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F I S C A L I M P A C T R E P O R T

SPONSOR Lopez

ORIGINAL DATE

LAST UPDATED 02/07/07 HB

SHORT TITLE

FEDERAL PUBLIC BENEFIT LAW

COMPLIANCE

SB 408

ANALYST Weber/Sallee

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

Duplicates SB 408

SOURCES OF INFORMATION

LFC Files

Responses Received From

Human Services Department (HSD)

BILL SUMMARY

Synopsis of Bill

Senate Bill 408 amends the New Mexico Works (NMW) Act to address changes in federal law

and as an evaluation of the existing statute in New Mexico. The Education Works (EW) Act is

also being amended to align certain definitions, processes and to mirror similar changes proposed

in the NMW Act.

Grammatical and clarification edits were also made throughout the Act.

Primary changes to the act include:

Definitions added:

.

“Applicant" as this term is used in the act and the definition is specific to cash assis-

tance

.

“Vocational Education" added to comply with new federal definition

Senate Bill 408 – Page

2

.

“Cash Assistance" the definition has been amended in the EW Act to clarify that the

program is funded with state general funds. The specific reference to EW as state

designated MOE funds has been removed

Application process

.

Added clarifying language for HSD to assist the applicant in the eligibility process,

screen for other programs the benefit group may qualify for, and for a more rapid as-

sessment process to address participation barriers.

Work Activities

.

Authorizes HSD to require a participant to participate in domestic violence or mental

health services as part of the participant’s individual responsibility plan.

.

SB 408 makes minor changes to the allowable work activities under the act.

.

Repeals the requirement for participants to engage in work activities once HSD de-

termines they are ready for work or once the participant has received cash assistance

for two years, and instead requires HSD to require a participant to engage in a work

activity.

.

Eliminates 12-week time limit on temporary work activities and authorizes HSD to

require participants to engage in activities best suited to address work barriers.

.

Replaces “post-secondary education" with “vocational education" The new require-

ment disallows obtaining a bachelor’s degree and is limited to certificate or associate

vocational programs directly related to employment.

Exemptions

.

Nine “conditions" exempted in current statute, including “good cause." No changes to

the exemptions are proposed in HB 408.

.

SB408 authorizes HSD to establish participation requirements that require the partici-

pant to engage in a limited activity as a condition of maintaining the work participa-

tion exemption. The activities may address a specific barrier such as domestic vio-

lence, substance abuse, mental health or education.

.

Financial Eligibility

.

Replaces the “excess hour earned income disregard" with an employment retention

and advancement program no later than July 2008. Based on the availability of state

and federal funding, requires the program to encourage participants to leave the New

Mexico Works program, maintain employment for 30 or more hours per week, and

leave the employment retention and advancement program due to increased earnings.

Basic eligibility requires recent NMW participation, gross income less than 150%

federal poverty guidelines, and currently in paid employment of 30 hours per week or

more.

.

Child Support Disregard: Allows state to increase pass-through of child support pay-

ments to families from $50 to $100 for one child and $200 for two or more children

per Child Support Enforcement Division (CSED) case no later than January 1, 2009.

.

Authorizes HSD to fund cash assistance and other services using appropriated general

funds, exclude the funds from federal maintenance of effort reporting, and report

other appropriated general funds as maintenance of effort to the federal government.

.

Senate Bill 408 – Page

3

Wage Subsidy Program

.

Strikes “pilot" language previously in the Act.

.

Allows individuals to be eligible for food stamp benefits, if income-eligible, while in

subsidized employment.

.

Extends participation in program from six months to a maximum of 12 months.

Temporary TANF program

.

Allows the Secretary of the HSD to create, for a maximum of four months in accor-

dance with federal regulations, a temporary TANF program that waives certain eligi-

bility requirements in an emergency or crisis such as Hurricane Katrina or similar

disaster situation within NM.

Education Works Act

.

