Officials in Gov. Paul LePage’s administration were aware that a federal law prohibited their use of millions in federal welfare funds on services for the elderly, and they had warnings from state finance staff that the spending was questionable.

Still, under the direction of staff in Health and Human Services Commissioner Mary Mayhew’s office, the administration in 2015 moved ahead with using $13.4 million earmarked by Congress for low-income kids and their families on services such as Meals on Wheels and in-home care for seniors instead.

More than 300 pages of internal emails and other communications, recently released to the BDN, show that state finance staff questioned the Department of Health and Human Services’ planned spending on multiple occasions as the department finalized the prohibited transactions in the fall of 2015.

But DHHS justified the spending by developing a selective interpretation of the relevant federal law and erroneously claiming that other states spent federal assistance funds in a similar way.

In April 2016, the federal agency that oversees the two funding sources in question, the Administration for Children and Families, started asking Maine officials about the spending after the BDN contacted federal officials with questions about it.

A few months later, following a BDN report on the state misspending millions in federal welfare dollars, Maine DHHS reversed the transactions in question, returned the money to its federal grant account and covered the expenses with state taxpayer dollars instead.

In October 2016, Maine’s state auditor released a report about the transactions, highlighting “improper management of funds at the agency level,” an “overly aggressive approach” to managing federal grants and “troublesome” financial management practices. DHHS disputed that it had done anything wrong, citing its decision to reverse the spending in question.

“[T]here is no allowable time period where DHHS is permitted by the Federal government to spend grant funds on unallowable costs,” State Auditor Pola Buckley wrote in her October 2016 report. “The fact that DHHS considers this acceptable is troublesome.”

What happened

The hundreds of pages of emails released by Maine DHHS in response to a Freedom of Access Act request from the BDN provide insight into how a state agency that oversees millions of dollars in federal block grants each year managed to spend $13.4 million in ways that violated a plainly worded federal law.

The BDN requested the emails in June 2016; the department released them in January.

Here’s how the improper spending, which the state later reversed, worked:

— Maine receives a $78.1 million block grant each year called Temporary Assistance for Needy Families. While the grant’s purpose is to pay for cash assistance, child care, and work-related support for low-income families with children, states have substantial leeway to spend the money largely as they see fit, as long as the spending benefits low-income families with children.

— States are allowed to transfer up to 10 percent of their TANF grant — $7.8 million, in Maine’s case — to another, more flexible federal grant account called the Social Services Block Grant, which states can use to pay for a wide range of social services. That grant brings about $6.6 million to the state each year, so the $7.8 million transfer more than doubles its spending power.

— When states transfer this money, it loses many of its TANF-related restrictions. But federal law specifies that the transferred money “shall be used only for programs and services to children or their families” with incomes below 200 percent of the federal poverty level, or less than $41,000 per year for a family of three.

— Despite that federal law, Maine spent $13.4 million of the transferred money on services for elderly residents over the course of two years, federal fiscal years 2015 and 2016. The services included Meals on Wheels, in-home personal care and “homemaker services,” which include basic household jobs such as laundry and cleaning so seniors can remain living at home.

— After they faced questions from federal officials and the BDN, the LePage administration returned the money to Maine’s TANF account and funded the elder services instead with state money, according to Buckley’s October 2016 report.

Federal officials have indicated on multiple occasions, most recently in October, that money transferred from TANF must be used on low-income children or their families. But Samantha Edwards, a DHHS spokeswoman, said Monday the agency is still awaiting the federal government’s final word on whether using money from TANF for elder services is acceptable.

As for spending future transfers from TANF to the Social Services Block Grant, Edwards said, “This will be done with thorough planning and in accordance with the rules of the program.”

So far, the department is holding off on transferring funds between the accounts. The state’s plan that shows how it intends to use its Social Services Block Grant money for the current federal fiscal year, 2017, indicates that any transfers from TANF are “TBD.”

Cumulative factors

The correspondence among DHHS and state finance officials, which spans more than two-and-a-half years, points to a number of factors that played into the agency’s ultimate spending decisions.

