The decade now closing has witnessed a tremendous expansion in relief and welfare activities. In recent years between 18 and 23 million people, or between 13 and 17 percent of the population, have looked to various welfare programs for their livelihood; programs which are being provided at an annual expenditure of approximately four billion dollars. Compared to these, the corresponding statistics for the beginning of the decade look like small fractions.

In the course of this expansion the type of provision made for the welfare cases has greatly changed. The old general poor relief of the Twenties has now been replaced by a variety of specialized measures, including several categories of public assistance, unemployment insurance, old-age and survivors' insurance, workmen's compensation insurance and employment on work relief and public works programs. In some of these compartments, notably under the various social insurance schemes, individuals now receive payments as a matter of right and without reference to the degree of their destitution.

This expansion has been accompanied also by changes in the division of financial responsibility, changes in administrative methods and changes in the methods of financing. The poor relief of the past decade was very largely a local governmental activity. The programs of today involve the cooperative efforts of all governments -- the Federal, the state, as well as the local governments.

In the midst of this expansion private welfare activities have dwindled in quantitative importance. At present private funds probably account for less than one percent of total relief expenditures. In the early days of the decade, private funds were, of course, very important. While nation-wide data are not available, statistics for 120 urban areas are clearly indicative of the national trend. Private funds represented 23-1/2 percent of 1930 and 28.6 percent of 1932 expenditures. Beginning in 1933 they began to decline in relative importance and in 1935 accounted for only 1.4 percent of expenditures from public and private funds for different types of relief in 120 urban areas. (Children's Bureau, Publication No. 237 "Trends in different types of Public and Private Relief in Urban Areas, 1929-1935)," p. 10; Social Security Bulletin Current Issues.)

Since 1935, the volume of relief expenditures from private funds has become stabilized. In the 120 urban areas for which comparable statistics are available, expenditures by private agencies for the past six years have approximated one million dollars per month. This is roughly the same amount as was spent in 1929 from the same sources in these areas. Between 1929 and 1932 average monthly expenditures from private funds rose from approximately one million dollars to almost five million dollars. In 1933 and 1934 with the coming of Federal programs, expenditures rapidly tapered off to the lower 192 level.

GROWTH AND MAGNITUDE OF PUBLIC WELFARE EXPENDITURES

Governmental expenditures for general relief, public assistance, work relief programs and emergency public works have shorn an almost uninterrupted increase from 1933 through 1939. Expenditure for these purposes rose from approximately $700 million in 1933 to more than $5 billion in 1937. As a result of reductions in work relief and emergency public works programs in 1938, there was a temporary decline in that year. In 1939, however, expenditures for these items were probably near the $4 billion level. If expenditures for social insurance (unemployment and old-age insurance) are included, total current costs for the welfare functions probably exceed $4.5 billion. At the present level of expenditures, this sum represents a quarter of the combined Federal, state and local, expenditures. The proportion of total governmental costs required for this function in 1930 was approximately one percent.

The bulk of the increase in these expenditures is accounted for by the various work relief programs, principally W. P. A. projects. Work relief expenditures assumed primary importance in 1936. In that year, almost $2 billion was spent for that purpose. In 1939, such expenditures together with those for public works exceeded $3 billion.

In the social insurance items, -- unemployment, and old-age insurance, --- the expansion has been very recent. Workmen's compensation payments, for the most part, a non-governmental cost, is the one type of social insurance which was already being provided in 1933 and increased relatively little since then. In contrast, however, unemployment compensation and old-age insurance, which were first introduced by the Social Security Act in 1936 and the expenditures for which did not get under way until 1938, accounted for more than $600 million by 1939.

Another item which contributed to the increase of the thirties is public assistance. Expenditures for the public assistance categories, including old-age assistance, aid to dependent children and the blind, amounted to $600 million in 1939. This represents an eight-fold increase since 1933. Even as late as l935, expenditures for these items amounted to only $100 million. With the adoption of the Social Security Act of 1936, however, these functions expanded rapidly. In 1939, old-age assistance amounted to more than $400 million and aid to dependent children to more than $100 million.

        EXPENDITURES FOR PUBLIC ASSISTANCE, FISCAL YEAR 1939

                Total                                 $ 590,530

                Administration                           46,382

                Payments to Recipients                  544,148

                  a. Old-age assistance                 417,681

                  b. Aid to dependent
                     children                           106,627

                  c. Aid to the blind                    19,840

SOURCES OF FUNDS

The burden of financing the vast increase in welfare an relief expenditures between 1933 and 1939 had fallen in large part to the Federal government. In 1933 Federal expenditures for all these services amounted to less than $400 million. By 1934, the C. W. A. and F.E.R.A. programs raised Federal expenditures to 2-1/2 billion dollars. With the introduction of W. P. A. in 1936, they reached 3- 1/2 billion dollars and remained at that level in 1937. After a drop below 3 billion dollars in 1938, they were again in excess of 3 billion dollars in 1939. State and local expenditures during this period also showed a marked increase. The increase in that instance, however, is somewhat of a different character. In 1933, reported State and local expenditures were 350 million dollars. By 1939, they were more than 1-1/2 billion dollars. This substantial increase was in large part accounted for by two items, both of which constitute a special kind of load on State and local revenue sources.

In the first place, approximately one-fourth of State and local expenditures are accounted for by unemployment insurance. This activity is financed by special taxes on payrolls, a tax base which would otherwise not be tapped by either State or local governments.

