Public Welfare Expenditures

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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

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

In 2015, state and local governments spent $610 billion, or one-fifth of direct general spending, on public welfare.2 Public welfare was the second-largest source of direct general spending at the state and local level in 2015, and it has been since 1977.

 

Nearly all (96 percent) of public welfare spending goes toward operational costs, such as 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 current operational costs are vendor payments for medical care, which in 2015 totaled $492 billion dollars, or 81 percent of total state and local public welfare spending. Only 4 percent goes 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. Less than 1 percent of expenditures are capital outlays.

How does state spending differ from local spending?

Public welfare services are often provided directly to individuals by state agencies. Many programs, such as TANF and Medicaid, are federally funded (at least partially) and state administered. As a result, state governments spend more directly on public welfare than do local governments, and this spending appears in the data on state direct general expenditures.
In 2015, 4 percent of local direct general spending went to public welfare versus 42 percent of state direct general spending.

Nationally, 91 percent of state and local direct spending on public welfare occurred at the state level. In 35 states, local spending accounts for less than 5 percent of total direct general expenditures on public welfare. In all 50 states, local spending accounts for less than 20 percent. New York and California had the highest percentage of their public welfare spending at the local level in 2015 at 18 and 17 percent, respectively. In California, this is because of county-level administration of many public welfare programs, including TANF and Medicaid.

Public welfare spending is primarily financed by federal transfers: in 2015, $394 billion (65 percent) of state and local public welfare spending came from federal intergovernmental grants to state and local governments. The remainder came from state and local funds. This is up from 59 percent of total state and local public welfare spending in 1992.

How have public welfare expenditures changed over time?

In 1977, state and local governments spent $135 billion on public welfare (in 2015 inflation-adjusted dollars). In 2015, they spent $610 billion, almost four times that amount. Much of this spending increase has been driven by the rising cost of health care, including Medicaid.
Between 1977 and 2015, other state spending grew more slowly than public welfare spending. In 1977, 13 percent of state and local spending went to public welfare compared with 21 percent in 2015.

How and why does spending differ across states?

Across the US, state and local governments spent $1,900 per capita on public welfare in 2015. Public welfare spending goes to a range of programs, many of which determine eligibility per federal rules based on individual or family income. Within these rules, states make determinations about who can access different programs. States also have varying rates of take-up of public welfare programs among eligible people. Take-up rates can reflect individual and family decisions to apply for assistance, but states can also take actions that make it easier or less expensive for people to access benefits.  

In per capita terms, the District of Columbia had the highest level of state and local public welfare spending at $5,316 followed by state and local governments in New York ($3,110), Vermont ($2,765), New Mexico ($2,751), and Massachusetts ($2,739).3 State and local governments in Utah spent the least on public welfare at $1,135 per person, followed by Georgia ($1,177), South Dakota ($1,224), and Texas ($1,290).

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 and disabled higher than the national average. The elderly and adults with disabilities account for roughly two-thirds of US Medicaid spending even though they constitute a small fraction of total recipients.4

In states with low spending per capita on Medicaid and the Children’s Health Insurance Program, 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 low in these states.

If, instead of spending per capita, we consider spending as a share of the low-income population, the District of Columbia spent more than any state at $18,121.5 It was followed by Massachusetts ($11,561), Alaska ($10,982), Minnesota ($10,424), and Vermont ($10,248). Per low-income resident, spending is lowest in Georgia ($3,239), Texas ($3,645), and Alabama ($3,652).6

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. One other factor influencing public welfare spending is Medicaid expansion under the Affordable Care Act. 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.

Interactive Data Tools

What everyone should know about their state’s budget

Further Reading

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

Welfare Rules Databook: State TANF Policies as of July 2015
Elissa Cohen, Sarah Minton, Megan Thompson, Elizabeth Crowe, and Linda Giannarelli (2016)

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)

A new tool to get under the hood of state and local budget choices
Tracy Gordon, TaxVox (2017)

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

Prepping for the 2018 Legislative Session
Richard Auxier and Erin Huffer (2017)

Prepping for the New Session: End-of-Summer Reading for State Budget Analysts
Norton Francis, Sarah Gault, and Yifan Zhang (2016)

Prepping for the New Session: End-of-Summer Reading for State Budget Analysts
Norton Francis, Tracy Gordon, and Megan Randall (2015)

Governing with Tight Budgets: Long-Term Trends in State Finances
Norton Francis and Frank Sammartino (2015)

State Budgets in the Trump Era
Kim Rueben and Richard Auxier (2017)

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 Bureau of the Census, Survey of State and Local Government Finance, 1977–2015, accessed via the Urban-Brookings Tax Policy Center Data Query System, October 12, 2017, http://slfdqs.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.

5 The 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.

6 The low-income population is defined as the share of individuals earning less than 200 percent of the federal poverty threshold as defined by the census bureau. Data are from the US Census Bureau, 2015 American Community Survey 1-Year Estimates.