Longstanding plans: The LePage administration had early designs on using the state’s annual TANF grant to make more funds available for services for the elderly.

An October 2013 presentation shared among Mayhew and other senior DHHS staff depicted “Maine’s New TANF,” which included funding for “Home-Based Care for the Elderly and Disabled” as one of its priorities.

Eighteen months later, senior DHHS officials circulated an outline entitled “Using TANF funds to support work, families and the elderly.” One of the agency’s “guiding principles” for the reformulated TANF was to “Fund waitlists for disabled and elderly home care and nutrition.”

Money to maneuver: A policy change approved by the Legislature in the LePage administration’s first year limited recipients of TANF to five years of cash assistance. When the change took effect in 2012, the result was a swiftly shrinking TANF caseload and a substantial drop in spending on assistance, meaning DHHS had tens of millions more in federal dollars at its disposal.

Since the federal government awards TANF money regardless of whether the state spends it, Maine continued to build up a sizable TANF balance. It reached $155.5 million as of June 30, 2016.

Funding substitution: With tens of millions in TANF funds no longer dedicated to cash assistance, Mayhew asked finance staff assigned to DHHS to find state-funded programs that federal funds — primarily TANF — could pay for instead, creating savings in the portion of DHHS’ budget funded by state tax dollars.

As finance staff carried out this task, they treated the money transferred from TANF to the Social Services Block Grant as a sum that was largely free of the restriction that limited it to services for kids and their families.

Eventually, Sheryl Peavey, the staffer in Mayhew’s office coordinating changes to block grant spending, adopted this interpretation to justify the spending that ran afoul of federal law.

Management shift: As DHHS reworked its spending of TANF funds in 2015, it had moved management of key federal block grants to Mayhew’s office and away from the program offices that traditionally oversaw them. This meant that program-level staff familiar with the rules surrounding each funding source weren’t involved with key spending decisions.

Peavey, then DHHS’ director of strategic reform, made the final decisions. Staff from DHHS’ Office of Child and Family Services, which is officially in charge of the Social Services Block Grant, had little involvement, the email correspondence shows. That’s a break from how the state’s human services agency has traditionally operated, officials from the administrations of former Govs. John Baldacci and Angus King said in interviews.

“In religious terms, the holy spirit doesn’t reside in the commissioner’s office. It’s a group effort,” said Kevin Concannon, who led the Department of Human Services during King’s administration and most recently oversaw the U.S. Food and Nutrition Service during the Obama administration. “The best things we’ve done by engaging the leadership in the respective section.”

‘Flexibility in interpretation’

Much of the work that led to Maine’s improper TANF transactions happened in the summer of 2015.

As a Sept. 1, 2015, deadline approached for the state to assemble its block grant plans and submit them to the federal government, DHHS officials — particularly Peavey — appeared to give progressively less weight to the restriction in federal law that the money transferred from TANF to the Social Services Block Grant “shall be used only for programs and services to children or their families.”

“Ok. General Rule of Thumb,” Peavey wrote in an Aug. 14, 2015, email to David Whitt, then-deputy director of the DHHS Financial Service Center, and other finance staff as they suggested different programs and services to fund with TANF. “We can’t use TANF or TANF transfer if the people served are not parents or dependent children under age 18/25. People served have to be part of a family. (some flexibility with that definition)”

But less than three weeks later, Peavey reversed course and circulated a note attempting to justify the opposite. It was OK to fund households without dependent children with the money transferred from TANF to the Social Services Block Grant, she argued.

“[T]rying to understand our interpretation of the restrictions related to TANF Transfer to SSBG,” Peavey wrote in a Sept. 2, 2015, email to Whitt; Bethany Hamm, director of the office that oversees TANF; Alec Porteous, DHHS’ deputy commissioner of finance; and other finance staffers. “Found a couple examples that could give us flexibility in interpretation.”

In response, Sarah Gove, associate director of financial reporting in the DHHS Financial Service Center, quoted the restriction in law that the transferred funds “shall be used only for programs and services to children or their families whose income is less than 200 percent of the income official poverty line.”

Any financial transaction must be “well documented and allowable,” she wrote.

