State and Local Government Debt: An Analysis

Steven Maguire
Specialist in Public Finance

The financial consequences of the recession that spanned from December 2007 through June 2009 have increased congressional interest in the fiscal health of state and local governments. State and local tax revenues declined, expenditures climbed, and debt increased. Even though tax revenue has begun to rebound, expenditures for unemployment benefits and other social programs remain elevated. Also, federal aid to states, which had increased as part of the American Recovery and Reinvestment Act, has receded. Federal outlays for grants in aid to state and local governments rose from $538 billion in FY2009 to $608.4 billion in FY2010 and are estimated to be $625.2 billion in FY2011. The FY2012 budget provides $584.3 billion in outlays for aid to state and local governments in 2012.

In response to these state and local government fiscal headwinds, several hearings were held in the first session of the 112th Congress to examine the health of state and local government finances and the potential effects on the economic recovery. The hearings focused on a range of issues important to state and local governments as well as federal policy makers. The role of state and local government debt was one of these issues. The federal government has a significant stake in this debt market, as the tax expenditure for tax-exempt bonds issued by state and local governments was recently estimated to be $161.6 billion over the 2010 to 2014 budget window.

This report first provides a broad overview of state and local government finances and how these governments incorporate borrowing into their budgets. The second section reports data on state and local government debt and how that debt has changed over time. This section includes a comparative analysis of these debt parameters for each state. The third section discusses different economic perspectives on the use of debt by governments and if governments are intrinsically biased toward borrowing more than is considered economically optimal. The discussion provides background for Congress as it deliberates potential changes in the oversight of the primary and secondary markets for state and local government debt.

Issues related to state and local government finances, such as government pensions and health benefits, are also addressed.


Date of Report: January 23, 2012
Number of Pages: 29
Order Number: R41735
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The Temporary Assistance for Needy Families (TANF) Block Grant: Responses to Frequently Asked Questions

Gene Falk
Specialist in Social Policy

The Temporary Assistance for Needy Families (TANF) block grant funds a wide range of benefits and services for low-income families with children. TANF was created in the 1996 welfare reform law (P.L. 104-193). This report responds to some frequently asked questions about TANF; it does not describe TANF rules (see, instead, CRS Report RL32748, The Temporary Assistance for Needy Families (TANF) Block Grant: A Primer on TANF Financing and Federal Requirements, by Gene Falk). 

TANF Funding. TANF provides fixed funding to states, the bulk of which is provided in a $16.5 billion-per-year basic block grant. States are required in total to contribute, from their own funds, at least $10.4 billion under a maintenance-of-effort (MOE) requirement. The basic block grant is not adjusted for inflation or changes in the cash welfare caseload (see “The Caseload,” below). It has lost 28% of its value to inflation from FY1997 through FY2011. 

State Spending. Though TANF is best known for funding cash welfare payments for needy families with children, the block grant and MOE funds are used for a wide variety of benefits and activities. In FY2009, expenditures on basic assistance (cash welfare) totaled $10.7 billion— 29.8% of total federal TANF and MOE dollars. TANF also contributes funds for child care and services for children who have been, or are at risk of being, abused and neglected. 

Cash Welfare Caseload. A total of 1.9 million families, composed of 4.6 million recipients, received TANF- or MOE-funded cash in June 2011. The bulk of the “recipients” were children— 3.4 million in that month. The cash welfare caseload is very heterogeneous. The type of family historically thought of as the “typical” cash welfare family—one with an unemployed adult recipient—accounted for less than half of all families on the rolls in FY2009. Additionally, 14.7% of cash welfare families had an employed adult, while almost half of all families had no adult recipient. Child-only families include those with disabled adults receiving Supplemental Security Income (SSI), adults who are nonparents (e.g., grandparents, aunts, uncles) caring for children, and families consisting of citizen children and ineligible noncitizen parents. 

Cash Welfare Benefits. TANF cash benefits are set by states. In July 2010, the maximum monthly benefit for a family of three ranged from $923 in Alaska to $170 in Mississippi. Benefits in all states represent a fraction of poverty-level income. In the median jurisdiction (District of Columbia), the maximum monthly benefit of $428 for a family of three represents 28% of poverty-level income. 

