New report warns that welfare spending is a ticking time bomb

A new report released today by Center of the American Experiment highlights the unsustainable growth in human services spending that is driving the Minnesota state budget toward a deficit. Including the $6 billion passed in the 2023 legislative session, spending on welfare programs such as Medicaid, Temporary Assistance for Needy Families (TANF), and childcare is slated to grow by $14 billion during the next four years. In that period, $42 of every $100 in new general fund spending will be allocated to health and human services. The report also found that Minnesota is among the most generous states in the country when it comes to welfare spending, ranking third in the nation on spending per person living below federal poverty at $34,379.

“The heavy and growing burden of our expanding welfare system on the state budget, taxpayers, and the broader economy should be cause for concern,” said American Experiment economist Martha Njolomole. “If left unaddressed, Minnesota’s welfare system is a fiscal time bomb.”

The report, A Ticking Time Bomb: Minnesota’s vast and expanding welfare system, also shows how Minnesota’s spending on welfare has consistently grown in both absolute terms and when adjusted for the population in poverty. Additionally, the expansion in welfare spending has often exceeded growth in spending for other programs, gradually increasing welfare’s proportion of the budget. HHS spending as a share of general funds grew 26 percent between 2000 and 2019, surpassing all other major state spending categories.

“The state’s growing welfare system will continue to put pressure on available state resources, crowd out spending on other budget priorities and impose a heavy burden on taxpayers,” added Njolomole. “It’s simply unsustainable.”

Highlights of the report include:

  • HHS accounted for 29 percent of Minnesota’s general fund expenditures, making it the second biggest expenditure category after E-12 education. HHS accounted for 42 percent of total state spending (when all other funds, including federal funds, are considered), making it the state’s biggest expenditure.
  • Minnesota spent 27 percent of total state and local direct general expenditures on public welfare according to data from the U.S. Census Bureau’s Annual Survey of State and Local Government Finances. At the national level, the share was lower at 22 percent, and among the 50 states, the median share was 21 percent. Minnesota’s share of state and local spending dedicated to public welfare was the 10th highest among the 50 states.
  • Minnesota spent the equivalent of $34,379 on public welfare per person living below federal poverty, ranking third highest among the 50 states. This amount was 80 percent above the national average and more than double the median state’s spending.
  • Minnesota spent the equivalent of $14,114 on public welfare per person with income below 200 percent of federal poverty, ranking fourth highest among all 50 states. Minnesota sur- passed the national average by 75 percent and the median state by 90 percent.
  • While median state spending on Medicaid benefits per enrollee was $8,436, Minnesota spent 40 percent more, and ranked fourth highest among the 50 states. Aged Medicaid enrollees cost the median state $18,610 per head, but in Minnesota, they cost $32,854 — over three quarters more. Minnesota spent $43,171 per dis- abled Medicaid enrollee. This was over double that of the median state and the highest spending level among the 50 states.
  • For the country’s main cash assistance program — Temporary Assistance for Needy Families (TANF) — the maximum monthly cash benefit a family of three with no income could receive in Minnesota was $532, ranking 18th highest among the 50 states. This exceeds both the national average and the median state benefit amount. Moreover, the maximum income that a family of three could earn in Minnesota and still be eligible for cash assistance was the highest in the country.
  • Minnesota’s spending on childcare assistance per child aged six and under living below poverty under the Childcare and Development Fund (CCDF) — the country’s main childcare funding scheme — was the third highest in the country.

To read the entire report, A Ticking Time Bomb: Minnesota’s vast and expanding welfare system click here.