This study sought to understand how state fiscal capacity affected spending on social welfare programs. It found that low fiscal capacity states spent less on social welfare programs than did high fiscal capacity states and that these differences were greater for cash assistance and non-health social services than for health-related programs.
We also found that the level and composition of social welfare spending changed enormously in the last two and a half decades. Medicaid spending grew much faster than overall social welfare expenditures, particularly since the late 1980s. Cash assistance spending was more volatile — rising in the early 1990s and falling in the late 1990s — though the general tendency was down. Non-health social services grew more steadily throughout the period. These trends produced a major shift in the basic structure of state social welfare budgets, away from cash assistance and toward health care services. At the same time, a major realignment occurred in the relationship between the composition of social welfare services and state fiscal capacity. Per capita expenditures on Medicaid and cash assistance by rich and poor states converged, especially since the middle 1990s. By contrast, per capita spending on non-health social services diverged, with rich states spending much more than poor states on these programs.
These shifting patterns of spending are partly understandable in light of our findings that different social programs respond to different factors and that states of different fiscal capacity vary in their responsiveness to the same variables. Unemployment, for example, changes the mix of expenditures, as higher unemployment increases Medicaid spending and fails to boost non-health social services. Increases in state per capita personal income tend to push up Medicaid and non-health social services while showing an inconsistent effect on cash assistance.
Our case studies also suggested that different institutional processes characterize different program areas. Although these findings are limited to these six poor states, they also indicate the possibility of dramatically different dynamics across program areas. The greater role of ideology and demographic characteristics in decisions affecting cash assistance expenditures; the importance of federal match rates, minimum requirements, and organized providers in Medicaid politics; and the significance of overall state resources and flexibility in non-health social services all suggest that the mix of social welfare programs is likely to continue to change.
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