LAO 2006-07 Budget Analysis: Health and Social Services

Analysis of the 2006-07 Budget Bill

Legislative Analyst's Office
February 2006

California Work Opportunity and Responsibility to Kids (5180)

In response to federal welfare reform legislation, the Legislature created the California Work Opportunity and Responsibility to Kids (CalWORKs) program, enacted by Chapter 270, Statutes of 1997 (AB 1542, Ducheny, Ashburn, Thompson, and Maddy). Like its predecessor, Aid to Families with Dependent Children (AFDC), the new program provides cash grants and welfare-to-work services to families whose incomes are not adequate to meet their basic needs. A family is eligible for the one-parent component of the program if it includes a child who is financially needy due to the death, incapacity, or continued absence of one or both parents. A family is eligible for the two-parent component if it includes a child who is financially needy due to the unemployment of one or both parents.

The budget proposes an appropriation of $5 billion ($2 billion General Fund, $153 million county funds, $33 million from the Employment Training Fund, and $2.9 billion federal funds), to the Department of Social Services (DSS) for the CalWORKs program in 2006-07. In total funds, this is a decrease of $111 million, or 2.2 percent, compared to estimated spending of $5.1 billion in 2005-06. This decrease is primarily attributable to estimated savings from (1) reductions in county block grant funds and (2) implementation of welfare reform activities enacted in 2004. Compared to the current year, General Fund spending in 2006-07 is essentially unchanged (a reduction of 0.4 percent).

Grant Levels Follow Current Law

Typically, the maximum grant payment is adjusted each July based on the change in the California Necessities Index (CNI). Chapter 78, Statutes of 2005 (SB 68, Committee on Budget and Fiscal Review), suspended the July 2005 and July 2006 state cost-of-living adjustments (COLAs). The CNI increase for 2005 was 4.07 percent and the CNI increase for 2006 was 3.75 percent (based on the change from December 2004 to December 2005). The Governor’s budget follows current law and holds grants at their current levels by suspending the application of the statutory COLA. Specifically, the maximum monthly grant for a family of three in a high-cost county remains at $723. The corresponding grant in a low-cost county is $689.

Compared to the requirements of prior law, these COLA suspensions result in savings of about $120 million in 2005-06 and $270 million in 2006-07. Along with the parallel actions in Supplemental Security Income/State Supplementary Program (SSI/SSP), these COLA suspensions represent one of the significant multiyear budget reductions adopted by the Legislature and the administration during 2005-06 to address the state’s budget gap.

Governor Proposes to Increase TANF Expenditures On CWS

By using federal Temporary Assistance for Needy Families (TANF) block grant funds to replace General Fund support for certain Child Welfare Services (CWS) costs (emergency response hotline call activities), the Governor’s budget achieves General Fund savings of $32 million in 2005-06 and $26 million in 2006-07. Because this is the first time that TANF would be used for these program costs, the Legislature should assess whether this proposal is consistent with its priorities for limited TANF block grant funds.

TANF Expenditures May Offset General Funds Costs in Other Programs. Each year California receives $3.7 billion in federal TANF block grant funds. The majority of these funds are used for the CalWORKs program. However, federal law permits the expenditure of TANF funds on a variety of programs and activities. The TANF block grant funds may be expended on any program designed to (1) provide assistance to needy families and children; (2) end the dependence of needy parents on government benefits by promoting job preparation, work, and marriage; (3) prevent and reduce the incidence of out-of-wedlock pregnancies; and (4) encourage the formation and maintenance of two-parent families. Moreover, TANF funds can be spent for any purpose permitted under the AFDC program (the predecessor of TANF) or under AFDC Emergency Assistance (EA). (For example, AFDC-EA could be used for juvenile probation.) Finally, up to 10 percent of TANF funds may be transferred to the Title XX Social Services Block Grant and then expended in accordance with the federal rules pertaining to Title XX. Unexpended TANF funds can be carried over indefinitely into future years.

