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Since its inception in 1993, nearly 90,000 high school dropouts have completed the National Guard Youth Challenge Program, a youth diversion program for unemployed high school dropouts. As of 2008, 27 states have partnered with the military to implement this residential program for at-risk youth. There is limited research on this new social welfare program despite its representing a dynamic military-state-welfare relationship. This study examines state-level conditions and looks to answer three research questions: 1) Under what conditions do states start a ChalleNGe program?; 2) What role do time-varying social and economic factors have in influencing states to initially adopt the program?; and 3) To what extent does the racial composition of program sites reflect the racial composition of its host state's young high school drop-outs? I examined state-level social and economic conditions using data from a variety of federal agencies and public opinion surveys. I examined social and economic circumstances that may have influenced state-level participation. Due to the nature of time-dependent variables and states' launching programs as various times since 1993, I used an event history analysis to predict the timing of initiation of a ChalleNGe program. The results of this research indicate that high unemployment rates and low high school graduation rates increase the likelihood that a state will create a ChalleNGe program. The results from this study provide insight into the creation and expansion of the ChalleNGe program as well as the changing role of military as a part of the welfare state.