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Chapter 3: Administrative Efficiency

The 1999 Legislature enacted House Bill 3657, which directed the Texas Comptroller of Public Accounts to perform a biennial performance evaluation of the state’s Smart Jobs Fund, Skills Development Fund and Self-Sufficiency Fund programs. As part of the performance review, the Legislature requested the Comptroller provide an analysis of the efficiency of the programs, including the use of administrative funds by these programs.[28]

The Comptrollers’ review of administrative efficiency relied on the integrity of each program’s financial and performance reporting and a review of each program’s policies and procedures. The review examined: how much of each program’s appropriation was awarded in grants to train Texas workers versus how much was used for administrative purposes; the impact of each program’s appropriation with regard to the number of Texas workers trained; and the level of controls currently in place to ensure each Legislative appropriation was used wisely.

To determine how much of the Legislature’s appropriation for each program actually went to grants to train Texas workers, all direct and indirect program expenditures were analyzed, by category for each job program, to arrive at a ratio of grants to administrative expenditures for each fiscal year of operation. Program allowances for administrative expenditures under each individual grant were also reviewed for each program. Information on the number of workers trained was provided by the agencies and analyzed. Contract monitoring and grant fund distribution procedures were also reviewed. The findings for each program follow.


Smart Jobs Fund

The 1993 Legislature created the Smart Jobs (SJ) fund program as a business incentive program to promote workforce development. The Texas Department of Economic Development (TDED) administers the Smart Jobs program. Grants are awarded directly to Texas businesses to provide customized training for their employees. Smart Jobs is funded from an unemployment insurance assessment of one tenth of one percent of the wages paid by employers. TDED awards Smart Jobs grants to businesses on a quarterly basis. Grants can be made to a single employer or to a consortium of employers and may not exceed $1.5 million for the period of the grant. Grant awards are further restricted to creating or retaining jobs that are within 10 percent of the median annual wages.

From fiscal 1995 to fiscal 2000, the Legislature appropriated about $227.3 million to the Smart Jobs Fund program.[29] TDED is authorized to use a portion of the appropriation to administer the program. Beginning with fiscal 2000, TDED’s Smart Jobs administrative costs were capped at $1.5 million per fiscal year or 5 percent of the appropriation, whichever is less. TDED had authority to spend any unexpended balances from fiscal 1997 in fiscal 1998, thus resulting in administrative spending higher than the cap.[30]

The review of the SJ expenditures shows that approximately 81 percent of the total appropriations to date, or about $183.1 million, has been encumbered, or obligated to contracts, by TDED for distribution as SJ grants to businesses. Approximately 4 percent, or $7,582,258, of appropriation has been expended by TDED for administrative purposes (Table 8).[31]

Table 8

Smart Jobs Fund

Use of Appropriations: Grants versus Administration by Fiscal Year

Fiscal
Year
Total
Appropriation
Amount Encumbered by TDED for Grants
Amount Expended for State-level Administration of the SJ by TDED
Ratio of
Grants to Administration
1995
$7,610,320
$7,663,049
$286,496
27 to 1
1996
$29,177,732
$27,122,820
$1,196,811
23 to 1
1997
$28,851,790
$29,630,392
$1,184,310
25 to 1
1998
$78,852,814
$53,385,402
$1,914,641
28 to 1
1999
$28,852,814
$43,333,917
$1,500,000
29 to 1
2000
$53,917,307
$21,949,941
$1,500,000
15 to 1
Total
$227,262,777
$183,085,521
$7,582,258
24 to 1

Source: Texas Department of Economic Development.

Under TDED rules, each contract with an employer allows up to 10 percent of direct training costs to cover the costs of project management, contract reporting and other non-training costs. Approximately 40 percent of the training funded by Smart Jobs grants takes place in a classroom. The remaining 60 percent is on-the-job training. Typical direct training costs for classroom training include tuition and fees and travel. Typical direct training costs for on-the-job training courses include wages for instructors, expendable materials and supplies used in training and training manuals.[32] Since fiscal 1995 through fiscal 2000, approximately $7.5 million, or 4.1 percent, of the grant funds dispersed under contracts with businesses has been spent by grantees on contract administration (Table 9).