Cash Welfare Work Requirements. TANF requires states to engage 50% of all families and 90% of two-parent families in work activities. However, these standards are reduced by caseload reduction from FY2005. Further, states may get an extra credit against these standards by spending more than required under the TANF MOE. In FY2009, states achieved an all-family participation rate of 29.4% and a two-parent rate of 28.3%. That year, eight jurisdictions failed the all-family standard, and seven jurisdictions failed the two-parent standard. States that fail to meet work standards are at risk of being penalized by a reduction in their block grant.


Date of Report: January 26, 2012
Number of Pages: 36
Order Number: RL32760
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Dependent Care: Current Tax Benefits and Legislative Issues

Christine Scott
Specialist in Social Policy

Janemarie Mulvey
Specialist in Health Care Financing

In the 2000 census, for more than 60% of the households with children under the age of six, all parents in the household worked. Some private surveys show that nearly 40% of those caring for aging parents and older individuals worked. For families, care for young children and older individuals who are physically or mentally unable to care for themselves is critical to maintaining participation in the workforce. To assist these families, current law provides two tax benefits related to dependent care: the dependent care credit and the exclusion from income for employerprovided dependent care assistance programs. Both provisions are for employment-related expenses for the care of dependents under the age of 13, or dependents (or a spouse) who are physically or mentally incapable of caring for themselves.

Some of the current tax provisions that were expanded in 2001 are set to expire December 31, 2012. These changes include increases for the 

•       maximum credit rate for the dependent care tax credit (DCTC) from 30% to 35%; 

•       income level at which the credit rate for the DCTC phases down from $10,000 to $15,000; and 

•       maximum amount of qualifying expenses from $2,400 to $3,000 for one child and from $4,800 to $6,000 for two or more children. 

This report discusses current tax treatment of dependent care expenses under the DCTC and the dependent care assistance programs (DCAP) and issues for Congress in expanding tax benefits for working caregivers.


Date of Report: January 25, 2012
Number of Pages: 12
Order Number: RS21466
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Vulnerable Youth: Federal Mentoring Programs and Issues

Adrienne L. Fernandes-Alcantara
Specialist in Social Policy

Youth mentoring refers to a relationship between youth—particularly those most at risk of experiencing negative outcomes in adolescence and adulthood—and the adults who support and guide them. The origin of the modern youth mentoring concept is credited to the efforts of charity groups that formed during the Progressive era of the early 1900s to provide practical assistance to poor and juvenile justice-involved youth, including help with finding employment.

Approximately 2.5 million youth today are involved in formal mentoring relationships through Big Brothers Big Sisters (BBBS) of America and similar organizations. Contemporary mentoring programs seek to improve outcomes and reduce risks among vulnerable youth by providing positive role models who regularly meet with the youth in community or school settings. Some programs have broad youth development goals while others focus more narrowly on a particular outcome. Evaluations of the BBBS program and studies of other mentoring programs demonstrate an association between mentoring and some positive outcomes, but the effects of mentoring on particular outcomes and the ability for mentored youth to sustain gains over time is less certain.

The federal government provides funding for mentoring primarily through a grant program to the Department of Justice (DOJ), with annual appropriations for the program of about $80 million to $100 million in recent years. This funding is used for research and direct mentoring services to select populations of youth, such as those involved or at risk of being involved in the juvenile justice system. Separately, other DOJ funds are used to provide mentoring to Indian youth and youth who are reentering the community after being in a correctional facility. Other federal agencies provide or are authorized to support mentoring as one aspect of a larger program. For example, select programs carried out by the Corporation for National and Community Service (CNCS) can provide mentoring, among other services. Youth ChalleNGe, an educational and leadership program for at-risk youth administered by the Department of Defense (DOD), includes mentoring as an aspect of its program. Federal agencies also coordinate on federal mentoring issues. The Federal Mentoring Council serves as a clearinghouse on mentoring issues for the federal government.

