The great milk cow in the sky dropped dead

By Cate Long
August 18, 2011

The new paradigm for state and local governments is austerity.

Hard economic conditions and efforts at the federal level to achieve a balanced budget mean that funding for municipal governments will continue to contract. How will the reductions at the federal level spill over? Blunt-talking former Senator Alan Simpson, who co-chaired the National Commission on Fiscal Responsibility and Reform, was quoted recently as saying:

“(State officials) need to know the great milk cow in the sky dropped dead and that it’s over,” Simpson said in an interview for the March/April Capitol Ideas. “If they’re waiting for the next injection of some kind of funding from the feds to get the states propped up, … they probably saw the last one go by with the last compromise, which added almost $1 trillion bucks to the deficit without any reduction in spending.”

I’m sure that former Senator Simpson echoes the beliefs of many conservatives in Congress. Money is tight at the federal level, and much of the funding to states is targeted at very low income areas. It’s hard to predict how broad-based the defense of programs such as tenet-based rental assistance and child-nutrition programs will be. But the word is that the big federal program to states, Medicaid, has escaped cuts. So this potentially leaves the other programs very vulnerable. Let’s take a look at where federal dollars flow through to the states:

Data source: Government Printing Office (GPO)

The biggest block of federal funds flows to the Medicaid program for the poor and the elderly in nursing homes. In the first 20 seconds of this Bloomberg video, Paul Keckley, the executive director of Deloitte’s Center for Health Solutions, talks about how Medicaid has been exempted from cuts in the first round of the deficit-reduction deal.

Look at the federal funds to states in the table below. Medicaid funds have been rising, but because of rising medical inflation, increased Medicaid spending on services and a surge in Medicaid enrollment thanks to lingering unemployment, costs have been rising, too.

Fiscal year $ billions
2009 $ 250.9
2010 $ 275.3
2011 $ 296.7

Data source: Federal budget via Government Printing Office

Increasing funding to Medicaid is very beneficial to states. In addition to medical inflation and increasing enrollment, the states are being challenged by lawsuits as they attempt to meet provisions of the federal law. From the New York Times:

California tried in 2008 to cut Medicaid payments to providers by up to 10 percent. The state was sued by providers, who stood to lose revenues, and beneficiaries, who stood to lose health services, on the grounds that the cuts violated crucial provisions of federal Medicaid law.

Those provisions require that reimbursement rates be sufficient to enlist enough providers so that beneficiaries have access to care at least comparable to the general population in an area. A federal district judge initially ruled that people could not sue to enforce that provision, but an appeals panel said they could. California appealed, and the Supreme Court accepted the issue for review.

It will grower harder for states and counties to meet the requirement for their share of funding for Medicaid. Governors say that Medicaid is their biggest fiscal challenge. We have growing demand and very few creative proposals for how to provide these services more effectively. The great milk cow in the sky has dropped dead, and fiscal expansion is over.

4 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

That “Milk Cow in the Sky” is Joe Taxpayer’s grand children. This generation of leaders should be tried for treason. Either fix the problem, which means suffereing, or get the *&%*&% out of the way.

Posted by savannah05 | Report as abusive

I agree (generally) with what savannah05 articulated so awkwardly. But who will suffer? There is no “government,” just like there is no “corporation” – those entities are made up of people. The people will suffer. Like it or not, unless you live on a remote farm where you don’t participate in the consumer economy, we’re all responsible for the current situation. People are revolting against governments around the world, who will stand up to the American government in such a way? Nobody, probably, although things are getting so weird that a few militia people are bound to do something crazy. People should consider that moving to a remote farm might actually be your best bet. What do you really get from participating in the world market? Have you ever considered that the world market is one big pyramid scheme? Austerity needs to be applied at a personal level, but that means less money in the world markets because your consumption and your tax dollars are the only things that keep the big machine running.

Posted by Nullcorp | Report as abusive

States can always choose to fund these programs for their own citizens, without federal funds, if that’s what suits them. As they begin to restrict the benefits and those restrictions impact the families of those deprived of assistance, states will begin to experience changes in personnel at the highest elected levels. Eventually someone will always come along and promise to kiss it and make it all better, and another batch of cost-cutting incumbents will be sent home to earn a living clerking in the local Family Dollar.

Posted by derdutchman | Report as abusive

This guy is ill informed. He speaks of the last 2 months of life or some nonsense like that, implying that the government can turn down the funding for those expensive months and achieve meaningful savings. I want to shout: WE CANNOT TELL WHEN THOSE LAST TWO MONTHS BEGIN ! You can either set some criteria for withdrawing treatment or not, but do not begin to know that you can predict when the patient is facing his/her last two months of life.

Posted by OnlyTruth | Report as abusive