The 2005-06 Budget Act includes TANF appropriations for programs other than CalWORKs of $139 million for CWS, $47 million for emergency assistance Foster Care, and $398 million to fund Stage 2 child care costs at the California Department of Education (CDE). In addition, the act transfers $193 million into the Title XX Social Services Block Grant to fund CWS, child care, and foster care. If not spent for these purposes, these funds would be available to support the CalWORKs program, including grant costs and employment services.

Reduction in Federal Matching Funds for CWS. Prior to 2005-06, California funded CWS emergency response hotline activities with a combination of General Fund, federal IV-E matching funds, and county funds. Beginning in 2005-06, the federal government denied some state claims to use federal IV-E matching funds for certain hotline activities. For 2005-06, the loss in federal funds is estimated to be $19 million, falling to $15 million in 2006-07 as the state revises its claiming practices in order to draw down some of the lost federal funding. Absent the TANF funding proposal discussed below, this denial would have resulted in a General Fund cost.

Governor’s Proposal. For 2005-06 and 2006-07, the Governor’s budget proposes to backfill the loss in federal IV-E funds for emergency response hotline activities with respectively $19 million and $15 million in TANF block grant funds. In addition, the budget proposes to replace certain General Fund expenditures of $13 million in 2005-06 and $11 million 2006-07 for hotline activities with TANF federal funds. Total General Fund savings from these proposed fund shifts are $32 million in 2005-06 and $26 million in 2006-07, for a total savings of $58 million.

Legislative Oversight. On a technical level, the Governor’s proposal to save $58 million General Fund by using TANF for emergency response hotline costs is permissible under federal law. Whether to make this fund shift is a fiscal policy issue for the Legislature. Because TANF can be used for both CalWORKs and non-CalWORKs purposes, the Legislature should review this proposal to determine if it is consistent with its priorities for TANF and General Fund. In recent years, the Legislature has started to move away from using TANF to offset General Fund costs. For example, California formerly expended about $200 million in TANF funds each year for county youth probation costs. Now these youth probation costs are funded with General Fund, freeing up TANF funds for the CalWORKs program. If the Legislature rejects the Governor’s fund shift proposal, it would need to adopt some offsetting budget solution to avoid increasing the state’s budget problem.

Current Year Proposal Should Wait for Legislative Action. Because this proposal affects both the current year and the budget year, we recommend that the Department of Finance not implement its current year proposal until the budget subcommittees have heard the budget-year issue.

Proposed Midyear Reductions Contrary to Legislative Intent

In 2005-06 and 2006-07, the Governor’s budget proposes a net $93 million reduction to county block grant funds for child care, administration, and employment services. Because some of the savings are likely to occur on the natural, we recommend adoption of budget trailer bill language to achieve savings as of August 2006.


The CalWORKs Budget System. Funding for CalWORKs employment services, child care, and program administration is provided to the counties in a block grant known as the “single allocation.” Counties have the discretion to move these block grant funds among program elements in order to address specific needs at the local level. Unspent single allocation funds eventually revert to the TANF reserve, however, counties have up to nine months to file supplemental claims. Accordingly, unspent funds do not revert to the TANF reserve until nine months after the end of a fiscal year.

Governor’s Proposal. During 2005-06 and 2006-07, the Governor proposes a series of changes to the CalWORKs county block grants. Over the two-year period, the proposal reduces total funding by $93 million. Figure 1 shows the proposed changes in county block grant funds. In the current year, the Governor proposes to reduce child care funding by $114.6 million because child care claims are running significantly lower than budgeted. To achieve these savings the Governor proposes trailer bill language which would amend the 2005-06 Budget Act to delete this funding. The proposal also places $11.5 million in a reserve to pay child care claims in the event that actual child care costs are higher than the revised current-year budget proposal. For both years, the budget proposes an additional $25 million to recognize that savings from moving from monthly to quarterly income reporting (referred to as “prospective budgeting”), have been lower than anticipated. Finally, the budget decreases county block grant funds by $40 million in 2006-07, suggesting that counties use their unspent performance incentive funds from prior years to make up for this reduction.


