Do Short-term Changes in Funding Improve Vocational Rehabilitation Outcomes: Evidence from the ARRA

The Great Recession and its recovery period had a profound impact on the U.S. economy, including its labor markets. Relative to those without disabilities, workers with disabilities experienced especially difficult conditions during this time. In February 2009 President Obama signed into law the American Recovery and Reinvestment Act (ARRA). Intended to help the U.S. economy recover from the Great Recession, the ARRA included a combination of tax cuts and government spending increases meant to stimulate economic growth. The ARRA provided additional funding to various existing agencies and programs that assist people struggling with issues such as obtaining employment, finding affordable housing, and being food secure.

The Vocational Rehabilitation (VR) program received $540 million in ARRA funding. VR provides about $3 billion annually in services and supports to people with disabilities who want to work; creating an opportunity for them to become financially independent and not need income or other supports. The ARRA funding, which did not require any matching state funds, was primarily meant to serve more applicants and increase services to customers, especially traditionally underserved populations and transition age youth. Although VR is funded primarily by the Federal government, it is administered at the state level. Consequently, there were differences in how states responded to the unexpected additional VR funding.

Our study uses the ARRA VR funding to examine how receiving additional program resources affects key VR outcomes. Our research questions include: (1) how did VR program outcomes respond to changes in funding levels and (2) did the impact vary by the extent to which states used ARRA funds. In our analysis, we use ARRA VR funding, which arrived rather unexpectedly by the states, as an instrument to capture the exogenous variation in state VR funding levels. Drawing on VR administrative data, we consider several different outcomes, including employment status, weekly earnings, hours worked, SSI receipt, and SSDI receipt at case closure as well as time to closure and service receipt.

Our findings suggest that short-term, positive funding shocks may not be effective at improving outcomes for programs like VR, and that the relationship between stimulus funding and actual spending warrants more scrutiny. We find no evidence that a change in funding levels affected key VR outcomes such as employment at the individual level. This result is consistent with evidence that agencies used the extra funds in ways that were not expected to improve individual client outcomes in the short term. The findings are also consistent with descriptive evidence that some states used ARRA funds as a substitute for decreased state VR funding instead of to supplement state VR funding at pre-recession levels.