SB 408 changes propose to align statutory eligibility requirements with the NMW Act

for administrative purposes and uniform eligibility standards. The EW Program has

been a separate Maintenance of Effort (MOE) program, which did not previously im-

pact participation rates. However, the new DRA-related HHS interim final rule re-

quirements mean the state will no longer be able to count general fund (GF) dollars as

MOE because if GF dollars are counted as MOE, EW participants must be included

in the NM work participation rates, and none of the participants will meet those rates

since post-secondary education does not meet allowable work activities under the

new federal regulations under DRA.

FISCAL IMPLICATIONS

SB 408 does not provide an appropriation. HSD indicates the provisions of the bill are essential

to allow the department to meet new federal reporting and work participation requirements and

avoid potential federal penalties of up to 5 percent or $3,917,935 of federal TANF block grant

funds. However the federal regulatory changes have a significant fiscal impact. The NMW pro-

gram is a federal TANF block grant with a state general fund and/or local fund MOE require-

ment. SB 408 in Section 27-2B-7 NMSA 1978 of the Act allows for legislative appropriation of

the federal TANF funds and allows HSD to designate MOE funds.

SB 408 changes are essential in order for HSD to meet federal reporting and work participation

requirements, avoid federal audit findings, and avoid costly penalties. The TANF block grant

will face sanctions up to 5% ($3,917,935) of the TANF adjusted State Financial Assistance Grant

(SFAG), which is the TANF block grant minus the amount transferred for the child care devel-

opment Fund (CCDF) up to 30%, for failure to meet the “all families" work participation rate.

The TANF block grant will face sanctions up to a proportionate share of the 5% penalty

($329,000) of the TANF adjusted SFAG for failure to meet the two-parent work participation

rate. These penalties will also require an increase in the rate of MOE spending to 80%

($2,183,220) rather than 75% of state funding in the Aid to Families with Dependent Children

(AFDC) program in 1994. Penalties increase by 2% each year that performance measures are

not met and are capped at 21% adjusted SFAG.

Senate Bill 408 – Page

4

HSD indicates the bill will require changes to the automated eligibility system for implementa-

tion of certain provisions, in addition to other changes already required by the federal govern-

ment. However, these information technology changes for financial eligibility, including re-

placement of the excess hours worked disregard and increased child support, would not go fully

into effect until FY09.

Beginning in FY09, the employment retention and advancement program may have administra-

tive and cash assistance cost, dependent on how HSD structures the program. Most, if not all, of

these costs would be offset by reductions in cash assistance and the New Mexico works caseload

due to the repeal of the excess hours worked disregard – which allows participants to stay on

cash assistance despite higher earnings. Eliminating the excess hours worked disregard would

result in savings to cash assistance by reducing the caseload. These savings would offset costs of

the employment retention and advancement program bonus paid to individuals who leave New

Mexico works and maintain employment for more than 30 hours per week. The amount of the

bonus would be dependent on rules established by HSD and subject to the availability of state

and federal funds. Providing employment services to individuals in the employment retention

and advancement program would have some cost to HSD contractors. However, these costs

would be offset by a reduced New Mexico Works caseload due to the elimination of the excess

hours worked disregard.

SIGNIFICANT ISSUES

Human Services adds.

The NMW Act was legislatively created after the federal government enacted the Personal Re-

sponsibility Work Opportunity and Responsibility Act of 1996 (PRWORA) that replaced the

AFDC program with the TANF program. The TANF block grant provides cash assistance and

work opportunity and supports to needy families. The Deficit Reduction Act (DRA) of 2005 im-

poses new requirements on states and stricter requirements on work program compliance and

measures. The federal block grant is $110,578.1 (NM also receives a supplemental grant of

$6,531.0) and has a state general or local fund requirement of $34,921.5 which is 80% of state

spending in the AFDC program in 1994 (the amount of state spending is reduced to 75% at

$32,738.3 if the state meets federal work participation rates). The NMW cash assistance pro-

gram served an average of 15,366 households (approximately 63% of program recipients are

children).

The EW Act was legislatively created as a program to promote post-secondary education for low

income families otherwise qualifying for NMW cash assistance. The program is funded with

state general funds with a $2,000.0 budget. In FY 2006 the program assisted an average of 413

families per month.