Figure 1

CalWORKs County Block Grant Funds
Governor’s Proposed Changes

TANF and General Fund (In Millions)





Increase for prospective budgeting




Reduce county administration backfill with incentive funds



Recover welfare reform child care funds



Reserve for child care claims








Comments on the Governor’s Proposal

Increase for Prospective Budgeting Is Reasonable. Our review of county administrative claims suggests that the administrative savings from prospective budgeting are less than anticipated. Therefore, we believe the proposed $25 million increase in both 2005-06 and 2006-07 is reasonable.

Reduction for Counties With Unspent Performance Incentives. From 1998 through 2000, counties earned approximately $1.1 billion in performance incentives. Counties were able to spend these funds on program enhancements or regular CalWORKs program activities. The DSS estimates that counties will have at least $40 million in unspent incentive funds at the start of 2006-07. As long as the proposed $40 million reduction is allocated among counties so as not to exceed their available performance incentive balance, we have no issues with this proposal.

Child Care Savings Likely to Occur Naturally. The Governor’s proposal achieves savings by retroactively reducing the child care funds from the current budget act through the enactment of trailer bill legislation. Although in past years we have expressed concerns about midyear reductions to county block grant funds because of the potential for disruption to county operations, this particular child care reduction merits the Legislature’s consideration. This is because the proposed child care reduction is likely to occur on the natural.

Based on actual expenditures to date, the Governor’s budget estimates that counties will not expend $114.6 million for child care. Most of this child care funding was for an anticipated increase in child care costs as counties implemented certain welfare reforms enacted in 2004. (The reforms were designed to increase work participation. The Governor’s budget now estimates that these provisions will not be fully implemented until 2006-07.) This increase in demand for child care due to increased work participation has not yet occurred. From a strictly technical budgeting perspective, we believe it is unlikely that these child care funds will be expended by the counties during 2005-06. Under current law, any unexpended funds from 2005-06 would revert by April 1, 2007. The Governor’s proposal captures the savings from these unexpended funds upon enactment of his trailer bill.

Analyst’s Recommendation. In our view, the $114 million in child care savings will occur on the natural. The question for the Legislature is whether to accelerate when the savings can be scored. To achieve the savings with minimal disruption to counties, we recommend adopting budget trailer bill legislation specifying that the supplemental claiming period for these child care funds would be limited to one month, rather than the usual nine months. Under this approach, the funds would revert in August 2006.

Deficit Reduction Act of 2005 Creates Potential for Substantial Fiscal Penalties

The Deficit Reduction Act of 2005 effectively raises the required work participation rate to 50 percent for all families and 90 percent for two-parent families. Failure to meet these work participation rates in the future will result in substantial annual fiscal penalties on California. We describe the key provisions of the act, and assess California’s status with respect to meeting these work participation rates.

Scope of Legislation

The Deficit Reduction Act of 2005 (the act) makes sweeping changes to the federal budget and federal law. The legislation includes ten separate titles covering a wide range of topics including health and human services programs, student loans, agricultural research, bank deposit insurance, digital television transition, and pension guarantee premiums. In this analysis, we focus on the provisions affecting the TANF program and its state counterpart, the CalWORKs program. For a broader discussion of the potential fiscal impact of the act, please see our publication Fiscal Effect on California: Pending Federal Deficit Reduction Act of 2005 (January 20, 2005). Although some provisions of the act take effect immediately, most of the TANF changes become effective on October 1, 2006.