In the following weeks, Peavey continued to receive reminders from state finance staff reminding her of the law and encouraging her to ask the federal government for guidance.

‘A slightly different path’

But DHHS, with Peavey’s approval, continued to fund expenses for elder services with the funding source it shouldn’t have been using, covering expenses in two separate fiscal years.

Anticipating questions from the state’s budget bureau, which prepares financial orders authorizing state agencies to transfer money between different accounts, Whitt revisited the issue in an email to Peavey on Oct. 22, 2015. His message noted the restriction in federal law that the transferred funds must be used for children or their low-income families.

“I have been taking us down a slightly different path, in part because the more I read from the feds, the more I believe they really don’t have clear parameters,” Peavey wrote back.

Whitt replied, “I do believe that from my read of the actual statute and the latest compliance supplement…we need to produce something that says the population served by these particular contracts meet the 200% [federal poverty level] and benefit children or their families.”

The next day, Peavey circulated a document that laid out her chosen explanation: The Department of Health and Human Services was using an approach called “target group eligibility.” She didn’t define it in the document, but in the previous day’s communication with Whitt, Peavey referred to the concept as one in which a particular, narrowly defined group of people become eligible for a government service as long as a substantial portion of them meet the eligibility standards in the law.

“[I]f the feds allow THAT, how the heck can they argue with our approach?” she wrote.

Since the state knew from surveys that most of the recipients of elder services had low incomes, Peavey’s argument went, it was permissible to use money from TANF to pay for services for some of them.

The document Peavey prepared for the Bureau of the Budget described potential changes the state would make to its elder services contracts to ensure service providers were serving low-income clients with the money from TANF. Until Whitt added it in, the document included no mention of the fact that the federal law required that the funds in question pay for services for children or their low-income families.

“One thing I am not clear on is Maine’s definition of targeted group eligibility,” Whitt wrote in an Oct. 23, 2015, email to Peavey that included the suggested changes to her document. “…Would be even better if the Feds are aware of our definition — that I think would be a powerful statement in an audit.”

In her document, Peavey also pointed to Arizona, New Jersey and Texas as supporting examples, although federal records from 2014 — the most recent year of data available — show that none of the three states recorded transactions like Maine’s using the money they transferred from TANF to the Social Services Block Grant.

Target group eligibility isn’t a strictly or legally defined concept as it relates to TANF or the Social Services Block Grant, Liz Schott, a lawyer and senior fellow at the Center on Budget and Policy Priorities who specializes in assistance programs, said in a recent interview.

Maine DHHS leadership are “making a leap either incompetently or disingenuously,” Schott said. “The bottom line is nothing allows them to use this for people who are not families with children under 200 percent of poverty, and target group eligibility does not alter that.”

Despite the suggestion from Whitt in October 2015 and the state’s director of internal audit the following month to seek federal advice on “target group eligibility,” Maine DHHS didn’t write to the Administration for Children and Families with a question on the concept until Aug. 15, 2016 — after federal officials had reached out to Maine in April 2016 to question the state’s spending, after the BDN had reported on the unlawful transactions in June 2016, and after the state had reversed the spending.

By then, Mayhew had promoted Peavey to the position of chief operating officer at the Maine Center for Disease Control and Prevention within DHHS.

Jeannie Chaffin, then director of the federal Office of Community Services, which oversees the Social Services Block Grant, responded to DHHS’ August communication in October 2016, advising the state that it could use money transferred from TANF only on low-income “children or their families.” The letter also included references to past memos addressing the topic that the federal agency had prepared for states.

The federal office has yet to respond specifically to the question about target group eligibility. But the issue isn’t complicated, said Schott, who reviewed some of the correspondence that circulated among DHHS and state finance staff.

“They act like it was really not clear,” she said. “I mean, it’s very clear. They seem bound and determined to use the TANF money not to help poor families or connect them to work or support them once they get work, but to use it for state fiscal relief.”

Maine Focus is a journalism and community engagement initiative at the Bangor Daily News. Please visit our stories here, here and here on Maine DHHS’ misspending of federal money.

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