The great milk cow in the sky dropped dead

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.

The federal government’s largess

The states rely on the federal government for 1 out of every 3 dollars they spend. States are rightly worried that the new “super committee” established by the debt ceiling deal in Congress will be looking at these monies to reduce spending. I thought it would be useful to look at the federal budget and get a sense of the size and composition of these expenditures.

I got a large table of data from the Government Printing Office (GPO) that shows the Congressionally authorized grants to the states. About half these monies are administered by states and flow through their budgets (see especially Medicaid and education funding) and the balance are distributed as federal programs. Here are the main programs administered by the states in this pie chart. Federal unemployment assistance is not included in this area of the budget.

Medicaid has always been the biggest cash transfer program to the states. It requires matching funds from state and county governments. Although it escaped mandatory reductions in the first phase of deficit reduction it’s the area that has governors and legislators most concerned. Medicaid is the poor cousin to other health insurance programs and it generally pays the lowest reimbursement rates. Some creative thinking is needed for this widely used health insurance program.

Debt deal for states: whither Medicaid?

Debt deal for states

As we reach the end game in Washington, states still have no idea how a reduction in federal spending will trickle down to their budgets. drills down to the number one concern of governors and state legislators — Medicaid (emphasis mine):

Among the biggest concerns for states was — and remains — the fate of Medicaid, the joint state-federal health insurance program serving more than 60 million poor Americans. That’s because Medicaid is generally the biggest item in state budgets. In the short term, the debt deal appears to spare Medicaid from immediate cuts in federal support. What’s more, Medicaid was specifically exempted from a “trigger” mechanism that would reduce spending automatically if the special congressional committee does not achieve its deficit-reduction goals.


NYT: States and Cities Brace for Far Less Money From Washington

Reuters: Three reasons conservatives should oppose a balanced budget amendment

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Medicaid moguls

As a nice bookend to state officials’ concerns about Medicaid, the New York Times has an outstanding piece today on the excessive pay for executives who provide care to the developmentally disabled. Medicaid funds these programs with federal and state dollars. All is not well in the public, non-profit sector. From the NYT:

Medicaid is the beast

It’s not short-term federal budget issues and credit rating changes that should worry muniland; these issues will require adjustments and creative solutions, but they are transitory. The real issue for states is how their budgets will sustain the increasing load of Medicaid, the federal government’s healthcare program for the poor and those who require nursing home care. This is the real elephant in the room.

Today, multiple media outlets ran stories about the oncoming terror for states from a potential downgrade of the credit rating of the United States. For example, the New York Times ran an article with the headline “Debt Ceiling Uncertainty Puts States at Risk” on their homepage. The story details a litany of possible scenarios ranging from the minor, such as Maryland having to delay a scheduled bond sale for a few days, to the more substantial worries, such as the federal government stopping payments like Social Security and state and local tax revenues being reduced.

These are transitory problems, which, like the problems that happened when the state government of Minnesota shut down for three weeks, will cause inconveniences. Ultimately, the system will find work-arounds.


Are we JumboAmerica?  That is to say, has America succumbed to gluttony and sloth?

These questions, though rhetorical, are important since we have impossibly high obesity rates in this country and spend 17% of our GDP on health care. A new national system, Obamacare, will expand access to health care, but it does nothing to address the obesity epidemic among the poor.

Yesterday Phil Izzo of the Wall Street Journal reported on an important study that addressed poverty and obesity (emphasis mine):

The American Revolution was a beginning, not a consummation

“The American Revolution was a beginning, not a consummation.” ~Woodrow Wilson

Happy belated Independence Day to all! Step by step, the United States is transforming itself. It’s a good time to remember our founding principles:

Individual liberty
Personal responsibility
Constitutionally limited government
The rule of law

Greening the city

Greening the city

Many cities took a big step forward for clean air when they adopted buses fueled by natural gas. But there are other important projects that will make getting around easier, quieter and less polluting. New York City is getting ready to take a big step. From American City:

New York City has the potential to take those [bike sharing] concepts and scale them up to a size unseen on this side of the Atlantic. Mayor Michael Bloomberg, a man the transportation community has a complicated relationship with, has been dangling a transformative bike sharing program in front of alternative transportation advocates since 2009 when New York’s city planners issued an “exhaustive proposal” that included a 10,000 strong fleet of safety-equipped, GPS-ready bikes.

Economically, the deal is a victory for innovative financing because it fully absorbs the burden of maintenance, damage, and —as this is a city— theft, vandalism, and “artistic destruction.” New Yorkers would buy their memberships on weekly, monthly, or yearly bases and get an unlimited number of free rides that take less than 30 minutes; ride a little longer, pay a little more. New York has decided that an initial burst of capital will serve their purposes the best not least because of their uniqueness among American cities in terms of density and population.

Muni sweeps: Important deals for CA and NJ

New Jersey municipal employees to pay more for benefits

The Wall Street Journal is reporting that New Jersey Governor Chris Christie and the state Democratic leadership have reached agreement on reducing employee benefits:

In the face of heavy opposition from unions, the Democratic leadership of the New Jersey legislature and Gov. Chris Christie reached an agreement on major cuts to public-worker pensions and benefits…

…Democrats worked into Wednesday evening to get union support, offering weaker proposals, to no avail, a person familiar with the negotiations said. Instead, top lawmakers went ahead with a comprehensive bill submitted earlier this week that requires workers to pay more toward their pensions and new hires to work longer to reach retirement age, while eliminating annual cost-of-living increases for current and future retirees, among a slew of other changes.

Muni sweeps: How much job creation?

Job creation or program pass-through?

The Congressional Budget Office has published a new report entitled “Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output from January 2011 Through March 2011.” It makes some large claims about how many jobs stimulus funds have created:

Various recipients of ARRA funds (most recipients of grants and loans, contractors, and subcontractors) are required to report, after the end of each calendar quarter, the number of jobs funded through ARRA. The law also requires CBO to comment on those reported numbers.

During the first quarter of 2011, recipients reported, ARRA funded more than 571,000 full-time-equivalent (FTE) jobs.

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