Current Federal Law

TANF Block Grant and Maintenance-of-Effort (MOE). To receive the federal TANF block grant, states must meet an MOE requirement that state spending on behalf of needy families be at least 75 percent of the federal fiscal year (FFY) 1994 level, which is $2.7 billion for California. (The requirement increases to 80 percent, which is $2.9 billion in California if the state fails to comply with federal work participation requirements.) Countable MOE expenditures include those made on behalf of CalWORKs recipients as well as for families who are eligible for CalWORKs but are not receiving cash assistance. Although the MOE requirement is primarily met through state and county spending on CalWORKs and other programs administered by DSS, state spending in other departments is also counted toward satisfying the requirement. The 2005-06 Budget Act includes $524 million in countable MOE expenditures outside of the CalWORKs program ($26 million from other DSS programs and $498 million from other departments).

Current Federal Work Participation Rates. Currently, states must meet a work participation rate equal to 50 percent of all cases with adults, minus the percentage reduction in their caseload since 1995. This percentage reduction is referred to as the “caseload reduction credit.” There is a separate 90 percent work participation rate requirement for two-parent families and a corresponding caseload reduction credit. (As discussed later in this analysis, California has placed its two-parent cases in a separate state-funded program which removes these cases from the federal work participation calculation. Thus, the all-families rate currently applies only to single-parent cases, because the two-parent cases are removed from federal consideration.)

Required Hours of Work. To comply with federal work participation rates, adults must meet an hourly participation requirement each week. For single-parent families with a child under age 6, the weekly participation requirement is 20 hours. The requirement goes up to 30 hours for single parents in which the youngest child is at least age 6. For two-parent families the requirement is 35 hours per week. The participation hours can be met through unsubsidized employment, subsidized employment, certain types of training and education related to work, and job search (for a limited time period).

Work Participation Penalties. If a state fails to meet the work participation rates, it is subject to a penalty equal to a 5 percent reduction of its federal TANF block grant. For each successive year of noncompliance, the penalty increases by 2 percent to a maximum of 21 percent. For California, the 5 percent penalty would be approximately $173 million annually. States that fail to meet their work participation requirements are required to (1) backfill their federal penalty (that is loss of federal funds) with state expenditures and (2) increase their MOE spending by 5 percent.

Penalty Reductions. Current regulations give states opportunities to avoid or reduce penalties. For example, if a state is in compliance with the all-families rate, but is out of compliance for the two-parent rate, the penalty would be prorated down based on the percentage of cases that are two-parent cases. Also, states that have reached at least half the of the required rate, may, at the discretion of the federal Secretary of Health and Human Services, enter into corrective compliance plans which could delay or eliminate penalties if the state ultimately reaches the required rate.

Caseload Reduction Credit Substantially Reduces Required Participation Rate. From 1995 through 2004, California’s caseload declined by approximately 46 percent, but has been relatively stable since then. Thus, California achieved a substantial caseload reduction credit pursuant to current law. Specifically, this 46 percent reduction reduced California’s required participation rate to about 4 percent (the 50 percent requirement, less the 46 percent credit). Currently, California’s participation level is 23 percent for single-parent families, well above the 4 percent required rate.

Removing Cases From Participation Calculation With Separate State Programs. States may assist families using federal TANF funds, state MOE funds, or a combination of both funding streams. If a family is provided cash aid and services (such as training, case management, and child care) through a separate state program that is funded exclusively with state MOE funds (but not TANF funds), then the case is not subject to the federal work participation calculation. Beginning in FFY 2000, California placed all of its two-parent cases into a separate state program funded exclusively with state MOE funds. Accordingly, California is not subject to federal work participation rates for two-parent families, because there are no federally funded two-parent cases. (Pursuant to state law, two-parent families are subject to a state participation requirement of 35 hours per week.)

Key Changes in Work Participation Rate and MOE Calculations

The act makes three key changes in the way work participation rates are calculated. These changes substantially raise California’s required participation rate beginning in October 2006, essentially the state’s 2006-07 fiscal year. In addition, the act expands the types of expenditures which may be counted for purposes of satisfying the MOE requirement.