In recent years, two mentoring programs—the Mentoring Children of Prisoners (MCP) program and Safe and Drug Free Schools (SDFS) Mentoring program—provided a significant source of federal funding for mentoring services. However, the programs were short-lived: funding for the MCP program was discontinued beginning in FY2011 and funding for the SDFS program was discontinued beginning in FY2010. The Mentoring Children of Prisoners program was created in response to the growing number of children under age 18 with at least one parent who is incarcerated in a federal or state correctional facility. The program was intended, in part, to reduce the chance that mentored youth would use drugs and skip school. Similarly, the SDFS Mentoring program provided school-based mentoring to reduce school dropout and improve relationships for youth at risk of educational failure and with other risk factors. As part of its FY2010 budget justifications, the Obama Administration had proposed eliminating the program because of an evaluation showing that it did not have an impact on students overall in terms of interpersonal relationships, academic outcomes, and delinquent behaviors.

Issues relevant to the federal role in mentoring include the limitations of research on outcomes for mentored youth, the potential need for additional mentors, grantees’ challenges in sustaining funding, and the possible discontinuation of federal mentoring funding.


Date of Report: January 20, 2012
Number of Pages: 44
Order Number: RL34306
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The LIHEAP Formula: Legislative History and Current Law

Libby Perl
Specialist in Housing Policy

The Low Income Home Energy Assistance Program (LIHEAP) provides funds to states, the District of Columbia, U.S. territories and commonwealths, and Indian tribal organizations (collectively referred to as grantees) primarily to help low-income households pay home energy expenses. The LIHEAP statute provides for two types of funding: regular funds (sometimes referred to as block grant funds) and emergency contingency funds. Regular funds are allocated to grantees based on a formula, while contingency funds may be released to one or more grantees at the discretion of the Secretary of the Department of Health and Human Services based on emergency need.

Regular LIHEAP funds are allocated to the states according to a formula that has a long and complicated history. (Tribes receive funds based on either their number of federally eligible LIHEAP households compared to the total number in the state or on agreements with their states, whereas territories receive a set percentage of total LIHEAP regular funds.) In 1980, Congress created the predecessor program to LIHEAP, the Low Income Energy Assistance Program (LIEAP) as part of the Crude Oil Windfall Profits Tax Act (P.L. 96-223). Because Congress was particularly concerned with the high costs of heating, funds under LIEAP were distributed according to a multi-step formula that benefitted cold-weather states. In 1981, Congress enacted LIHEAP as part of the Omnibus Budget Reconciliation Act (P.L. 97-35), replacing LIEAP. However, the LIHEAP statute specified that states would continue to receive the same percentage of regular funds that they did under the LIEAP formula.

When Congress reauthorized LIHEAP in 1984 as part of the Human Services Reauthorization Act (P.L. 98-558), it changed the program’s formula by requiring the use of more recent population and energy data and requiring that HHS consider both heating and cooling costs of low-income households (a change from the focus on the heating needs of all households). The effect of these changes meant that, in general, funds would be shifted from cold-weather states to warm-weather states. To prevent a dramatic shift of funds, Congress added two “hold-harmless” provisions to the formula. The result of these provisions is a current law, three-tiered formula (sometimes referred to as the “new” formula), the application of which depends on the amount of regular funds that Congress appropriates.

The Tier I formula is used to allocate funds when the total LIHEAP regular fund appropriation is less than or equal to the equivalent of a hypothetical FY1984 appropriation of $1.975 billion. Above this level, funds are allocated according to Tier II of the formula, which includes a holdharmless level to prevent certain states from losing LIHEAP funds. Finally, Tier III applies to appropriations at or above $2.25 billion, and includes a second hold-harmless provision, the holdharmless rate. Since FY1986, LIHEAP regular fund appropriations have exceeded the equivalent of an FY1984 appropriation of $1.975 billion in FY2006, when the regular fund appropriation was $2.48 billion; in FY2008, when appropriations slightly exceeded the trigger; in FY2009 through FY2011, when Congress directed that $840 million be distributed according to the “new” LIHEAP formula; and in FY2012, when Congress directed that $497 million be distributed according to the “new” formula.

This report will be updated when new formula data are released and when proposed funding levels change (see Appendix C).


Date of Report: January 20, 2012
Number of Pages: 38
Order Number: RL33275
Price: $29.95

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