Spending on Social Welfare Programs in Rich and Poor States. Final Report.. What Is Social Welfare Spending? And What Is State Fiscal Capacity?


For the purposes of the study, we defined social welfare spending as programs that supported lower-income households, typically, though not exclusively, programs with means tests. These programs included health initiatives such as Medicaid and state child health insurance programs (SCHIP); 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); and a wide variety of other service programs providing child care, foster care, low-income energy assistance, services to the homeless and those funded by the Social Services Block Grant (SSBG). Because the study was designed to understand the effects of state fiscal capacity on social welfare spending, we included in the analyses only spending that went through the budgets of state and local governments. Direct expenditures by the federal government — such as the federal Earned Income Tax Credit (EITC), Food Stamp Program (FSP) benefits, and the federal portion of Supplemental Security Income (SSI) for poor elderly and disabled people — were excluded from direct examination.

Although the study used spending data on specific programs, such as Medicaid and TANF, at several points in the analysis, most of the quantitative research in the project was based on state and local spending data collected annually by the U.S. Census Bureau (Census Bureau) since 1977. One of the largest expenditure categories in the Census of Governments (Census) data was termed public welfare expenditures, amounting to $233 billion in fiscal year (FY) 2000. To determine whether fiscal capacity affected different types of social welfare spending in different ways, the study organized the 10 subcategories under public welfare expenditures into three basic types of spending:

  1. Cash assistance, which included AFDC, TANF cash assistance, general assistance, and state supplements to SSI;
  2. Medicaid, which was found to be closely related to one of the Census categories, “Payments to Medical Vendors”; and
  3. Non-health social services, which included a wide variety of services and in-kind benefits, such as child welfare services, child care subsidies, energy assistance programs, shelters for the homeless, and many others.

Because some Medicaid dollars flowed to public hospitals and such hospitals serviced many low-income families, we also analyzed a Census category called Public Hospitals at several points in the study, though the analyses were usually done separately. Exhibit 1 details these categories, showing the spending levels in many of the subcategories for FY 2000 (the most recent data available). Health care expenditures constituted the largest part of total spending on social welfare, with Medicaid and Public Hospitals being the largest and second largest categories of spending. States spent a total of $230.2 billion on these two functions in 2000. Non-health Social Services made up the third largest category ($58 billion), and Cash Assistance came in fourth ($20.7 billion).

Spending Category Detailed Item in Census Data FY 2000 $
Exhibit 1
State and Local Government Spending by Detailed Item, FY 2000
(in billions)
Cash Assistance E67
Federal Categorical Assistance
17.7 Includes AFDC or TANF cash assistance; federal Supplemental Security Income (SSI) when it passes through state accounts; and state SSI supplements.

Note: The only federal SSI funds that pass through state accounts are retroactive federal payments reimbursing the state for payments made to individuals under state supplement programs; the total amounts are small

Other Cash Assistance


Includes cash assistance programs not under federal categorical programs (e.g., general assistance, refugee assistance, home relief, and emergency relief)
Medicaid E74
Vendor Payments for Medical Care
155.0 Includes payments made directly to private vendors for medical assistance and hospital and health care (payments consist mostly of Medicaid/SCHIP)
Non-health Social Services E75
Vendor Payments for Other Purposes
2.1 Includes payments made directly to private vendors for services and commodities other than medical, hospital, and health care
E77, F77, G77
Welfare Institutions
1.2 Includes payments for provision, construction, and maintenance of nursing homes and welfare institutions owned and operated by a government for the benefit of needy persons
E79, F79, G79
Other Public Welfare
54.4 Includes operational payments for public employees in the sphere of public welfare; and payments for welfare programs such as child care, child welfare, adoption assistance, foster care, low-income energy assistance and weatherization, social services to the physically disabled, SSBG-funded programs, welfare-related community action programs, and temporary shelters and other services for the homeless
Public Hospitals E36, F36, G36
Own Hospitals (except federal veterans)
75.2 Includes payments for hospital facilities providing in-patient medical care and institutions primarily for the care and treatment of the disabled that are directly administered by a government as well as direct payments for acquisition or construction of hospitals
Non-social Welfare All Other Spending 1,309.0 Includes primarily elementary and secondary education, higher education, highways and public mass transit, police protection, financial administration, housing and community development, utilities (water supply and electric power), and sewerage

We measured state fiscal capacity using states’ real per capita personal income. Per capita personal income relates in many ways to the resources that state and local governments may tax to pay for social welfare as well as non-social welfare spending — and the availability of such resources might affect overall levels of spending. We considered and compared other measures of fiscal capacity, but real per capita personal income was strongly correlated with other indicators, and it had the virtue of being available annually throughout the time period our analyses covered.

To compare changes in spending patterns for rich and poor states over time, we classified all of the states plus the District of Columbia into four quartiles with respect to their fiscal capacity, as measured by real per capita income averaged over the 24-year period. Exhibit 2 displays, in map form, the states in each of the quartiles, from the richest states in Quartile 1 to the poorest in Quartile 4.

Exhibit 2.
States by Fiscal Capacity Quartile,
Measured by Average Real Per Capita Personal Income, 1977–2000

States by Fiscal Capacity Quartile, Measured by Average Real Per Capita Personal Income, 1977-2000.


Selected Characteristics Quartile 1 Quartile 2 Quartile 3 Quartile 4
Mean per capita personal income, 1977–2000 (2000 dollars) $24,794 $21,387 $19,242 $17,058
Mean percentage of people under federal poverty level, 1977–2000 11.0 11.0 13.2 17.1
Median population density (population per square mile), 1977–2000 338 89 57 52

The map shows that the poorest states come from two areas of the country. One group of states in Quartile 4 includes several southern states. Another group of poor states is located in the West, from New Mexico to Montana and South Dakota. We chose states for the case studies in part to represent this regional variation. West Virginia and South Carolina were selected among the eastern states; Mississippi and Louisiana were selected among the states in the central South; and New Mexico and Arizona were selected among the western states. As we note below, regional differences among the poor states were correlated with major differences in how they allocated funding among different social welfare programs.

Exhibit 2 also displays information about the states in these different quartiles, including average real per capita income, poverty rates, and population density. States in different quartiles differed in income; low-fiscal capacity states also had higher poverty rates and lower population densities (i.e., they were generally more rural).

View full report


"report.pdf" (pdf, 1.52Mb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report


"apa.pdf" (pdf, 2.64Mb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®