Resetting the Base Period for the Caseload Reduction Credit. Currently, the caseload reduction credit is determined by finding the state’s percentage reduction in the caseload since 1995. Beginning in FFY 2007, the act resets the base period for the caseload reduction credit to 2005. In the short run, this change essentially eliminates the value of the credit (because California’s caseload has not declined since 2005) thereby creating work participation requirements of 50 percent for all families and 90 percent for two-parent families. Because California’s current participation rate is well below the required 50 percent rate, California faces federal penalties that begin at about $173 million per year.

Cases in Separate State Programs No Longer Excluded From Work Participation Calculation. The act makes cases served in separate state funded MOE programs subject to the work participation calculation. Accordingly, California will no longer be able to avoid the 90 percent rate for two-parent families by using a state-only MOE funded program. Failure to meet the two-parent rate results in a penalty. However, if the state meets the all-families rate, a penalty for failing the two-parent rate would be reduced by about 85 percent because the amount of the penalty is tied to the relative size of the two-parent caseload in comparison to the overall caseload.

New Regulatory Authority Concerning Work Participation. The act gives the Secretary of the U.S. Department of Health and Human Services new authority to promulgate regulations concerning “verification of work and work eligible individuals.” This gives the Secretary specific authority to define work participation activities, how participation in these activities is documented, how participation is reported, and whether nonaided adults residing with children that are aided with TANF or MOE funds may be subject to work requirements. Currently cases with children and an unaided adult are known as child-only cases and are not subject to the work participation calculation. (Examples of child-only cases include those with nonneedy caretaker relatives, undocumented parents, or sanctioned adults.) If the future regulations from the Secretary specify that adults in child-only cases are subject to work participation, then meeting federal work requirements would be even more difficult.

More Spending Countable Toward the MOE Requirement. The act expands the definition of what types of state spending may be used to meet the MOE requirement. Currently, countable state spending must be for aided families or for families who are otherwise eligible for assistance. The act allows state expenditures designed to prevent out-of-wedlock pregnancies or promote the formation of two-parent families to count toward the MOE requirement even if the target population is not otherwise eligible for aid. Essentially, the act removes the requirement that countable spending that promotes the formation and maintenance of two-parent families and teen pregnancy prevention be on behalf of low-income families. This change could help California meet the higher $2.9 billion MOE requirement if the state is unable to achieve compliance with work participation requirements.

Conclusion: California Faces a Significant Participation Gap

As described above, beginning in October 2006, California will be subject to a 50 percent work participation rate for all families and a 90 percent rate for two-parent families. Currently our respective participation rates are 23 percent for single-parent families and 32 percent for two-parent families. When, pursuant to the act, the two-parent families are put back into the all-families participation rate, the all-families rate would rise to about 25 percent. Thus, if current state rates continue, California faces respective participation gaps of 25 percent and 58 percent. Strategies for addressing these gaps are discussed below.

Strategies for Meeting Higher Work Participation Requirements

To avoid federal penalties, California will have to substantially increase the work participation rates of California Work Opportunity and Responsibility to Kids recipients. We review a range of strategies including (1) increasing the participation of existing recipients, (2) bringing former recipients who are employed back into the participation rate calculation, and (3) establishing separate programs for those who may face substantial barriers to work.

As discussed previously, California’s participation rates for all families and two-parent families are well below the respective required rates of 50 percent and 90 percent. To attain compliance with federal work participation requirements starting in October 2006, California must increase participation by 25 percentage points for all families and 58 percentage points for two-parent families. To address this participation gap, we review the participation status of single-parent and two-parent caseloads and then explore three different approaches to increasing work participation. First, we examine ways to increase participation within the existing caseload. Second, we look at how to bring former recipients who are working back into the participation rate calculation. Third, we discuss how creating separate programs for those who may have barriers to employment could improve the state’s participation results.

