The federal government warned the state this week it faces a $10 million penalty for not moving enough welfare recipients into jobs and off public rolls in 2005.

The penalty, which a Family and Social Services Administration spokesman said the state will appeal, would mean the loss of approximately 5 percent of the state's federal block grant for Temporary Assistance to Needy Families. The grant pays for financial aid, job training, child care, child abuse prevention and other programs targeting Indiana's needy.

The news came in a letter sent Monday to FSSA Secretary Mitch Roob by Sidonie Squier, director of the Office of Family Assistance for the U.S. Department of Health and Human Services.

Indiana was the only state to receive such a warning letter for federal fiscal year 2005, the 12 months that ended Sept. 30, 2005, Squier said. Guam and the District of Columbia also received letters.

Indiana is among states anticipating such penalties for the current federal fiscal year that ends next month because of new rules under the Deficit Reduction Act of 2005. However, the penalty for fiscal year 2005 represents an additional setback to FSSA at a time when it is revamping its programs for welfare, food stamps and Medicaid by outsourcing data processing to a team of vendors led by IBM Corp. under a 10-year, $1.16 billion contract.

"This is the danger if we don't change our system: $10 million in penalties," FSSA spokesman Marcus Barlow said.

The IBM contract, which began this year, is under threat elsewhere in the nation's capital. The U.S. House of Representatives has passed a new farm bill that would bar outsourcing eligibility for food stamps. Roob has said it would cost Indiana $125 million to cancel the IBM contract.

Squier said her agency was penalizing Indiana for falling short of its target for the rate of TANF households participating in job training. Indiana's target was 33.4 percent, but its rate was only 30.9 percent, she said.

Barlow said nearly every state is on track to fail a tougher new federal work participation standard set forth in the Deficit Reduction Act, but Squier challenged that notion.

"We think the states can meet the rates," Squier said.

Barlow said FSSA's poor performance in moving adult TANF recipients into the work force underscores the need to reform its welfare eligibility systems. Caseworkers now are buried in paperwork, leaving them too little time to make meaningful progress in helping people leave welfare rolls for jobs.

Under the IBM contract, about 1,500 FSSA employees left the agency in March for jobs with the vendors, who now will process the personal data needed to determine eligibility. About 700 welfare case workers remain with FSSA.

"The state employees that we've kept on can concentrate on helping people get from welfare to work. Right now, people are just getting lost in the system," Barlow said.

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