Block Granting Welfare: Fiscal Impact on the States

Abstract

Welfare reform changed the federal funding mechanism for state-run welfare programs for families from an open-ended match to fixed block grants. Major concerns about reform were that states would receive less federal funding in the long run and face hard-to-plan-for volatility in demands for state funds. This article uses historical expenditure data to explore the potential increased burden on state fiscal systems due to welfare reform. The author simulates states’ use of the Temporary Assistance to Needy Families Block Grants, the Treasury Fund, and the Federal Contingency Fund. Potential changes in state spending burdens and state funding volatility are analyzed. This fiscal accounting exercise reveals that although the total expense to the federal government would be reduced little by this switch, the new system creates huge disparities in both the resources available to various states and their potential scope for reducing the cost of their welfare programs.