Current Work Participation Status

Current Single-Family Participation. Currently, California has about 212,000 single-parent cases. Federal law excludes families with a child under age 1 and families who are sanctioned from the participation rate calculation. After making these adjustments, about 192,000 single-parent cases are subject to the work participation calculation. To meet a 50 percent participation rate, about 96,000 families would need to be working. Based on preliminary information, about 44,000 are currently working, so California would need to get an additional 52,000 families working the required minimum hours. Of the 52,000 families, roughly 24,000 families are participating in the program but are working less than the required number of hours. In order to comply with federal work participation requirements, California would need to increase the hours for these 24,000 families and induce another 28,000 families to begin work or participation at the required hourly rate.

Current Two-Parent Participation. For two-parent families, about 37,000 cases are subject to the work participation calculation. To meet a 90 percent participation rate, about 33,000 cases would need to participate for the required hours. Currently, about 11,000 are working, so California would need to have an additional 22,000 families participating for the required hours.

Increasing Participation for Existing Cases

Increasing the Incentive to Work. Many states, including California, provide a work incentive to families known as an earned income disregard, whereby a portion of a family’s earnings is not counted (disregarded) for purposes of determining a family’s monthly grant. California has a relatively generous earned income disregard. Specifically, current law disregards the first $225 in earned income and 50 percent of each additional dollar earned when determining a family’s monthly grant amount. (For a complete explanation of California’s disregard, please see the “CalWORKs“ write-up of the Analysis of the 2005-06 Budget Bill, page C-214.)

As we discussed in last year’s Analysis, California could increase its work incentive by increasing the amount of earnings that are disregarded. A higher disregard would allow more working families to remain on aid, thus increasing California’s participation rate. However, increasing disregards usually increases grant costs which puts pressure on scarce TANF and MOE funds.

Improving Communication About Program Obligations and Availability of Support Services. A significant portion of California’s sanctioned caseload is sanctioned because they never attend an orientation session. A study from Los Angeles County indicated that about 65 percent of its sanctioned cases had never attended orientation. Effectively, this means that recipients become sanctioned before they fully understand what services are available to help them meet their participation requirements. With a better understanding of program obligations and the supportive services which are available (such as, training, interview preparation, job leads, child care, and transportation), it is possible that more recipients may make the transition to employment.

One way to improve this communication would be to make completion of orientation a requirement for receiving aid. This would insure that adults have full knowledge of the program requirements and supportive services. However, in order to avoid an unnecessary delay in the receipt of aid, we would suggest that counties adopt strategies similar to those used in San Bernardino County. These include providing regular, daily orientations in the same office where the eligibility functions are carried out and providing drop-off child care during orientations to allow parents to participate easily.

Increasing Participation Among the Partially Engaged. As described above, California has roughly 24,000 families who are participating in CalWORKs activities but for insufficient hours each week to meet the federal participation requirement. Some of these families are receiving child care assistance. Because some in this group may be relatively close to meeting the requirement, intensive case management or other engagement might help them meet the hourly requirement.

Modifying the Sanction for Noncompliance. Currently, if a recipient does not comply with program participation requirements and cannot demonstrate “good cause” for noncompliance, the adult is sanctioned. In California (and 13 other states), the sanction involves the removal of the adult from the case for purposes of calculating the grant amount. A reduced aid payment, based on the number of children in the household, is provided to the sanctioned adult. For example, for a sanctioned family in a high-cost county, the monthly grant for a family of three with one adult and two children would be reduced from $723 per month to $584 per month.

In contrast to California, thirty-four other states impose some type of full-family sanction, meaning that the entire family may be removed from aid. Most of these states have a graduated policy where the first instance of noncompliance results in a partial sanction, but repeated or long-term noncompliance results in a complete cut-off of assistance for the entire family.

In order to encourage participation, California could consider increasing the sanction for families who do not cure their sanctions. For example, if a family did not cure its sanction within a specified time period, such as three to six months, the sanction would increase to 50 percent of the family’s grant. Although increasing the degree of sanction may result in increased participation, it also has the potential to reduce resources to the families. Research from states with graduated full-family sanctions indicates that sanctioned families had to turn to other sources of support, primarily other family members when they were entirely removed from aid.

