I n a year marked by challenging economic conditions and increased federal government spend- ing, federal expenditures on children increased in real terms between 2008 and 2009. The increases in federal spending on children largely stemmed from increased spending under the American Recovery and Reinvestment Act (which had twice the proportion of spending on children as the regular federal budget) and increases in Medicaid and Supplemental Nutrition As- sistance, two large mandatory programs that expanded automatically during the recession. The combination of legislative and automatic spending increases demonstrates the federal capacity to expand spending on children’s health, nutrition, and education in response to family and state needs during a recession.
At the same time, we do not yet know the trend for total spending on children in the midst of the recession. Much of the increased federal spending was designed to offset state and local cuts, particularly in education and health. State and local spending accounted for roughly two-thirds of total spending on children from 1998 through 2007 (the last year for which we had comprehensive spending data on children by states and localities), so changes in state and local expendi- tures could overwhelm the recent federal increases.
In the immediate future, budget projections suggest that many children’s programs are projected to reach peak federal spending in 2010, after which outlays will drop off—assuming that temporary ARRA outlays end as scheduled and other policies continue unchanged. It is unclear how state budgets for children’s programs will adjust to the impending“cliff”in spending after ARRA funds have been spent down in 2011. Education spending, in particular, may be strongly influenced by the timing and the extent of a recovery in state fiscal health and on the spending choices states make as they emerge from the grip of the recession.
Our ten-year projections of children’s spending, always uncertain, are more so in this year’s report because they are based on CBO projections that do not incorporate the additions and subtractions in outlays from health reform. Even so, they provide a baseline by which to consider the path before us. Under a continuation of current policies, we project that federal spending on children will shrink over the next decade, relative to the economy and as a share of the total federal budget, if current policies continue unchanged. In contrast to the projected decline in spending on children, spending on the non-child portions of Medicare, Medicaid, and Social Security is projected to rise steadily in real terms, as a percentage of GDP, and as a percentage of total spending. Spending on the elderly and disabled under these three major entitlement programs is projected to swell to nearly half (45 percent) of the federal budget in 2020, consuming three-quarters of the anticipated growth in spending over the next decade. Interest payments on the rising federal debt will put a further squeeze on all other components of the federal budget, including children’s programs. From 2014 forward, annual inter- est payments on the debt are projected to exceed total outlays on children. Under the “no reform” scenario, children’s programs will receive a mere 3 percent of all additional federal spending over the coming decade.
Unless current conditions change, the allocation of additional outlays over the next decade suggests a pattern where spending on children declines relative to the economy and the federal budget. This path can be altered, however. Reforms not considered in this analysis, such as the 2010 health reform and any further health reforms, any possible extensions of the American Recovery and Reinvestment Act, and proposals in the president’s budget in the areas of education, taxes, and other areas, may significantly alter the picture of outlays spent on children in the future.