HD14 - The Study of Locality Groupings

Executive Summary:
House Joint Resolution 772 (HJR 772), as passed by the 2001 General Assembly, requested the Department of Social Services (Department), with assistance from the Department of Planning and Budget, to review the groupings of local departments of social services used in determining Temporary Assistance for Needy Families (TANF) payment amounts in Virginia. As a result of that request, a study was performed to determine the relevancy of the current locality groupings, and if some other method of determining TANF payment amounts would better serve the interests of the Commonwealth.

In the early 1970's, the Aid to Families with Dependent Children (AFDC) program was the principal program designed to provide financial assistance to families with dependent children. The AFDC grant for each assistance unit was based on the "Assistance Plan." The "Assistance Plan" required individual cost-of-living requirements to be determined on an actual cost basis. The plan was cumbersome and prone to error.

In 1974, the State Board of Social Services developed a flat-grant payment structure to address the error rate issue. The flat-grant payment structure reflected differences in the size of the assistance unit and the shelter cost in particular localities. Depending upon their cost of shelter care, localities were placed in one of three groupings.

Since the initial implementation of the locality grouping system, the Department has sought alternative methods for addressing any real or perceived inequities. The Department explored methods that were simple, statistically convincing, and easily replicable. The difficulty encountered by the Department was that little data existed that was locality specific. Also, the data that was available was collected through census reports and, therefore, tended not to be current.

The Department has identified several options that could be considered to modify the current locality grouping system. Below are the pros and cons for the different options.

The first option is to make no change to the current locality grouping system and implement an appeal process, whereby a locality could challenge its current grouping by petitioning the State Board of Social Services. An appeal process that allows a locality to challenge the degree of equity in its locality grouping placement would address some of the concerns that initiated the need for HJR 772, but limit the fiscal impact on recipients that creating an entirely new locality grouping system would cause.

The second option is to use the United States Department of Housing and Urban Development's (HUD's) fair market rents (FMRs) as a basis for updating shelter cost. The Secretary of HUD is required to publish FMRs periodically, but no less frequently than annually to be effective on October 1 of each year.

HUD's FMRs could be used to establish locality groupings in two ways. The first method would modify the current locality grouping system by grouping localities according to their 2002 HUD's fair market rents. By updating the original 1974 locality groupings using the 2002 proposed fair market rents, the incongruities apparent within the current locality grouping system dissipate. Under this method, 41 localities would change groupings. Fourteen localities move to a lower grouping, while 27 localities move to a higher grouping.

A second method for using the HUD's FMRs would be to combine the FMRs with Planning Districts. An average fair market rent for each planning district would be determined. The planning district's average fair market rent would then determine the locality grouping for each of the localities within the planning district. Under this method, 56 localities would change groupings. Fourteen localities move to a lower grouping, while 42 localities move to a higher grouping. Only two localities move two tiers. Although more localities change groupings under this method than under the method of creating new groupings by using only the HUD's FMRs, the degree of movement between tiers is less significant.

A third option is for the Department to assess the cost-of-living by locality by creating a Virginia locality-specific Consumer Price Index comparable to the United States Consumer Price Index. Such an index would be the basis for assessing the cost of living in the various counties and cities in the Commonwealth.

Creating a Virginia Consumer Price Index would require development and regular maintenance of a consumer expenditure survey for the purpose of developing a Virginia locality-specific consumer price index. Four issues make this an impractical suggestion: (1) data accuracy and completeness; (2) level of effort; (3) sampling frame; and (4) fiscal resources.

A fourth option is to establish one flat payment amount for recipients no matter where they reside, rather than differentiating the cost-of-living among the various localities throughout the Commonwealth in order to determine the amount of public assistance a recipient is to receive. Thus the same amount of assistance would be issued to all recipients with a like number of eligible persons in the household regardless of the locality in which the recipient resides.

Most of the options listed above impact the amount of public assistance a substantial number of TANF recipients would receive. Additionally, amending the current locality grouping system, or abandoning the locality grouping system entirely, would be a dramatic event that needs careful consideration. Although the primary financial impact would be on TANF recipients, the localities may be forced to supplement any reduction in public assistance with other funds and/or services. This could create an un-funded mandate on localities.

A decision has been made by the Department and the General Assembly to pay for some eligible programs using TANF dollars instead of General Fund dollars. The Department receives $158 million in TANF block grant funds and is currently exceeding this amount in TANF spending by approximately $30 million, which is supplemented with TANF reserve funds. These reserve funds are nearing exhaustion. To balance these expenditures, TANF spending will have to be reduced.

To further complicate this situation. the Department is uncertain how much federal funding will be allocated during the TANF reauthorization. Since welfare rolls have been reduced across the country, it is possible the amount of federal funding for the TANF program will be reduced. If so, the Department will be forced to make further adverse budget modifications to non-mandated TANF programs and activities to supplement the funding shortage. This may require the Department to request General Fund dollars for programs that are now receiving TANF money and/or eliminate some programs. If a modification is made to the locality grouping system that requires more money to be spent on TANF benefits, a larger number of programs may have to be paid for out of General Fund dollars and/or eliminated.

Given the fiscal implications inherent with making any substantial changes to the current locality grouping and that TANF reauthorization is pending within the next fiscal year, careful consideration must be given to the prudence of making wholesale change to the current locality grouping system.