Adding in Former Recipients Who Are Now Employed

Another approach to increasing work participation is to provide some assistance to former recipients who are now employed. Currently there are about 110,000 former CalWORKs cases that have left aid and are receiving state subsidized child care. Most of these former cases are working, and many of them may be working for the 20 or 30 hours per week required for federal participation calculations. Prior to passage of the act, these former recipients helped California achieve its substantial caseload reduction credit. Because the base period for caseload reduction was reset to FFY 2005, these former recipients, even though they are working, no longer help California satisfy the federal participation rate.

Providing Work Allowances. In order to be counted in the work participation rate, a family must receive some form of “assistance.” Under federal regulations, child care is not considered to be assistance. If California were to provide a monthly work allowance (for example, $25) to help defray the costs of transportation or other work expenses such as uniforms, this would be considered to be assistance. Any recipient of such a work allowance would become part of the work participation calculation. Payment of the work allowance could be made contingent upon demonstrating that sufficient weekly work hours are completed. If the work allowance were funded with state MOE funds, then its receipt would not effect the recipient’s eligibility for five years of federally funded TANF assistance. (In other words, someone who worked their way off CalWORKs would not be using up their federal five-year time clock through receipt of this work allowance.)

Separate Programs for Recipients With Multiple Barriers to Employment

Some families face multiple barriers to employment including drug and alcohol addiction, mental health issues, domestic violence, and learning disabilities. For these recipients who have been unable to enter the labor market, a separate intensive program of barrier removal may be necessary. In a given month, there are about 50,000 cases with adults with no participation of any kind. California could shift some or all of these families into an intensive services program if case managers determined that such a program might help them remove barriers to employment and eventually become self-sufficient. If this program (including existing grant and service components) were funded with state funds that are not used to satisfy the MOE requirement, then these cases would not be subject to the federal work participation rate. Moreover, allowing these families to shift to the intensive services program would result in a caseload reduction credit. For example, if 30 percent of the two-parent caseload entered the intensive services program, this would result in a caseload reduction credit of 30 percent, which would reduce the 90 percent required rate down to 60 percent.

Fiscal Considerations

The strategies discussed above may result in costs or savings compared to current law. The work allowance and intensive services programs would result in costs. An increase in the earned income disregard would also increase grant costs. Increasing the sanction would probably result in savings. In deciding which strategies to adopt, the Legislature must weigh any net costs of the strategies against the costs of potential federal penalties and the corresponding required General Fund backfills.

Funding Sources. The intensive services program for families with multiple barriers to employment is probably the most costly approach. However, substantial funding already exists that could be used for this program. For the grant costs for the intensive services program , California could use existing General Fund resources that are part of the CalWORKs program. Because this is to be a non-MOE funded program, its creation would result in an MOE shortfall. However, such a shortfall could be addressed with fund shifts that result in no net cost to the General Fund. For example, in CDE, there is approximately $40 million in spending for child care for CalWORKs eligible families that is not being counted for MOE purposes. Also, certain after school program expenditures which may foster prevention of teen pregnancy could be counted as MOE. Finally, replacing General Fund which is currently spent for county juvenile probation costs with TANF funds would free up about $200 million in General Fund monies which could be used for separate state non-MOE funded programs. All of these sources could be used to fill any MOE shortfall created by the establishment of the non-MOE funded intensive services program.


The Deficit Reduction Act of 2005 substantially raises California’s work participation rates and the likelihood of significant fiscal penalties. As discussed above, there are several different strategies for addressing the increased work requirement. In determining which strategies to pursue, the Legislature should consider which policies are most likely to result in increased work participation and family self-sufficiency, while maintaining compliance with federal requirements so as to avoid federal penalties.

Return to Health and Social Services Table of Contents, 2006-07 Budget Analysis