Increased Poverty Rate Will Further Strain Cash-Strapped States, Duke Professor Says

Tuesday's U.S. Census Bureau report showing a drop in household income and an increase in the poverty rate will be a "double whammy" for states that are already experiencing budget difficulties, says a Duke University professor.

"Given the precarious budget situation in many states today, the economic recession and the associated decrease in incomes and increase in poverty present the states with a double whammy. Lower incomes mean less tax revenue and increases in poverty mean a higher demand for public services," said Jacob L. Vigdor, assistant professor of public policy studies and economics at Duke.

Vigdor explained that services like unemployment insurance and even welfare affect state budgets because the federal government provides states with a set amount -- in the form of block grants -- to pay for welfare. States that exhaust their block grants are responsible for coming up with any additional money needed for the program.

"I think the one thing that everyone is following nervously is the impact that the recession will have on the welfare system," said Vigdor, whose areas of specialty include urban and social policies. "Ever since we ended welfare as we knew it, the economy has been doing quite well. We've never really had to worry what would happen when welfare recipients ran into the new tough regulations regarding how long they could receive benefits and the lifetime limits that were part of that legislation.

"Now that we're in recession, we're going to find more people who are relying on that kind of assistance. The impact of these laws that we've avoided for so long may finally start to hit us."

Vigdor noted that economic and social trends often go hand in hand. "Crime rates are something we do expect to tick upwards during recession. And I think the increased unemployment rate that we have seen recently implies that it will be difficult for a lot of young people just starting out their careers to find jobs. As a result, we are seeing a lot of college graduates choosing to go on to graduate school right away."

In North Carolina, the sluggish economy is not only hitting traditional industries like furniture and textile manufacturers. "The financial industry in the Charlotte area and the more high-tech industries that you find in the Triangle have been caught up in the bursting of the stock market bubble, and so the cosmopolitan areas of the state have been feeling the effects of this recession much the same way as the small milltowns in the Piedmont," Vigdor said.

Vigdor can be reached for additional comment at (919) 613-7354.