Table 9

Smart Jobs Fund

Use of Appropriations: Contract Administration by Fiscal Year

Fiscal Year
Total
Appropriation
Amount Encumbered
by TDED for Grants
Amount Allowed for Businesses’ Contract Admin. Costs
Percentage of Grant Dollars Allowed for Contract Admin.
1995
$7,610,320
$7,663,049
$225,072
2.9%
1996
$29,177,732
$27,122,820
$157,855
.6%
1997
$28,851,790
$29,630,392
$1,017,033
3.4%
1998
$78,852,814
$53,385,402
$2,277,501
4.2%
1999
$28,852,814
$43,333,917
$1,591,197
3.6%
2000
$53,917,307
$21,949,941
$2,262,907
10.3%
Total
$227,262,777
$183,085,521
$7,531,565
4.1%

Source: Texas Department of Economic Development.

Between fiscal 1995 and fiscal 2000, SJ awarded 1,592 grants to more than 1,500 businesses for proposals to train more than 156,000 workers for existing and new jobs. Based on contracts closed for this same period and actual jobs trained by grantees, the average cost of training was $1,891 per trainee that qualified for reimbursement (Table 10).[33]

Table 10

Smart Jobs Fund

Contracted Number of Trainees by Fiscal Year

Fiscal
Year
Amount Encumbered
by TDED for Grants
Contracted (not actual)
Number of Trainees*
1995
$7,663,049
5,454
1996
$27,122,820
22,831
1997
$29,630,392
20,709
1998
$53,385,402
42,441
1999
$43,333,917
41,664
2000
$21,949,941
23,321
Total
$183,085,521
156,420

* Numbers reflected in the “Contracted Number of Trainees” column cannot be used to estimate the average cost of trainee or the average cost of grant dollars per trainee. Contract closings have resulted in fewer than projected actual trainees and fewer grant dollars used.

Source: Texas Department of Economic Development.

TDED’s contract closeout of each grant is proceeding and the actual number of trainees is proving to be significantly less than the contract grant proposals (Table 11). At the writing of this report, TDED has closed all contracts and recorded the actual number of jobs trained through fiscal 1998. A total of 276 contracts, however, remain active from fiscal 1999, and 83 contracts remain open from fiscal 2000.[34]

Table 11

Smart Jobs Fund

Actual Trainees versus Contracted Number of Trainees by Fiscal Year

Fiscal
Year
Amount Encumbered
by TDED for Grants
Contracted Number
of Trainees
Actual Number
of Trainees
1995
$7,663,049
5,454
Data not available
1996
$27,122,820
22,831
1,697
1997
$29,630,392
20,709
831
1998
$53,385,402
42,441
11,459
1999
$43,333,917
41,664
11,467
2000
$21,949,941
23,321
18,378
Total
$183,085,521
156,420
43,832

Source: Texas Department of Economic Development.

The future of the program’s administrative costs and average cost of training will change as TDED continues to closeout grant contracts. The process of closing-out contracts should reduce the program’s average cost of training and administrative costs as additional trainees qualified for reimbursement are added to the current total and administrative costs remain relatively stable under the administrative spending cap established by the Legislature. A significant number of contracts (about 360) are still open from fiscal 1999 and fiscal 2000.

TDED’s new enforcement practices and the current legislative moratorium on new Smart Jobs contracts could mitigate the administrative costs per trainee. Stricter enforcement of contract standards could actually reduce the ultimate number of qualified trainees.

As a result of the review conducted by the State Auditor’s Office on TDED contracting procedures, TDED is currently interpreting what constitutes a qualified or “trained” employee more strictly than in past years. Only trainees that complete 75 percent of the hours the employer agreed to provide are counted as “qualified” or “trained.” This new approach could actually reduce the number of trainees that can be counted as “qualified” or “trained” under a grant award and increase, rather than decrease, administrative and training cost averages for a period of time until grantees become more familiar with the new enforcement standards.

