Social Program Spending and State Fiscal Crises

Assessing the New Federalism Occasional Paper No. 70

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

This report is available in its entirety in the Portable Document Format (PDF).

About the Series

Assessing the New Federalism is a multiyear Urban Institute project designed to analyze the devolution of responsibility for social programs from the federal government to the states, focusing primarily on health care, income security, employment and training programs, and social services. Researchers monitor program changes and fiscal developments. In collaboration with Child Trends, the project studies changes in family well-being. The project aims to provide timely, nonpartisan information to inform public debate and to help state and local decisionmakers carry out their new responsibilities more effectively.

Key components of the project include a household survey, studies of policies in 13 states, and a database with information on all states and the District of Columbia, available at the Urban Institute's web site. This paper is one in a series of occasional papers analyzing information from these and other sources.

In recent fiscal years, states have endured severe fiscal stress, triggered by the recession that began in March 2001 and exacerbated by the terrorist attacks of September 11. This stress represents a rapid reversal from the late 1990s—a period of prosperity during which states expanded health insurance coverage and provided new services using their welfare block grants, while also cutting taxes and increasing spending in other areas such as education and corrections. In the past few years, by contrast, virtually every state has had trouble raising enough revenue to cover expenditures. The new state fiscal crisis has forced states to make choices they were previously able to avoid.

The welfare reforms of the 1990s, culminating in the 1996 creation of the Temporary Assistance for Needy Families (TANF) block grant, shifted authority for traditional welfare programs from the national government to the states. With this devolution of responsibility, key social programs—and the well-being of those most frequently targeted by them, low-income families with children—have become more dependent on the fiscal health of the states. In the absence of major changes in national health policies, it has also been up to the states to provide coverage for the uninsured. Current proposals by the Bush administration would give states more authority in such other policy areas as housing assistance and preschool education.

To understand what choices states have been making in funding social programs, we conducted research on seven states: California, Colorado, Florida, Michigan, Mississippi, New Jersey, and Washington. These were selected from the 13 focal states of the Urban Institute's Assessing the New Federalism project because they had the largest fiscal problems when we began our research in mid-2002, and because they represent diverse regions and political traditions. We conducted site visits to each state in the fall of 2002 to meet with executive and legislative officials, their staff members, and state-level advocacy groups. We supplemented and updated what we learned in our interviews with information from state budget documents, newspaper articles, and other published analyses.¹

We summarized what the seven states have done in an earlier brief (Finegold, Schardin, and Steinbach 2003). This paper includes summaries of each state's response to fiscal stress that are more detailed and current than what we could present in the brief. An introductory overview draws on the state summaries to examine why states made the policy choices we identify and suggests some lessons from the unhappy experiences of these states.

This report is available in its entirety in the Portable Document Format (PDF).

Acknowledgments

This report is part of the Urban Institute's Assessing the New Federalism project, a multiyear effort to monitor and assess the devolution of social programs from the federal to the state and local levels. Alan Weil is the project director. The project analyzes changes in income support, social services, and health programs. In collaboration with Child Trends, the project studies child and family well-being.

Research for this paper was funded by the John D. and Catherine T. MacArthur Foundation. The Assessing the New Federalism project is currently supported by The Annie E. Casey Foundation, The Robert Wood Johnson Foundation, the W. K. Kellogg Foundation, The John D. and Catherine T. MacArthur Foundation, and The Ford Foundation.

The authors thank the many state officials, staff members, and advocates who were so generous with their time, materials, and comments. They also wish to thank Randall Bovbjerg, John Holahan, Amy Lutzky, Barbara Ormond, Joshua Wiener, and Stephen Zuckerman, for sharing what they learned from a related project focusing on health programs, and Laura Wherry and Megan Rowan, for their help with research.

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

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