Promising Ideas to Address Unspent Vocational Rehabilitation Funds

The Vocational Rehabilitation (VR) program helps more than 800,000 people with disabilities obtain, maintain, and advance in employment each year, yet hundreds of millions of dollars in federal VR funding go unspent by state VR agencies. In fiscal year 2023, for example, 22 states missed out on a combined $347 million in federal VR funding, with some state legislatures choosing not to allocate the needed state funds to draw down federal VR funding and some state VR agencies unable to fully spend the money allocated to them in the time allowed.

Unspent federal VR funding is problematic because it means that fewer people with disabilities can be served by the VR program. If people with disabilities are not employed, they may struggle to live independent lives and are more likely to need support from federal and state programs such as Social Security Disability Insurance, Supplemental Security Income, Medicare, and Medicaid. The lower level of VR funding may also, over time, shrink the VR program and network of community rehabilitation providers, decreasing the employment-related resources available to people with disabilities.

The VR program provides critical support for people with disabilities, and states should use the full funds available to them to maximize the impact it can have. Various barriers such as complex and restrictive program rules, however, limit how states obtain and spend federal VR funding. In addition, demand for VR services substantially decreased at the start of the COVID-19 pandemic and has been slow to recover.

New research points to common sense solutions to help policymakers increase their state’s spending of federal VR funding. Through a project funded by the Council of State Administrators of Vocational Rehabilitation, TransCen and Mathematica identified five specific steps the federal government could take to help states claim and spend more federal VR funding:

1. The federal government could consider modifying, suspending, or eliminating policies and statutes that make it difficult for states to obtain their full match, spend their funding, or administer program funds. For example, the federal government could change or eliminate maintenance of effort requirements, which decrease a state’s federal VR funding amount if the state’s VR funding drops substantively relative to previous years. Maintenance of effort requirements make some states cautious of temporarily increasing their VR funding because they do not wish to incur penalties when the state funding decreases to previous levels in the future. 
2. The federal government and the Rehabilitation Services Administration—the federal entity that oversees state VR agencies—might consider simplifying the VR funding formula to better reflect the needs of the disability community and VR programs. A formula that better accounts for inflation and the current scope of program services could move federal VR funding where it is needed most. Adjusting the federal–state VR funding ratio to a simpler, more state-favored ratio would likely increase the amount of federal VR funding that states claim and make it easier to track the spending of federal versus state VR funding.
3. To ease uncertainty, the Rehabilitation Services Administration could develop transparent and consistent rules for allocating unclaimed federal VR funds. The current reallotment process is opaque, with the reasoning behind decisions varying year-to-year. A longer process with clear criteria for making award decisions would help states decide whether to apply for unclaimed federal VR funding.
4. The federal government could invest in training opportunities for state VR leaders and staff. Since 2013, there have been more than 90 new state VR agency directors across the 78 state VR agencies. New state VR agency directors and staff could benefit from federally funded training, which would allow states to direct more of their funding into service delivery.
5. The federal government could provide more timely, clear, and consistent guidance to state VR agencies. When state VR agencies receive delayed or incorrect guidance from the Rehabilitation Services Administration, it adversely affects their ability to properly adjust to their policies and practices.  

Reforms that promote the use of federal VR funding would have several positive impacts. Most importantly, increasing VR spending would improve employment outcomes and increase workforce participation for people with disabilities, promoting their independence and decreasing their need for other supports. As more people with disabilities are employed and economically self-sufficient, fewer would rely on support from federal and state programs, saving taxpayer dollars. Additional VR funding would also strengthen state and local employment rehabilitation services for people with disabilities, creating a strong network to help people obtain and maintain employment.

If the federal government reduces barriers to acquiring and spending federal VR funds, in the future, fully funded state VR agencies will be capable of providing more employment supports so that people with disabilities can achieve their employment goals and live the lives they want. And that is a future we would all look forward to.