A continued freeze on Smart Jobs operations also could increase administrative and training cost averages, because administrative costs continue to be incurred through existing contracts without additional grant awards and trainees being added to the total pool.


Skills Development Fund

The 1995 Legislature created the Skills Development Fund (SDF). Administered by the Texas Workforce Commission (TWC), the SDF awards grants to public community and technical colleges, the Texas Engineering Extension Service and community based organizations to perform customized job training for specific jobs at local businesses. Consortiums of small and medium sized businesses are encouraged. The SDF is funded through general revenue. The SDF does not have a dedicated revenue source, such as the unemployment insurance tax for Smart Jobs.[35] Grants are awarded on a quarterly basis and are limited to no more than $500,000 to a single employer.

Beginning in fiscal 1996, the Legislature has appropriated $25 million in general revenue each biennium for a total of $75 million to date.[36] In fiscal 1996-97, TWC was not authorized to charge administrative costs to the program and these costs were absorbed by TWC. Beginning in fiscal 1998, TWC was authorized to spend a percentage of the SDF appropriations to administer and house the program.

A review of the SDF expenditures reveals that approximately 99 percent of the total appropriation for fiscal 1996 through fiscal 2000, or about $61.7 million, has been encumbered, or obligated to contracts, by TWC for distribution as SDF grants. Approximately 1 percent, or $795,190, of the $62.5 million appropriation to the SDF has been spent by TWC for administrative purposes (Table 12).

Table 12

Skills Development Fund

Use of Appropriations: Grants versus Administration

Biennium
Total Appropriation
Amount Encumbered by TWC for Grants
Amount Expended for State-level Administration of the SDF by TWC
Ration of
Grants to Administration
1996/97
$25,000,000
$25,000,000
$0
100 to 1
1998/99
$25,000,000
$24,462,877
$537,123
45.5 to 1
2000
$12,500,000
$12,241,933
$258,067
47.4 to 1
Total
$62,500,000
$61,704,810
$795,190
78 to 1

Source: Texas Workforce Commission.

Under TWC rules, eligible entities working with an individual business are allowed to spend up to 10 percent of their direct training costs to administer the program. Grantees involved with a consortium of businesses are allowed to spend up to 15 percent of their direct training costs on administration. Typical direct training costs include tuition and fees, wages for instructors, training materials and curriculum development. Grants involving business consortiums are also allowed to request funds, up to 10 percent of the total grant amount, to purchase equipment. These funds are typically requested for the purchase of computers and other equipment that is specific to the training needs of the businesses in the consortium. Following completion of the training, equipment purchased under a SDF grant may be kept at the local community or technical college but remains the official property of TWC. From fiscal 1996 through fiscal 2000, approximately $6.5 million, or approximately 11 percent, of the grant funds dispersed under contracts with eligible entities has been spent by grantees on contract administration (Table 13).

Table 13

Skills Development Fund

Contract Administration Costs

Biennium
Amount Encumbered by TWC for Grants
Amount Allowed
for Contract Administration Costs
Percentage of Grant Dollars Allowed for Contract Administration
1996/97
$25,000,000
$2,428,298
10%
1998/99
$24,462,877
$2,739,259
11%
2000
$12,241,933
$1,344,239
11%
Total
$61,704,810
$6,511,796
11%

Source: Texas Workforce Commission.

Between fiscal 1996 and fiscal 2000, the SDF awarded 247 grants in partnership with 1,376 businesses to train over 73,000 workers that qualified for reimbursement. Since the start of the SDF, 95 percent of the trainees have gained employment with a participating business. The average cost of training has been $878 per trainee for those qualifying for reimbursement on closed contracts only (Table 14).