New federal requirements under the DRA and related HHS interim final rules impose strict re-

quirements on states and limit states ability to define certain work activities. This has a signifi-

cant impact on HSD’s ability to meet federal work participation requirements of 50% for all

families and 90% for two-parent households. Under federal requirements many of those the

NMW Act exempts from work participation must be included in the work participation calcula-

tion, which works against HSD’s ability to meet federal work participation rates.

Senate Bill 408 – Page

5

HSD utilized a series of work groups and questionnaires to interested parties to solicit input on

possible changes for the NMW program such as department staff, contract staff, educational in-

stitutions, advocates and other state government departments. Input was also utilized from the

LFC audit report of the NMW program conducted the summer of 2006 along with dialogue with

a representative from the national Counsel of State Legislatures. Materials on proposed changes

were provided to the Welfare Reform Oversight Committee in November 2006.

The amendments made to the NMW and EW Acts focus on addressing participation barriers, in-

crease work participation and to focus activities in the Act toward those that are countable work

activities in accordance with new federal regulations. The changes to how work activities are

counted have a significant impact on the administrative delivery of the program.

The changes in DRA also impact how work participation rates are measured. A significant

change is that the caseload reduction credit that has been previously applied to participation rate

enabled HSD to meet the federal standards. Recent changes now use a different benchmark for

this credit which is minimal, requiring HSD to meet participation rate with little or no allowable

credit.

The federal requirements for who is work eligible has a significant impact as only two of the ex-

emptions allowed in the NMW Act are allowed in the federal standard for measuring participa-

tion rates. These include the caring for a child under the age of 12 months and caring for an in-

capacitated household member. While no work exemption changes are recommended in the bill,

HSD will need to monitor the effect this may have.

Failure to meet the participation requirements subjects the state to costly penalties in the TANF

program of up to 5% ($3,917,935) of the TANF adjusted State Financial Assistance Grant

(SFAG) for failure to meet the “all families" work participation rate. The TANF block grant will

face sanctions up to a proportionate share of the 5% penalty ($329,000) of the TANF adjusted

SFAG for failure to meet the two-parent work participation rate. The penalty will also require an

increase in the rate of MOE spending to 80% ($2,183,220 more) for failing to meet new federal

performance measures. Penalties increase by 2% each year that performance measures are not

met and are capped at 21% adjusted SFAG.

Revisions to the Act in SB 408 include the development of an employment retention and ad-

vancement program that will replace the existing excess hour income deduction allowed during a

participant’s first 2 years of receiving NMW cash assistance. The LFC audit conducted in the

summer of 2006 identified this deduction as confusing and recommended replacement with an

employment retention bonus program to encourage participants to retain employment, encourage

employment advancement, and provide a transitional incentive to leaving NMW for employ-

ment.

The child support disregard increase from $50 per month to $100 for one child or $200 for two

or more children of child support collected by the CSED may not occur until FFY 2009 (October

1, 2008) when federal regulations allow for a different federal cost. This change will assist fami-

lies in retaining a larger share of child support from the non-custodial parent while on cash assis-

tance.

Senate Bill 408 – Page

6

PERFORMANCE IMPLICATIONS

HSD has federal and state performance measures related to the administration of the NMW Act.

Federal

.

50% participation rate for “all-families"

.

90% participation rate for “two-parent" families

HSD Performance Measures for Improving Family Support

.

Increase percent of TANF all-family recipients meeting federal work participation re-

quirements

.

Increase percent of TANF two-parent recipients meeting federal work participation re-

quirements

.

Increase percent of TANF recipients who receive a job

.

Increase percentage of TANF recipients who retain a job three or more months

.

Increase percentage of TANF cases with court-ordered child support receiving collections

ADMINISTRATIVE IMPLICATIONS

The administration of cash assistance is through the Income Support Division, HSD. The

amendments to this act will have an administrative impact for caseworker staff and changes to

the automated eligibility system (ISD2). HSD will need to promulgate new regulations and pro-

vide training to staff on policy and procedural changes. Due to the significant impact of potential

TANF block grant penalties, a primary focus will be in the work participation rates.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Duplicates SB 408

Related to HB 2

MW/CS/sb