PROJECTState and Local Backgrounders

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  • Public Welfare Expenditures

    State and Local Backgrounders Homepage

    Public welfare expenditures include cash assistance through Temporary Assistance for Needy Families (TANF), Supplemental Security Income, and other payments made directly to individuals as well as payments to physicians and other service providers under programs like Medicaid.1

    Census does not separate Medicaid spending into its own category. Instead, most Medicaid spending is accounted for under the public welfare category with some spending counted as hospital expenditures.

    How much do state and local governments spend on public welfare?

    In 2019, state and local governments spent $744 billion on public welfare, or 22 percent of direct general spending.2 As a share of direct general state and local spending, public welfare was the largest expenditure in 2019. It was the second-largest expenditure from 1977 to 2014, behind only elementary and secondary education. However, when looking at only state and local funds (i.e., excluding federal transfers), spending on public welfare still trails spending on elementary and secondary education. That's because roughly two-thirds of Medicaid spending is provided by the federal government, while typically less than a tenth of elementary and secondary education spending comes from federal funds.

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    Nearly all (97 percent) public welfare spending went toward operational costs in 2019, including payments to Medicaid providers, payments to nonprofits or other private providers of public services for low-income beneficiaries, and program administration. The largest slice of operational costs were vendor payments for medical care, which totaled $607 billion dollars in 2019, or 82 percent of all state and local public welfare spending.

    Most of the remaining 3 percent of public welfare spending went toward direct cash assistance to low-income beneficiaries for programs such as TANF, Supplemental Security Income, and the Federal Low Income Home Energy Assistance Program. Capital spending (e.g., construction of public nursing homes) accounted for 0.1 percent of public welfare spending in 2019.

    How does state spending differ from local spending and what does the federal government contribute?

    State agencies, rather than local governments, typically provide public welfare benefits directly to individuals. This includes many programs that are federally funded but state administered such as Medicaid and TANF. In only a few states do local governments administer these programs.

    In fact, 92 percent of direct spending on public welfare occurred at the state level in 2019. In 38 states, local spending on public welfare accounted for less than 5 percent of total state and local public welfare spending, and in no state did local spending account for more than 20 percent. In 2019, the highest percentage of direct public welfare spending at the local level was in New York (16 percent), Wisconsin (16 percent), and California (15 percent). For example, in California, counties administer many public welfare programs, including Medicaid and TANF.

    As a result, in 2019 public welfare spending accounted for nearly half of state government direct expenditures (44 percent) but a small share of local government direct expenditures (4 percent). Among localities, public welfare spending as a share of total direct spending was highest at the county level (10 percent) in 2017 (the most recent year we have data for these levels of government), and this spending was concentrated in the few states which administer programs at the local level.

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    However, most state and local public welfare spending is financed by federal transfers. In 2019, $483 billion (65 percent) of public welfare spending came from federal intergovernmental grants to state and local governments. This was up from 55 percent in 1977.

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    How have public welfare expenditures changed over time?

    From 1977 to 2019 (in 2019 inflation-adjusted dollars), state and local government spending on public welfare increased from $146 billion to $744 billion (411 percent increase). This was the largest spending growth of any major expenditure program over the period. Much of the growth in state and local public welfare spending was driven by higher Medicaid spending, which resulted mostly from increased federal spending on the program, rising health care costs, and more Americans receiving health insurance through the program. Not coincidentally, health and hospitals had the next fastest growth (231 percent) from 1977 to 2019. Census counts some Medicaid spending as health and hospital expenditures. (For more information on spending growth see our state and local expenditures page.)

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    Over this period, public welfare spending as a share of state and local direct general spending has increased from 13 percent to 22 percent. Census does not provide data specifically on Medicaid spending. The National Association of State Budget Officers (NASBO) estimates Medicaid’s share of total state spending increased from 20 percent in 2008 to 27 percent in 2021.

    How and why does spending differ across states?

    Public welfare spending goes to a range of programs, many of which determine eligibility according to federal rules based on individual or family income. Within these rules, states make determinations about who can access different programs and how generous the programs are. States also have varying rates of take-up of public welfare programs among eligible populations. And states can take actions that make it easier or more difficult for people to access benefits.  

    As such, while state and local governments spent $2,265 per capita nationally on public welfare in 2019, per capita spending ranged from $1,122 in Connecticut to $4,067 in New York. The District of Columbia’s per capita spending was $5,779.3

    Other states with high per capita public welfare spending in 2019 included Alaska ($3,798), Massachusetts ($3,574), and California ($3,397). After Connecticut, the lowest per capita spending was in Georgia ($1,247), Florida ($1,341), Utah ($1,348), and South Dakota($1,359).