Table 14

Skills Development Fund Workers Trained

Fiscal
Year
Amount Encumbered
by TWC for Grants
Actual and Contracted
Number of Trainees*
1996/97
$25,000,000
28,328
1998/99
$24,462,877
28,937
2000
$12,241,933
16,386
Total
$61,704,810
73,651

* Numbers reflected in the “Contracted Number of Trainees” column cannot be used to estimate the average cost of trainee or the average cost of grant dollars per trainee. Contract closings have resulted in fewer than projected actual trainees and fewer grant dollars used.

Source: Texas Workforce Commission.

The Texas Labor Code and TWC rules frame the criteria used for evaluating and awarding grants. Successful proposals include evidence of a labor shortage not addressed by current training programs in the community, the creation or retention of jobs, wages that meet or exceed the prevailing wage for that occupation in the local labor market for employees completing the training program, emphasis on the training needs of small to medium-sized businesses, and facilitation of the growth of an industry or emerging occupations.

Proposals must provide support of the above criteria, a description of the agreement between partners, a detailed outline of the skills to be gained by the trainees, a full budget for the project, the dollar amount being contributed by the business partner(s), and the equal employment opportunity policy of the business partner.

TWC distributes the grant funding to recipients in stages, based on specific performance outcomes and targets outlined in the contract. Twenty-five percent of the grant funds are distributed when a contract is signed, an additional 25 percent when half of the specified training is successfully completed, another 25 percent upon successful completion of training by the specified number of trainees and the remaining 25 percent once a final report has been filed, performance achievement has been documented and TWC verifies the employment and wage records of the trainees.

Performance is also monitored by program staff through other reports required under the contract. The contractor must submit an initiation report certifying the number of people who have enrolled in training within the first 60 days of the contract and quarterly “Expenditure and Program Progress” reports are required to assist in monitoring the progress of the goals and objectives outlined in the contract.

TWC’s Internal Contract Monitoring Division conducts contract audits of the SDF grant recipients. These audits ensure that all contract requirements have been properly and accurately completed as reported by the recipient in the midway and final reports filed with TWC. The contract audits look at performance measures, project budget, procurement, subcontractor monitoring and delivery of services. Since the inception of the program, the SDF has spent approximately $127,000 on contract monitoring.


Comparison of Smart Jobs and Skills Development Fund

A comparison of administrative efficiency looks at how much administrative effort it takes to grant training dollars. TDED’s Smart Jobs program has a 33 percent higher efficiency rating with an average ratio of $12 grant dollars to every one administrative dollar (Table 15). TWC’s Skills Development Fund has a average ratio of $8 grant dollars for every one administrative dollar (Table 16). TDED’s administrative costs were 8 percent of encumbered grants, while TWC’s were 12 percent.

This simplistic approach to measuring administrative efficiency misses the complexities of ensuring that grant funds are spent for their intended purpose. With new administrative changes in TDED, these efficiency ratios can be expected to decline as efforts to ensure program integrity increase. TWC’s administrative efforts include contract monitoring by its central unit.

In addition, SDF has some expenditures for equipment folded into its administrative costs and its direct grant costs. Although the equipment is state owned, these purchases remain with the contractor – primarily community colleges – to increase their training capacity. These costs could actually be spread over a larger number of training dollars as more contracts are completed for similar training.

Table 15

Smart Jobs’ Administrative Effort Compared to Grants Encumbered

Fiscal
Years
Grants
Encumbered
Actual
State-level Administration
Actual
Contractor Administration
Total Administration
Percent of
Total Grant Expenditures
to Total Administration Expenditures
Ratio of
Actual Grant Expenditures
to Total Administration
1995
$7,663,049
$286,496
$225,072
$511,568
6.68%
15 to 1
1996
$27,122,820
$1,196,811
$157,855
$1,354,666
4.99%
20 to 1
1997
$29,630,392
$1,184,310
$1,017,033
$2,201,343
7.43%
13 to 1
1998
$53,385,402
$1,914,641
$2,277,501
$4,192,142
7.85%
13 to 1
1999
$43,333,917
$1,500,000
$1,591,197
$3,091,197
7.13%
14 to 1
2000
$21,949,941
$1,500,000
$2,262,907
$3,762,907
17.14%*
6 to 1
Total
$183,085,521
$7,582,258
$7,531,565
$15,113,823
8.26%
12 to 1

* Rise in administrative expenditures reflect TDED’s new approach to qualifying trainees.

