive Contingency Funds.  Territories and Tribal TANF grantees are not eligible.

II.    Eligibility:

A State must meet the definition of a “needy State” to apply for and receive Contingency Funds.  There are two ways for a State to qualify as a needy State, one based on its unemployment rate and the other based on increases in its Food Stamp caseload.  (See section 403(b)(5) of the Act, and the TANF regulations at 45 CFR 264.70 and 260.30.)  A State may receive Contingency Funds if it meets either trigger:

• Unemployment trigger — the State's unemployment rate (seasonally adjusted) for the most recent 3-month period for which data for all States are published is at least 6.5 percent and at least 110 percent of the average rate (seasonally adjusted) for the corresponding 3-month period in either of the two preceding calendar years.
• Food Stamp trigger (as determined by the Secretary of the U.S. Department of Agriculture [USDA]) — the State's monthly average number of Food Stamp participants for the most recent 3-month period for which data are available is at least 110 percent of the State's monthly average caseload for the corresponding three month period in FY 1994 or FY 1995, whichever is less, had the immigrant provisions under Title IV and the Food Stamp provisions under title VIII of PRWORA of 1996 been in effect in those years.

We have posted by month the official list of States that USDA and the Administration for Children and Families (ACF) have determined to be eligible as “needy States.”  This posting is available on the Office of Family Assistance internet site.  This is the same posting showing the States that qualify for counting up to six additional weeks per year of Job Search and Job Readiness Assistance. This posting is updated regularly, as data become available.  There may be up to a 60-to-90-day lag in the availability of data for a given month.  To date, we have information through January 2008.  States showing letters “B” and/or “C” have met one or both of the above triggers and may apply for Contingency Funds.

Once a State becomes a needy State for a month during a fiscal year, and requests to receive Contingency Funds, the State is eligible to receive a provisional payment of Contingency Funds for two consecutive months.  For each month of the fiscal year that a State is eligible for Contingency Funds, the State may receive up to 1/12th of 20 percent of its annual State Family Assistance Grant (SFAG) applicable for that fiscal year.  The total amount that we will pay to all States during a fiscal year will not exceed the amount appropriated for this purpose.  We will provide Contingency Funds to each eligible State that requests them, in the order in which we receive the requests until the available appropriated funds are exhausted.

III.   Application Procedures:

Once a State is eligible for Contingency Funds, then it must submit a written request in the form of a letter signed by the Governor or his/her legal designee.  We have attached a request form which we recommend using for this purpose.

Please send the written request to the Director of the Division of Mandatory Grants, Office of Grants Management with a copy to the Director, Office of Family Assistance at the following address:

Administration for Children and Families
370 L'Enfant Promenade, SW
Washington, DC 20447

IV.   Spending Requirements:

States receiving Contingency funds have three types of expenditures during the fiscal year:  (a) Qualified State expenditures to meet the State's Contingency Fund MOE requirement; (b) Qualified State expenditures in excess of the State's Contingency Fund MOE requirement; and (c) Federal TANF expenditures using Contingency Funds.  These three expenditures equal the State's “countable State expenditures.”  Of the countable State expenditures, the qualified State expenditures in excess of the State's Contingency Fund MOE requirement and the Contingency Fund expenditures equal the State's “reimbursable expenditures” for the fiscal year.  We explain reimbursable expenditures in this section and section VI.

There are two State spending requirements.

Maintenance-of-Effort

If a State receives any provisional payments of Contingency Funds during a fiscal year, then the State must meet a Contingency Fund MOE requirement that equals 100 percent of the State's share of FY 1994 expenditures in its former AFDC and JOBS programs, excluding child care expenditures.  We reduce a State's 100 percent Contingency Fund MOE level by the same percentage that we reduce the basic MOE level to provide funding to Tribal grantees operating a Tribal TANF program.  See 45 CFR 264.74.

Even if an eligible State elects to receive Contingency Funds for just one month in a fiscal year, it must still meet the 100 percent Contingency Fund MOE requirement.  We have attached a table that shows States' current 100 percent Contingency Fund MOE levels.

