Spending on Social Welfare Programs in Rich and Poor States. Final Report.. Executive Summary

07/01/2004

Social welfare programs strive to improve the well-being of needy and vulnerable populations. The fact that states spend different amounts on these programs is well known, but why they do so is less understood, including the extent to which differences are affected by states' relative fiscal capacity, defined as their ability to raise revenue through taxation. The federal government has long played an important role in offsetting state fiscal disparities. However, recent changes in federal grant programs might have affected poor and rich states in different ways.

This study was conducted for the Office of the Assistant Secretary for Planning and Evaluation, U.S. Department of Health and Human Services, by The Lewin Group and the Nelson A. Rockefeller Institute of Government. It addresses how a state's fiscal capacity affects its spending on social welfare, how states differ in their "packaging" of services for low-income populations, how economic conditions affect state spending on social welfare, and how the poorest states have adjusted to their relative economic austerity. The study also looks at factors in addition to fiscal capacity and federal grants that might influence state spending, including state needs for social welfare spending, as measured by poverty and unemployment rates and political and institutional factors, including state budget processes.

For the purpose of this report, we measure fiscal capacity-and thus distinguish between rich and poor states-using states' real per capita income. By social welfare spending, we mean per capita state spending on programs intended to support lower-income households, usually programs that are means tested. These programs might include cash assistance programs such as Aid to Families with Dependent Children (AFDC) or cash payments under AFDC's replacement, Temporary Assistance for Needy Families (TANF); health programs such as Medicaid and state child health insurance programs (SCHIP); and a wide variety of non-health service programs providing child care, foster care, low-income energy assistance, and social services to the physically disabled and programs funded by the Social Services Block Grant (SSBG).1

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