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    Data: View and download each state's per capita spending by spending category

    Per capita spending, however, is an incomplete metric because it doesn’t provide any information about a state’s demographics, policy decisions, administrative procedures, or residents’ choices. States with high rates of Medicaid spending per capita, for example, tend to have shares of Medicaid enrollees who are elderly or disabled that are higher than the national average. The elderly and adults with disabilities account for roughly two-thirds of Medicaid spending even though they constitute a small fraction of total recipients.4  

    Additionally, in states with low spending per capita on Medicaid, children tend to constitute a higher-than-average share of total recipients. Children are relatively inexpensive to cover and therefore spending per recipient and per capita is lower in these states. Low per capita spending could also reflect a state's strict eligibility requirements.  

    If, instead of spending per capita, we consider spending as a share of the low-income population, Massachusetts spent the most of any state ($17,734), followed by Alaska ($16,276), New York ($15,280), and Minnesota ($14,042). The District of Columbia is again an outlier at $23,951. Per low-income resident, spending is lowest in Georgia ($4,038), Florida ($4,288), Texas ($4,486), Alabama ($4,689), and North Carolina ($4,816).5

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    Many programs, like Medicaid, have federal rules regarding eligibility. But even with Medicaid, states can apply for waivers to alter the design of the program.

    Another factor influencing public welfare spending is Medicaid expansion under the Affordable Care Act (ACA). Following a 2012 Supreme Court decision, states were given the choice to either expand Medicaid coverage with new federal funding or retain pre-ACA eligibility levels.  This has led to changes in Medicaid spending and related outcomes across states. As of January 2022, 38 states and the District of Columbia had accepted Medicaid expansion funds. Many of the states that have not accepted federal funds to expand Mediciad coverage spend relatively low amounts on public welfare. 

    Interactive Data Tools

    State and Local Finance Data: Exploring the Census of Governments

    State Fiscal Briefs

    What everyone should know about their state’s budget

    Further Reading

    The Implications of Medicaid Expansion in the Remaining States
    Matthew Buettgens (2018)

    Welfare Rules Databook: State TANF Policies as of July 2017
    Christine Heffernan, Ben Goehring, Ian Hecker, Linda Giannarelli, and Sarah Minton (2018)

    State TANF Policies: A Graphical Overview
    Megan Thompson, Sarah Minton, Christine Heffernan, and Linda Giannarelli (2018)

    Why Does Cash Welfare Depend on Where You Live?
    Heather Hahn, Laudan Y. Aron, Cary Lou, Eleanor Pratt, and Adaeze Okoli (2017)

    The Effects of the Medicaid Expansion on State Budgets: An Early Look in Select States
    Stan Dorn, Norton Francis, Laura Snyder, and Robin Rudowitz (2015)

    Assessing Fiscal Capacities of States: A Representative Revenue System–Representative Expenditure System Approach, Fiscal Year 2012
    Tracy Gordon, Richard Auxier, and John Iselin (2016)

    Notes

    1Data are from Census functional categories J67, J68, E74, E75, E77, F77, G77, E79, F79, and G79.

    2Direct general spending refers to all direct spending (or spending excluding transfers to other governments) except spending specially enumerated as utility, liquor store, employee-retirement, or insurance trust. Unless otherwise noted, all data are from the US Census Bureau Annual Survey of State and Local Government Finances, 1977-2019 (compiled by the Urban Institute via State and Local Finance Data: Exploring the Census of Governments; accessed 11-January-2022 01:14), https://state-local-finance-data.taxpolicycenter.org. The census recognizes five types of local government in addition to state government: counties, municipalities, townships, special districts (e.g., a water and sewer authority), and school districts. All dates in sections about expenditures reference the fiscal year unless explicitly stated otherwise.

    3The District of Columbia is often an outlier because, although it functions as a state and a locality, it most closely resembles a central city in terms of its population and economic activity, much of which comes from nonresidents. Its ranking among states should be interpreted within this context.

    4For an analysis of components of state and local spending using 2012 data, see the Urban Institute’s interactive tool, What everyone should know about their state’s budget.

     The low-income population is defined as the share of the population with income less than 200 percent of the federal poverty threshold as defined by the census bureau. Data are from the US Census Bureau, 2019 American Community Survey 1-Year Estimates.

    Research Areas State and local finance
    Policy Centers Urban-Brookings Tax Policy Center