Stretched Net: The Retrenchment of State and Local Social Welfare Spending Before the RecessionPublished in "Publius, The Journal of Federalism." (See below for article access.)
By Thomas L. Gais
Co-director, Rockefeller Institute of Government
ABSTRACT: This article examines social welfare spending on the eve of the recession to understand the likely effects of the economic downturn on the funding of state and local social welfare systems. State and local governments face strong pressures to cut spending in social programs, as they experience sharp slowdowns or reductions in tax revenues.
The article finds that state and local spending outside of medical assistance lost much of its value since the last recession of 2001–02, especially when inflation-adjusted expenditures are compared to measures of need. Other trends include a growing concentration of state social welfare budgets around medical assistance, declines in federal assistance to states, and growing differences in social service spending across states.
These developments do not mean that states engaged in a "race to the bottom," the scenario in which states would slash benefits to low-income households after getting flexibility over social welfare budgets in the 1990s. It is true that cash assistance caseloads fell precipitously in the 1990s and declined during most of the current decade. Yet states increased their spending on social welfare programs in the first years of welfare reform, though the mix of programs changed from cash to social services, while means-tested medical assistance skyrocketed. The decline in state and local social programs began years later in 2002, after the first post-reform economic downturn.
The current recession may exacerbate most of these developments and, along with the federal stimulus package, reduce the role of states in funding social services.