Source: Texas Department of Economic Development.

Table 16

SDF’s Administrative Effort Compared to Grants Encumbered

Fiscal
Years
Grants
Encumbered
Actual
State-level Administration
Actual Contractor Administration
Total Administration
Percent of
Total Grant Expenditures
to Total Administration Expenditures
Ratio of
Actual Grant Expenditures
to Total Administration
1996/1997
$25,000,000
$0
$2,428,298
$2,428,298
9.71%
10 to 1
1998/1999
$24,462,877
$537,123
$2,739,259
$3,276,382
13.39%
7.5 to 1
2000
$12,241,933
$258,067
$1,344,239
$1,602,306
13.09%
8 to 1
Total
$61,704,810
$795,190
$6,511,796
$7,306,986
11.84%
8 to 1

Source: Texas Workforce Commission.


Self-Sufficiency Fund

The 1999 Legislature established the Self-Sufficiency Fund (SSF). Modeled on the Skills Development Fund, the SSF teams the business community with public community and technical colleges, the Texas Engineering Extension Service, and community based organizations to provide job training for people who receive Temporary Assistance for Needy Families (TANF) or who are at risk of becoming dependent on public assistance. The goal of the SSF is to help them obtain jobs and become independent of government assistance. The fund is financed solely with TANF federal funds and administered by the Texas Workforce Commission. Grants are awarded on a quarterly basis and are limited to no more than $500,000 to a single employer.

Since the program’s inception, the Legislature has appropriated a total of $36 million in TANF funds for operation of the SSF. The Legislature appropriated $6 million in fiscal 1998, $6 million in fiscal 1999 and $24 million for the 2000-2001 biennium. TWC is authorized to spend a percentage of the SSF appropriations to administer and house the program.

A review of the SSF expenditures reveals that approximately 99 percent, or about $23.9 million, of the total appropriation for fiscal 1998 through fiscal 2000 has been encumbered by TWC for distribution as grants. Approximately 1 percent, or $309,341 of the total $24 million appropriation to the SSF has been spent by TWC for administrative purposes (Table 17). Administrative expenditures are expected to increase because TWC can use the appropriation for this purpose and because contracts require closeout, monitoring and auditing.

Table 17

Self-Sufficiency Fund

Use of Appropriations: Grants versus Administration

Fiscal
Years
Total Appropriation
Amount Encumbered by TWC for Grants
Amount Expended for Administration of the SSF by TWC
Ratio of
Grants to Administration
1998/99
$12,000,000
$11,944,358
$55,642
214.7 to 1*
2000
$12,000,000
$11,929,333
$253,699
47 to 1
Total
$24,000,000
$23,873,691
$309,341
77 to 1

* TWC was not authorized to use TANF funds for administration in those years.

Source: Texas Workforce Commission.

Under TWC rules, eligible entities working with an individual business are allowed to spend up to 10 percent of their direct training costs to administer the program. Grantees involved with business consortiums are allowed to spend up to 15 percent of their direct training costs on administration. Typical direct training costs include tuition and fees, wages for instructors, training materials and curriculum development.

Grants involving business consortiums are also allowed to request funds, up to 10 percent of the total grant amount, to purchase equipment necessary for training. These funds are typically requested for the purchase of computers and other equipment that is specific to the training needs of the businesses in the consortium. Following completion of the training, equipment purchased under a SSF grant may be kept at the training institution, but remains the official property of TWC.

