Spending on Social Welfare Programs in Rich and Poor States. Final Report.. 1. State Fiscal Capacity and Average Spending on Social Welfare

07/01/2004

When averaged over the entire period from 1977 to 2000, per capita spending on social welfare was positively correlated with state fiscal capacity, as shown in the chart at the top of Exhibit III-2.17 A similar pattern exists for spending per poor person, shown at the bottom of Exhibit III-2. When public hospital payments were included, the wealthiest 13 states (Quartile 1) spent an average of $825 per capita (in 2000 dollars) over this time period, while the poorest 12 states (Quartile 4) spent $630 per capita. When payments to public hospitals were excluded, mean per capita spending by states in the wealthiest quartile was $639, while average spending by states in the poorest quartile was $407.

Exhibit III-2.
Spending Per Capita and Per Poor Person on Social Welfare, With and Without Hospital Payments, Averages by Fiscal Capacity Quartiles, 1977-2000

Average spending per capita
Spending Per Capita and Per Poor Person on Social Welfare, With and Without Hospital Payments, Averages by Fiscal Capacity Quartiles, 1977-2000

This difference in spending between rich and poor states resulted largely from differences in states' spending of their own tax revenues, as shown in the chart at the top of Exhibit III-3. Federal grants exerted a complex effect on inequalities in state spending. In dollar terms, federal funding actually increased state differences with respect to fiscal capacity because the Quartile 1 received higher grants per capita than the other quartiles. The richest quartile of states, for example, spent an average $371 per capita from federal sources, while the poorest quartile spent $339 (when public hospital payments are included). However, because poor states spent less money overall on social welfare, that $339 constituted a large proportion (83 percent) of their total spending on such programs. By contrast, the $371 per capita from federal sources spent by the richest quartile of states made up a much smaller share (58 percent) of their total social welfare budgets. That is, more federal money went to rich states than to poor states, but poor states relied more heavily on the federal government to support their social programs.

The chart at the bottom of Exhibit III-3 also shows that state fiscal capacity bore a similar relationship to state spending on non-social welfare functions. Again, the differences were due to how much of their own revenues states spent. However, federal spending played a smaller role in this component of state budgets. Although federal spending averaged over two-thirds (69%) of all spending on social welfare functions, federal grants typically made up only about one-eighth (13%) of total state spending on non-social welfare functions.

Exhibit III-3.
Per Capita Spending on Social Welfare and Non-social Welfare Functions, Averages for Fiscal Capacity Quartiles, 1977-2000

Per Capita Spending on Social Welfare and Non-social Welfare Functions, Averages for Fiscal Capacity Quartiles, 1977-2000.

When we disaggregated social welfare spending into more specific categories, the relationships between state fiscal capacity and state spending became more complex. As the chart at the top of Exhibit III-4 demonstrates, the poorest states (Quartile 4) showed much lower levels of spending on cash assistance and non-health social services than did wealthier states.18 Levels of spending on Medicaid were also highest for the rich states in Quartile 1; spending levels were lower, albeit similar, across Quartiles 2 through 4. By contrast, the poorest states spent the most per capita on public hospitals. State fiscal capacity was, in sum, strongly related to spending on cash assistance, moderately correlated with spending on non-health social services, and least correlated (even negative for hospital payments) with spending on health or medical assistance.

Exhibit III-4.
Spending Per Capita and Per Poor Person on Different Types of Social Welfare Functions, Averages for Fiscal Capacity Quartiles, 1977-2000

Average spending per capita

Spending Per Capita and Per Poor Person on Different Types of Social Welfare Functions, Averages for Fiscal Capacity Quartiles, 1977-2000, Average spending per capita

Average spending per poor person

Spending Per Capita and Per Poor Person on Different Types of Social Welfare Functions, Averages for Fiscal Capacity Quartiles, 1977-2000, Average spending per poor person

Because social programs were intended mostly to help low-income people, per capita spending levels might fail to capture differences in the degree to which states met social needs. To understand spending from this perspective, we compared spending levels per poor person in each state. Using this measure, differences among rich and poor states were greater and more consistent, as shown in the chart at the bottom of Exhibit III-4. Disparities between the top and bottom quartiles were even larger for spending on cash assistance and other non-health social services; and Medicaid expenditures and public hospital payments showed stronger and positive relationships to fiscal capacity.

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