NASHVILLE (AP) — Gov. Bill Lee said Monday that his administration is gearing up to use a portion of its $732 million in reserves from a federal welfare program for families with children.

The large surplus has come under scrutiny after first being flagged last month in a report by the Beacon Center of Tennessee, a conservative think tank.

The report found that the state receives $190.9 million annually through the federal Temporary Assistance for Needy Families program, but last year spent just $71.1 million of that money. The state does not have to return unused TANF funds.

This strategy had placed Tennessee on a trajectory to soon have more than $1 billion in unused federal money designed to help low-income families with temporary cash assistance, transportation, child care, job training and other services.

Lee, a Republican, originally defended the high reserve amount and released a statement arguing that the surplus would provide a cushion for any potential future economic downturn.

However, Lee changed course on Monday by telling reporters he was open to using the surplus on a variety of options to continue helping Tennessee’s poor. His announcement was coupled with news that the state was planning on spending up to $70 million of the surplus on grant awards to nonprofits throughout the state starting in January.

“There are a number of things about where we are in that department that are encouraging and that we have a number of opportunities to provide even greater services,” Lee said.

Lee added that he met with Department of Human Services Commissioner Danielle Barnes last week to talk about the surplus and discussed developing a strategy to begin spending some of the state’s TANF reserves.

“This economy has allowed us to have reserves and we need to have reserves, but when they get to a point and beyond that point, we need to be good stewards with that and that’s what we’re trying to do,” Lee said.

During a budget presentation in front of the governor and his top cabinet members on Monday, Barnes defended her department’s actions that resulted in a growing surplus of the federal money.

Describing the news around the surplus as the “elephant in the room,” Barnes noted that the surplus had accrued at the same time the department had recently increased benefit amounts — the first time in nearly two decades — while also noting that the department offers transitional benefits to people who no longer qualify for TANF.

According to U.S. Census data, Tennessee’s 16.7% poverty rate is above the national average. The rate is even higher for children, 28% of whom are living in poverty.