Only qualified State expenditures within the State's TANF program may count toward the State's 100 percent Contingency Fund MOE requirement.  Qualified State expenditures do NOT include any expenditures in separate State programs (SSP) or any child care expenditures.  Apart from these two exceptions, all of the other qualified State expenditures that count toward meeting the State's basic MOE expenditure requirement also may count in meeting the State's 100 percent Contingency Fund MOE level, unless a limitation, restriction or prohibition in 45 CFR 263.2 through 263.6 applies.

The Contingency Fund provision at section 403(b)(6)(B)(ii)(I) of the Act states that qualified State expenditures are those “as defined in section 409(a)(7)(B)(i).”  Section 409(a)(7)(B)(i) of the Act lists the types of expenditures that qualify with respect to eligible families.  Section 409(a)(7)(B)(i) of the Act also includes the additional ability to count spending on certain pro-family activities as well as the new spending limitation.  While the MOE prohibitions against double counting of expenditures and the use of Federal funds are in section 409(a)(7)(B)(iv) of the Act, they also apply. This is because section 409(a)(7)(B)(i) uses the term "expenditures by the State" and that term is defined in 409(a)(7)(B)(iv).

If a State does not meet its required Contingency Fund MOE level, then it may not keep any of the Contingency Funds it received during the fiscal year.  The State must return the Contingency Funds immediately.  Per section 409(a)(10) of the Act and the TANF regulations at 45 CFR 264.76, a penalty applies to any State that fails to meet its required Contingency Fund MOE level for the fiscal year in which it received Contingency Funds.  The penalty is the amount of Contingency Funds not remitted.  The reasonable cause exceptions and corrective compliance provisions in 45 CFR 262.5 and 262.6 do not apply to this penalty.

Excess Qualified State Expenditures

To keep any of the Contingency Funds a State received, the State must spend beyond its required 100 percent Contingency Fund MOE level.  The same rules apply to all State-funded TANF expenditures, whether spent to meet the State's 100 percent Contingency Fund MOE requirement or spent in excess of the required Contingency Fund MOE level.  As discussed in the previous section, neither qualified SSP expenditures nor child care expenditures count. Apart from these two exceptions, all of the other qualified State expenditures made to meet the State's basic MOE requirement also may count to meet and to exceed the State's 100 percent Contingency Fund MOE level, after considering all applicable limitations, restrictions and prohibitions.

A State may keep only the amount of Contingency Funds that match qualified State expenditures (excluding SSP expenditures and child care expenditures) made in excess of the State's 100 percent Contingency Fund MOE level.  The State's excess expenditures are part of the “reimbursable expenditures” subject to reconciliation at the end of the fiscal year.  (See discussion in section VI.)  Reimbursable expenditures equal the total of qualified State expenditures (excluding SSP expenditures and child care expenditures) plus Contingency Fund expenditures made in excess of the State's 100 percent Contingency Fund MOE level.

The Federal match for Contingency Funds is based on the State's applicable FMAP for the fiscal year for which funds were awarded.  If a State received Contingency Funds for fewer than 12 months during the fiscal year, the applicable FMAP is reduced to equal 1/12th multiplied by the number of eligible months in the fiscal year for which the State received funding.  The required reduction in the Federal share has the effect of increasing the amount of excess qualified State expenditures a State must make to keep all of the Contingency Funds that it received for the fiscal year.  Hence, as illustrated in the table below, the fewer months for which a State receives Contingency Funds, the smaller the Federal share (i.e., the contingency payment) and the larger the State share (excess State spending) of total reimbursable expenditures needed to retain all of the Contingency Funds that the State received.

For example, assume a needy State applied for and received Contingency Funds of $5 million for six months during the fiscal year.  Assume that the State has met its Contingency Fund MOE spending requirement.  Assume the State's FMAP rate is 50 percent.  Since the State received a payment for six months during the fiscal year, the FMAP must be reduced commensurately.  To determine the State match requirement to retain the money, first multiply the Federal match rate of 50 percent by 0.5 (1/12th times 6 months) to arrive at 25 percent, the adjusted FMAP rate at which reimbursable expenditures will be matched.  Next, determine the amount of reimbursable expenditures needed to keep all of the Contingency Funds paid to the State by dividing the contingency payment amount by 0.25.  The result, $20 million, equals reimbursable expenditures needed to retain the full amount of Contingency Funds paid to the State, of which $5 million represents the contingency payment and $15 million represents the necessary amount of excess qualified State expenditures.  Thus, excess qualified State expenditures in this example must equal 75 percent of reimbursable expenditures to retain the contingency payment (the Federal share of 25 percent).