SSF grants also include a portion of the grant funds for “support services.” Typical support service costs include funds for childcare, transportation and case management. The amount of support service funds in any grant is dependent upon the needs of the population being trained and the support resources currently available in the grantee’s area of the state. Since fiscal 1998, approximately $3 million, or 13 percent, of the grant funds dispersed under contracts with eligible entities has been spent on administration (Table 18).

Table 18

Self Sufficiency Fund

Contract Administration Costs

Fiscal
Years
Amount
Encumbered by
TWC for Grants
Amount Allowed
for Contract
Administration Costs
Percentage of Grant
Dollars Allowed for
Contract Administration
1998/99
$11,944,358
$1,331,485
11%
2000
$11,929,333
$1,717,810
14%
Total
$23,873,691
$3,049,295
13%

Source: Texas Workforce Commission.

Between fiscal 1998 and fiscal 2000, the SSF awarded 46 grants in partnership with 644 businesses to train more than 6,300 workers that qualified for reimbursement (Table 19). More than 48 percent of trainees gained employment with a participating business. Since the start of the SSF, the average cost of training has been $5,797 for a trainee qualifying for reimbursement, substantially higher than the average cost of training for participants under the SDF.[37]

The Legislative Budget Board (LBB) has estimated the average cost of training for the population being served under the SSF grant program at $3,333 per trainee. TWC’s experience administering the program has shown that actual costs to meet the goals of the SSF are higher. TWC reports that a higher cost of training is due largely to the number of people who participate in the training, but cannot be counted as successfully completing the training at the end of the contract. The TANF clients receiving training must meet employment requirements and be working toward self-sufficiency before being counted as successfully completing training. It appears that TANF clients, who may have been unemployed for a long period of time, find it more difficult to remain employed and make the transition from government dependence to employment and self-sufficiency.

Table 19

Self Sufficiency Fund Workers Trained

Fiscal
Years
Amount Encumbered
by TWC for Grants
Actual and Contracted
Number of Trainees*
1998/99
$11,944,357
2,520
2000
$11,929,333
3,806
Total
$23,873,691
6,326

* Numbers reflected in the “Contracted Number of Trainees” column cannot be used to estimate the average cost of trainee or the average cost of grant dollars per trainee. Contract closings have resulted in fewer than projected actual trainees and fewer grant dollars used.

Source: Texas Workforce Commission.

The Texas Labor Code and TWC rules frame the criteria used for evaluating and awarding grants. Because the funded training must prepare trainees for jobs with specific employers, those employers must participate in the application process. Before the SSF grant application is submitted to TWC, it must be submitted to the appropriate Local Workforce Development Board for its review and comment. After obtaining the review and comments of the local board, a prospective private partner and training provider present a joint proposal requesting funding from the SSF. Information contained in the proposals include the number of people to be trained and employed; an outline of the training project and skills to be taught; the occupation for which training will be provided; the wages to be paid and a proposed timeline to achieve self sufficiency; a budget outline; credentials of entities that will be providing training and education; and information on the training provider’s financial management system.

TWC distributes the grant funds to recipients in stages, based on specific performance outcomes and targets outlined in the contract. Twenty-five percent of the grant funds are distributed when a contract is signed, an additional 25 percent when half of the specified training is successfully completed, another 25 percent upon successful completion of training by the specified number of trainees and the remaining 25 percent once a final report has been filed, performance achievement has been documented and TWC verifies the employment and wage records of the trainees.

TWC’s Internal Contract Monitoring Division conducts contract audits of the SSF grant recipients. These audits ensure that all contract requirements have been properly and accurately completed as reported by the recipient in the midway and final reports filed with TWC. Performance is also monitored by program staff through other reports required under the contract. The contractor must submit an initiation report certifying the number of people who have enrolled in training within the first 60 days of the contract and quarterly “Expenditure and Project Progress” reports are required to assist in monitoring the progress made on the contract’s goals and objectives. The contract audits look at performance measures, project budget, procurement, subcontractor monitoring and delivery of services. During fiscal 2001, five of the 24 existing contracts will be monitored.[38]