Studies Raise Questions About Funding Formulas For Public Assistance

An article in Governing highlights two recent studies that question the funding formulas for public assistance by examining how an area’s cost of living affects the buying power of $100.

To determine where money goes the furthest, the Tax Foundation created a map that shows the purchasing power of $100 in each state, compared with the national average. In a report released this month, the foundation determined that incomes go considerably farther in some places than in others. For example, the states where $100 is worth the least are the District of Columbia ($84.60), Hawaii ($85.32), New York ($86.66), New Jersey ($87.64) and California ($88.57). That same money goes the furthest in Mississippi ($115.74), Arkansas ($114.16), Missouri ($113.51), Alabama (113.51) and South Dakota ($113.38).

The distribution shifts dramatically when cost of living is taking into consideration.

Another report released this summer analyzed how funding could be distributed if cost of living was taken into account. The Federal Funds Information for States (FFIS) took a look at Medicaid, the largest federal grant program, which gives states with the highest per capita income the 50-percent minimum matching rate. The remaining states get a rate that varies year-to-year, based on their incomes over a three-year period. Using Bureau of Economic Analysis data that adjusted incomes for cost of living, the FFIS report ranks states’ new potential Medicaid funding.

The changes are drastic. Hawaii, whose per-capita income ranking drops from No. 21 to No. 47 after adjusting for price levels, sees its federal Medicaid matching rate increase the most, from about 52 percent to 64 percent. Other states moving from 50 percent to a higher matching rate include Alaska, California, Illinois, New Hampshire and Washington. Meanwhile, Missouri, Ohio and Iowa would see “substantial reductions” (8 to 10 percent) in their Medicaid funding.