In summary, Contingency Funds are an advance payment of Federal matching funds for qualified State expenditures above the 100 percent Contingency Fund MOE level.  If a State receives and expends the entire contingency payment and spends the requisite State matching TANF funds (determined by the applicable FMAP rate, commensurately reduced as appropriate) the State will be able to keep the full amount of Contingency Funds it received.

V.        Spending of Federal TANF Contingency Funds:

Except as discussed below, the same financial and programmatic rules pertaining to the appropriate use of the State's TANF block grant funds also apply when using Contingency Funds. However, there are two key differences between the State's annual TANF block grant funds and Contingency Funds:

• States may not transfer any Contingency Funds to the Child Care and Development Block Grant Program (also known as the Child Care Discretionary Fund within the Child Care and Development Fund) or the Social Services Block Grant Program under title XX of the Act.
• Contingency Funds are available only for allowable expenditures made in the fiscal year for which they are awarded.  States may not carry over for use in a succeeding fiscal year any Contingency Funds; the funds are not available until expended.

VI.       Reconciliation and Remittance:

A reconciliation process occurs once the fiscal year ends to determine the amount of Contingency Funds that a State may retain for the fiscal year.  The TANF regulations at 45 CFR 264.73 describe the reconciliation process.  (The step in the reconciliation process involving application of the requirements of the Adoption and Safe Families Act of 1997 no longer applies.  This provision applied for fiscal years 1998 through 2001.)

The annual reconciliation involves computing the amount by which the State's reimbursable expenditures exceed the State's required Contingency Fund MOE level, as Contingency Funds match only these excess expenditures.  Reimbursable expenditures during the fiscal year that are subject to Federal match, consist of qualified State expenditures (excluding SSP expenditures and child care expenditures) in excess of the State's required Contingency MOE level plus the amount of Contingency Funds expended by the State.

We use the State's FMAP rate applicable for the fiscal year for which we awarded the Contingency Funds in the reconciliation process.  If the State receives less than 12 months worth of Contingency Funds, then the reconciliation process includes reducing the FMAP to equal 1/12th times the number of eligible months in the fiscal year for which the State received funding.  The Office of the Assistant Secretary for Planning and Evaluation (ASPE) within the U.S. Department of Health and Human Services publishes the FMAP rates every year.  These Federal matching rates are available on the ASPE internet site.

We use the State's fourth quarter financial report, columns B and D, for the reconciliation.  The amount of Contingency Funds that a State may retain is the lesser of two amounts.  The first amount is the amount of Contingency Funds paid to the State for the fiscal year.  The second amount is the amount of the State's reimbursable expenditures, as defined above, times the State's FMAP applicable for the fiscal year for which funds were awarded and 1/12th times the number of months during the fiscal year that the State received Contingency Funds.

If a State is required to remit funds, then the State must remit the amount (all or a portion) determined by the annual reconciliation within one year after the end of the first subsequent period of 3 consecutive months for which the State is not a needy State (i.e., failed to meet the Food Stamp trigger and the unemployment trigger).  For example, if a State received Contingency Funds for October 2007 through June 2008, but fails to meet both triggers for the months of July, August, and September 2008, the State has until September 30, 2009, to remit the funds.  Contingency Funds paid to States, including any outstanding remittances, count against the available $2 billion appropriation.

Example of Reconciliation:

For States receiving Contingency Funds for the full fiscal year, the amount of such funds that a State can retain equals the FMAP multiplied by the amount of reimbursable expenditures, where reimbursable expenditures equal the amount of qualified State expenditures (excluding SSP expenditures and child care expenditures) in excess of the State's required Contingency Fund MOE level plus the amount of Contingency Funds expended by the State.  (The contingency payment amount may not exceed 20 percent of the State's SFAG.)

For example, assume a State is eligible for Contingency Funds in each month during the fiscal year. The State has a 50 percent FMAP rate.  The State requests and receives $10 million in Contingency Funds for all 12 months.  Because the FMAP rate is 50 percent, the State must spend a combined $20 million over their Contingency Fund MOE by the end of the fiscal year to keep the $10 million Contingency Funds.  This $20 million would consist of expending the entire $10 million Contingency Funds (Federal share) plus $10 million in excess qualified State expenditures (not counting SSP expenditures and child care expenditures) (State share).

