Federal Policies States rely fairly heavily on federal aid, getting roughly 30 percent of their revenues from the federal government. States receive important contributions from the federal government for highways, education, community development, and welfare, among other purposes, with the largest and fastest growing component by far being the federal Medicaid program of medical assistance to the poor. The most important federal policy change affecting state finances has been the reform of welfare. Thus states were given the much greater discretion most had long fought for, in exchange for fewer funds. Early success of welfare reform has been viewed as nothing short of spectacular, clearly buoyed by the tremendous economic expansion that has coincided with it.
States have for the most part been generous in the support services and payments provided.
The question arises, however, of how successful the transition to work will be when the economy slows. Further, there appears to be little hard data on exactly what has happened to all of those who have left the welfare rolls. And there is the natural concern that those who have found jobs, most likely have been those easiest to place, leaving the most intractable cases. There are other concerns. It is important to note that TANF spending is front-loaded, and will slow in the years ahead.