Secondly, approximately 500 million dollars or almost a third of these State and local expenditures are accounted for by work relief programs. The bulk of these amounts, represents contributions in materials and services rather than cash expenditures. Moreover, if my personal observations of a few years back still apply, these expenditures represent a much smaller burden on State and local treasuries than would cash outlays. In many cases, these sponsors' contributions to projects consist of the services of regular state and local employees or result from the diversion of existing state and local materials and equipment to work projects. Possibly the word "divert" is itself misleading. In many instances, state and local moneys appropriated for highway purposes, for instance, were eventually reported as work relief expenditures. However, they were nonetheless spent on highway projects. Road improvements and road construction projects which, in the absence of a works program, would have been undertaken in the normal course of events by local governments were instead conducted under relief programs.

In 1939, approximately $800,000,000 state and local funds were expended for general relief and public assistance purposes. It is in this item that the most conspicuous increase in state and local expenditures has occurred in recent years. In 1933, state and local expenditures for these purposes amounted to little more than $300,000,000. Today, they are almost three times as large. There is no doubt that the crux of the state and local welfare financing problem lies in general relief and public assistance.

In this limited sphere, -- that is, in the field of general relief and public assistance, -- the financing problem is not as pressing today as it has been in the immediate past. In 1934 and 1935, and more particularly since 1936, state and local governments have made substantial provision for these services. The effect of the Federal government's insistence on state and local matching of Federal relief expenditures, and more recently, the effect of the enactment of the Social Security Act, on state and local appropriations requires no elaboration.

At the beginning, state and local provision for relief and welfare was of a temporary and makeshift character. Funds were diverted wherever they could be found. Bonds were sold wherever authorizations were available or could be obtained. Various temporary taxes were enacted. More recently, however, state and local welfare financing has been of a more permanent character. Such devices as diversions and borrowings have declined in frequency of use. In the last two or three years, more and more of the states have turned to financing public relief and public assistance through regular budgetary appropriations.

Although today general revenue are used to finance a majority of the State public assistance programs, earmarking of revenues is still a frequent practice. A survey by the social Security Board of the sources of welfare funds early in 1940 showed that 15 states derive their old-age assistance funds entirely from earmarked revenues, 4 states from both earmarked and general revenues, and 30 states entirely from general revenues. The same distribution was found in the financing of aid to dependent children and the blind.

Viewed dispassionately from the point of view of a tax student rather than a social worker, earmarking of revenues is an unwhole- some tendency. Earmarked sources provided by one legislature in the light of the then current revenue needs can only impede the optimum allocation of public funds by subsequent legislatures. Where such earmarkings are provided by statute they raise the problem of over- coming the efforts of pressure groups; where they are created by constitutional amendments, they require not only the overruling of pressure groups but that of public inertia as well.

Colorado's experience is illustrative. Here is a State where constitutionally earmarked funds have for several years caused financial embarrassment to the State government. The State constitution, which can be altered only by a referendum of the voters, allocates to old-age assistance 85% of a significant segment of the revenues of the State (namely, 85% of all excise taxes now or hereafter levied upon retail sales; upon liquor; and upon inheritance taxes and incorporation fees). Moneys deposited in the old-age pension funds cannot be transferred to any other fund. The constitution also fixed at $45 a month the payment which should be made to recipients of old-age assistance. Such vital services as public education have been impaired, at the same time that old-age assistance has been maintained at a high level. Attempts to amend the constitution have been unsuccessful.

Problems of this character, however, have a way of being solved. Our democratic process may be slow, but in the end, it always tends to work itself out to the satisfaction of the majority.

On the whole, the problem of financing welfare activities, which today confronts state and local governments does not appear to be particularly overwhelming. To be sure, some problem areas continue to exist in different parts of the country, especially on the local level, but these are not sufficiently numerous to constitute a national problem. The situation with respect to the financing of the Federal government's share of these expenditures is substantially different. The Federal government is now engaged in a vast national defense program which will require vast sums of money, and which will of necessity bring with it a pressure for reducing expenditures for non-defense purposes. In the process, relief dollars are likely to become scarcer.

With respect to the problem of unemployment, it is expected that the defense program will reduce the need for assistance in this field. Apparently in anticipation of this effect, the President indicated a few days ago that defense expenditures must have priority over all others, that certain types of work projects which are now carried on will have to be postponed. To some extent, W.P.A. can be geared into the defense program. This year, it is planned that 40 percent of the W.P.A. projects will involve work on national defense projects. In addition, W.P.A. is engaging in a training program to enable many of its workers to fit into the defense program.

As to the more distant future, one can only conjecture. Some tendencies may be noted. It is essential not to over-emphasize the influence of the possible increase in employment on the need for a work program. In addition to the 1,700,000 persons now on W.P.A., there are six or seven millions of other unemployed persons. The Assistant Commissioner of W.P.A. pointed out several days ago, "More jobs are opening up every day as a result of defense expenditures, but these go primarily' to skilled workers and do not directly affect the bulk of those on the W.P.A. rolls. In short, while the, defense expenditures will exert an influence on the size of the work program required, they will not remove completely the need for such a program."

It should also be noted that the defense program will effect only indirectly, if at all, that portion of the welfare program which is directed to persons other than the unemployed. And, as you know, this sector of the relief program is of considerable magnitude.

Assuming, however, that the defense program will make a substantial contribution to the liquidation of unemployment, and that it will reduce the need for other types of welfare services, how long may we expect this influence to last? The development stage of the defense program is likely to produce the greatest amount of employment. After the plants are constructed and the new equipment installed, the demand for labor is likely to be reduced. We shall have built the defense machine and it would then require only maintenance. When this occurs, the work-relief applicants will increase again. The President anticipated the likelihood of an expansion in the works program sometime in the future when he stated recently that it is desirable to build up a back-log of plans for projects, with which a future slack in employment could be taken up.

It is none too early to recognize the likelihood of a post- defense relapse in unemployment, and to plan to meet the situation. How great that relapse will be none can tell. At all events, we should prepare for the contingency that present unemployment insurance benefit provisions will be inadequate to absorb the shock.