Now assume the State receives Contingency Funds for only part of the fiscal year.  Assume the State's FMAP rate is still 50 percent; the State received Contingency Funds of $5 million for a 6 month period (6/12th of the full-year contingency amount of $10 million); the State's 100 percent Contingency Fund MOE level is $95 million; and qualified State expenditures for the year (minus SSP expenditures and child care expenditures) equal $105 million.  Assume the State spent the entire $5 million contingency payment.  Also assume excess State TANF expenditures total $10 million ($105 million minus $95 million), the same as in the 12 month example above where the State would have had to spend $10 million in State funds to retain $10 million in Contingency Funds.

However, because the State will receive Contingency Funds for only part of the fiscal year, we must also commensurately reduce the Federal match by 1/12th times the number of months during the fiscal year for which we made a contingency payment to the State.  To calculate reimbursable State expenditures for Contingency Fund reconciliation purposes, add the $5 million Contingency Fund expenditures to the $10 million in excess State TANF expenditures for a total of $15 million.  To determine the State match requirement to retain the money, multiply the Federal match rate of 50 percent by 0.5 (1/12th times 6 months) to arrive at 25 percent (the adjusted FMAP rate for the State). Then, multiply this rate by the $15 million in reimbursable expenditures to determine how much the State may retain.  This results in a Federal share of $3.75 million.  In this case, the State did not meet its spending requirement since it received $5 million in Contingency Funds and may only retain $3.75 million and must remit $1.25 million to ACF.  To retain the full $5 million in Contingency Funds the State received for the six-month period, reimbursable expenditures would have had to equal $20 million ($5 million in Federal Contingency Funds and $15 million in excess State TANF expenditures above the State's Contingency Fund MOE level).  The effect of Contingency Fund payments for a partial year can be seen in the table in section IV, “excess qualified State expenditures.”

Assume the same $15 million in reimbursable State expenditures ($5 million Contingency Fund expenditures for six months plus $10 million excess State TANF expenditures), but with a different FMAP rate.  If the State's Federal match rate is 60 percent, then of the $5 million in Contingency Funds the State received and expended, it may retain $4.5 million and must remit $500,000:  $15 million multiplied by the adjusted 30 percent FMAP rate (60 percent reduced by 1/12th times 6 months) equals $4.5 million.  If the State's Federal match rate is 70 percent, then the State may keep all of the $5 million in Contingency Funds that it received and expended:  $15 million multiplied by the adjusted 35 percent FMAP rate (70 percent reduced by 1/12th times 6 months) equals $5.25 million, which is greater than the $5 million contingency payment the State received and expended.

Note:  In the above examples, to come out “even,” the State with a 60 percent FMAP that receives $5 million in Contingency Funds for 6 months during the fiscal year must spend all of the Contingency Funds plus $11,666,666 in excess State TANF expenditures to retain all of the $5 million it received ($5 million divided by .30 equals $16,666,666 reimbursable expenditures, consisting of $5 million in Contingency Fund expenditures and $11,666,666 in excess State TANF expenditures).  The State with a 70 percent FMAP that receives $5 million in Contingency Funds for 6 months during the fiscal year must spend all of the Contingency Funds plus $9,285,714 in excess State TANF expenditures to retain all of the $5 million it received ($5 million divided by .35 percent equals $14,285,714 in reimbursable expenditures, consisting of $5 million in Contingency Fund expenditures and $9,285,714 excess State TANF expenditures).

EFFECTIVE DATE:

Immediately

INQUIRIES:

Inquiries should be directed to the appropriate Administration for Children and Families (ACF) Regional TANF Program Manager.

ATTACHMENTS:

Sample request form; Table showing each State's current Contingency MOE Requirement.

                                         /s/
                               Sidonie Squier,
                               Director
                               Office of Family Assistance

_{1/ The State share of expenditures for AFDC benefits, administration, EA, IV-A child care and JOBS in FY 1994.
2/ State MOE has been adjusted proportionally to reduce the States share by the amount of the TANF allocation provided to the Tribes.}