Rockefeller Institute Reports First Drop in Welfare Spending in 25 Years

In a Report released on September 15th, the Rockefeller Institute of Government found that for the first time since 1983, state and local governments are spending less on welfare, after adjusting for inflation and need. The Report, entitled “The New Retrenchment: Social Welfare Spending, 1977 - 2006,” stated that the drop in spending in 2006 follows several years of slow growth in welfare expenditures and suggests that the spending may have entered a period of “new retrenchment” after 2002.

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 welfare between 2005 and 2006 on a nationwide basis. This drop in spending followed four years of slowing growth in welfare spending, which includes direct cash assistance, medical assistance, and non-health social services such as subsidies for childcare and energy bills. In New York, for example, the amount of dollars spent on each poor person dropped from 2005 to 2006 by $285 for medical assistance, $83 for cash assistance, and $59 for non-health social services (including home heating), while welfare spending from federal transfers was reduced by $591.

Between 2002 and 2006, nationally spending grew only about one percent a year. In New York, spending dropped from over $2,800 a year from 1996 - 2002 per poor person to about $1,100 from 2002 - 2006. 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 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.

According to the Report, a large part of the decline in welfare spending was due to reductions in federal grants to the states. Those reductions led to growing differences in states’ spending on 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. New York is considered to be a wealthy state.

Meanwhile, incomes of low income households have not kept up with rising costs. See Wages of 30% of New Yorkers Do Not Cover Minimum Needs. PULP is hearing of more instances of utility customers who simply cannot make ends meet, who are facing termination of utility service due to large overdue bills. Utility low income rates and other programs, and state financial assistance programs, provide substantial assistance, but are flawed and need to be strengthened, particularly in light of rising prices. See High Natural Gas Prices Signal Trouble Next Winter for Low Income Customers, Home Heating Oil Prices Remain High, and Trouble Ahead: Outlook for Home Heating Costs Worsens.

Lou Manuta