Opinion: State spending on social services fuels economy

SHARE Opinion: State spending on social services fuels economy

When the State of Illinois spends more than $2 billion on home care for children, seniors and people with disabilities, what do the rest of us get out of it?

Just tens of thousands of jobs, hundreds of millions in tax savings, and even more billions of dollars in economic activity.

Over the past few weeks, most of the discussion of Gov. Bruce Rauner’s cuts in these state-funded caregiver programs has focused on the devastating impacts of those cuts on the people who rely on those services, on their families, and on the caregivers themselves. And that’s appropriate, because those are the people most directly affected by these sudden, severe cutbacks.


But as the stalemate over the state budget continues, we need to recognize that these investments in caregiver programs do much more than provide help to people in need.  These programs save taxpayer dollars, create jobs for caregivers, recapture federal funds, support local jobs, and generate vital economic activity.

At Innovation Illinois, we recently took a close look at the budgets of caregiver programs in Fiscal Year 2013. We found that the state paid nearly $2.6 billion in state and federal funds to provide childcare for low-income working parents and to give in-home care to seniors and people with disabilities.

That’s a lot of money, to be sure, but not where the story ends – thanks to a fundamental principle of economics known as the multiplier effect.

The concept is that, when someone earns a dollar, it doesn’t just stay in that person’s pocket. Rich or poor, people spend their money, generating economic activity.

Economists say that wages paid to low-income people yield a much greater multiplier effect, because poorer people spend almost every dime on the necessities of life, and they spend it locally. They’re not spending money on vacations in Tahiti, and they’re not parking it offshore. Instead, they spend it in their own communities. And the people who receive that money tend to turn around and spend it in similar ways.

To understand the precise economic impact of the state’s caregiver programs, Innovation Illinois worked with IMPLAN, a world leader in economic impact analysis. Using sophisticated software and an exhaustive database of facts and figures, IMPLAN created a specific multiplier to measure the impact of these expenditures in Illinois.

Using that multiplier, we calculated that the state’s $2.6 billion combined investment in caregiver programs yielded a total of more than $5.3 billion in economic activity statewide. But we found even more good news.

On average, in-home care for seniors and people with disabilities costs about one-third as much as nursing home care. So the State of Illinois’ in-home care programs for these populations save state taxpayers hundreds of millions of dollars – perhaps as much as $1 billion – each year.

The programs also create jobs in communities that need them. In total, Illinois’ caregiver programs directly created 144,062 caregiver jobs. And because of the multiplier effect, the programs indirectly created another 66,591 jobs. That totals more than 210,000 jobs – equivalent to a job for every man, woman and child in Aurora, with enough left over to employ every single person in Centralia as well.

These programs, which draw substantial federal grants and matching funds, also bring our federal tax dollars back home. In FY13, they brought more than $1.14 billion in federal dollars back to Illinois taxpayers.

Because these programs leverage so many federal dollars, we get even more bang from the scarce bucks in the General Revenue Fund (GRF) – the state’s “checkbook.” So if you look at the economic impacts of just those $1.4 billion in state tax dollars that were invested in these programs, you find that every dollar of GRF spending generated an average of $3.74 in economic activity.

Too often, the debates over state spending on human services programs devolve into shouting matches of “You’re heartless!” vs. “You’re fiscally irresponsible!” By letting the numbers tell this important economic story, we hope that we can encourage all sides to stay focused on the real goal: Creating jobs and promoting prosperity for everyone who lives here in the Land of Lincoln.

Elizabeth Austin is vice president for policy and communications at Innovation Illinois, a nonpartisan research-based advocacy organization dedicated to promoting progressive public policies that reflect real world-tested best practices and expand economic opportunities for working men and women and their families.

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