News Release: Social Welfare Spending in States Across U.S Drops For The First Time Since 1983; 2006 Data Confirms Slowdown in Spending Since 2002

For Immediate Release –

September 15, 2008

Media contact: Mark Marchand – (518) 443-5283 / marchanm@rockinst.org

Social Welfare Spending in States Across U.S Drops For The First Time Since 1983;
2006 Data Confirms Slowdown in Spending Since 2002

New Rockefeller Institute Report Examines Spending on Cash Assistance, Medical Assistance, and Social Services

Albany, N.Y. — For the first time since 1983, state and local governments are spending less on social welfare, after adjusting for inflation and need, according to a new report released today by the Nelson A. Rockefeller Institute of Government.

The drop in spending in 2006 follows several years of slow growth in social welfare expenditures and suggests that such spending may have entered a period of “new retrenchment” after 2002, according to the study authors.

Based on 2006 data — the most recent year for which U.S. Census Bureau figures are available — and adjusted for inflation and the number of persons living in poverty, the report showed a 3.1 percent reduction in state and local governments’ spending on social welfare between 2005 and 2006 This drop in spending followed four years of slowing growth in socialwelfare spending, which includes direct cash assistance, medical assistance, and nonhealth social services such as subsidies for childcare and energy bills.

“The 2006 reduction and the slowdown since 2002 in total social welfare spending reflects a long-run decline in cash assistance, a more recent drop in nonhealth social services, and a sharp yet probably isolated decrease in medical assistance spending in 2006,” said study co-author and Rockefeller Institute Co-Director Thomas Gais. Rockefeller Institute Senior Policy Analyst Lucy Dadayan co-authored the report with Gais.

Gais added that the factors leading to the retrenchment after 2002 may continue to be important in future years. “States have been squeezed from several sides in recent years. Fiscal savings from falling welfare caseloads are much smaller now, so there’s less money for states to shift over to services. Federal grants to states for social welfare programs have been falling. And nonhealth services may have been strained by the growth in medical assistance expenditures.

“The rapid growth of medical assistance in the early 2000s relative to other social service expenditures suggests that health spending might crowd out nonhealth service spending.”

While pointing out that Medicaid programs might absorb some of the costs of other traditional social services, Gais said states’ efforts to expand health coverage to uninsured or under-insured individuals may create pressures to reduce other forms of social welfare spending.

Gais also said that recent weakness in state and local tax revenues — developments tracked in detail in other Rockefeller Institute reports — are probably creating new pressures to cut spending. He noted that any new cuts in social services or cash assistance will be imposed on spending levels already below where they were several years ago.

The 2006 reduction in inflation-adjusted spending followed four years of slowing growth. Spending grew only about one percent a year earlier, for example. The 2006 reduction was largely due to a drop in medical assistance spending in the wake of the Medicare program taking over Medicaid prescription payments for those patients enrolled in both Medicare and Medicaid. Other types of social welfare spending have been falling for years. Cash assistance spending fell in 2006, the 11th year of consecutive annual declines. Social service spending changed little in 2006, following declines in 2003, 2004, and 2005.

A large part of the decline in social welfare spending was due to reductions in federal grants to the states. Those reductions led to growing differences in states’ spending on social welfare, as wealthy states — those with high per capita incomes — compensated for the federal cuts by using their own taxes to fund such programs, while low-income states did not.

In fact, the report reveals several shifts in recent years in the relationships between fiscal capacity and state expenditures for social welfare programs. For example, cash assistance spending declined more among high fiscal capacity states, producing a downward convergence of state spending. In contrast, states of different fiscal capacity diverged in their spending on social services, as wealthy states continued to increase their spending after 2002, while states with lower per capita incomes reduced their spending.

The new report issued today is the first in a series of Rockefeller Institute papers that will examine the overall topic of social welfare spending and their implications. Reports to be issued later this year will include analyses of changes in the federal Temporary Assistance for Needy Families program, spending trends at both the state and federal levels, and changes in state spending on children.

For a full copy of the new report, visit: www.rockinst.org.

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About the Rockefeller Institute of Government

The Nelson A. Rockefeller Institute of Government, at the University at Albany, is the public policy research arm of the State University of New York. The Institute conducts fiscal and programmatic research on American state and local governments. Journalists can find useful information on the Newsroom page of the Web site, www.rockinst.org.

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