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• Federal Government Transfers in the Rural Fifth District

Transcript

Tim Sablik: My guest today is Bethany Greene, a regional economist at the Charlotte branch of the Richmond Fed. Bethany, welcome back to the show.

Bethany Greene: Thanks for having me back.

Sablik: Our topic for today is the role of federal government transfers in the Richmond Fed's Fifth District. To remind our listeners, that includes Maryland, Washington, D.C., Virginia, most of West Virginia, and North and South Carolina.

Bethany, you recently wrote about this topic in a Regional Matters article that we'll link to in the show notes. To set the stage for our conversation today, when we talk about federal government transfers, what sort of programs does that include?

Greene: Government transfers encompass a variety of social programs that redistribute income to individuals that meet certain criteria. Most people have heard of some of these programs: for example, Social Security, Medicare, Medicaid, which are actually the three largest programs. Some others include unemployment insurance benefits; veterans' benefits; income maintenance benefits like SNAP or, as it's commonly referred to, food stamps; and then also Supplemental Security Income, also known as SSI.

Sablik: Out of these various programs, what's the composition of transfer payments in the Fifth District and how does that compare to the U.S. as a whole?

Greene: A majority of government transfer payments are health care benefits — mostly Medicaid and Medicare — which comprise around 45 percent of government transfers. Then we have retirement benefits, which are also a significant piece. That comprises roughly 35 percent of transfer payments. Then, we have income maintenance benefits, which comprise around 8 percent; veterans benefits are around 6 percent; and then unemployment insurance is a pretty small share, at less than 1 percent. This tends to fluctuate over the business cycle.

There isn't much of a difference in the composition of transfer payments between the U.S. and the Fifth District as a whole. The share of veterans' benefits is slightly higher in our district, medical benefits are slightly lower.

But there are some notable differences between our states. For example, in D.C., Social Security comprises a much smaller share of total transfers at around 19 percent, whereas it's around 36 percent in South Carolina. Demographic differences are playing a role in this. We have a younger population in D.C. The median age is around 34, so the share of retirees is lower, which is why we see this smaller share of Social Security benefits.

Sablik: Have these shares changed at all over time?

Greene: Over the last two decades, the share of transfers from medical benefits and veterans' benefits have increased slightly in the Fifth District. But I think what's more notable is how this composition changes during economic downturns, specifically unemployment insurance payments. Some government transfers are what we call automatic stabilizers. They essentially mitigate the impact of economic downturns by providing assistance to individuals impacted by unemployment and lost wages. This helps to prevent further contraction in the economy because it supports household incomes and consumption.

Most recently, in 2020 we saw this play out where millions of people lost their jobs during the pandemic. The share of transfer payments from unemployment insurance increased temporarily.

Sablik: How do you measure the importance or impact of federal transfers to a community?

Greene: When it comes to the importance of transfers to a community, we can measure the share of personal income that comes from transfer payments. When we typically think of income, we're usually thinking about earnings from someone's place of work. But transfer payments supplement incomes for people who may be low earners or people who are unable to work. So, measuring transfers as a share of total personal income allows us to see the degree to which different communities rely on this income to pay for their expenses.

Sablik: When you construct this measure, how does reliance on federal transfers vary by state and geography within our Fifth District?

Greene: West Virginia has the highest reliance on transfers, where transfers as a share of personal income is around 30 percent. D.C. has the lowest share at around 13 percent, and then North and South Carolina have shares that are a little bit above the national average at around 22 percent and 24 percent, respectively. Maryland and Virginia have pretty similar shares at around 16 percent.

Apart from the state differences, there's also a clear divide between urban and rural areas. In rural counties in our district, the share of transfer payments is roughly 29 percent compared to 17 percent in urban counties.

Sablik: What are some of the factors that might explain those regional differences?

Greene: On average, rural areas in our district have lower earnings from work, fewer job opportunities, and higher levels of poverty compared to urban areas, which means the need for income assistance and health care assistance is higher. Also, rural areas tend to have a larger share of older retired individuals. That means there will be a greater reliance on retirement benefits like Social Security in these communities.

Sablik: Are there any exceptions to the general rule that transfers rise as counties become more rural?

Greene: Yes, there are some exceptions. You can take some coastal rural areas in North Carolina and South Carolina, for example, where incomes are high and reliance on transfer payments are low. Beaufort, S.C., which is more of a small town, is an example of this. Another example is King George, Va., which is an example of a rural community that is amenity rich. It attracts visitors. It has higher property values and higher incomes, and also proximity to urban centers.

But these are exceptions. We find that as counties become more rural — which we measure using a one to nine scale using the Rural-Urban Continuum Codes [designated by the U.S. Department of Agriculture] — we find that reliance on government transfers increases.

Sablik: What role do community organizations play in facilitating and supplementing federal transfer programs in rural areas?

Greene: The administrative burden of some transfer payment programs can often deter people from seeking assistance, even when they really need it. This is where community organizations step in to provide assistance to individuals navigating applications and eligibility requirements. Some households aren't even aware of the types of programs they would qualify for. So, these organizations can be very helpful in educating communities on eligibility, which can increase participation.

Sablik: Have there been any recent changes to federal funding that's had an impact on transfers?

Greene: There have been some changes to eligibility for major transfer programs that could lead to a loss or a reduction in benefits. This includes an expansion of work and community engagement requirements for Medicaid and SNAP. There's also a provision where states may be required to partially fund the cost of SNAP benefits depending on their payment error rates. But that's not set to be introduced immediately, so there's still some questions about how states will respond to some of these changes. That's ultimately what's going to determine how many people are impacted.

Sablik: Bethany, thank you so much for joining me today to discuss your research.