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.
The other interesting observation I had looking at these numbers was the comparison of spending on special education to career and vocational training. Spending on special ed was over five times higher than spending on job training. I’m not advocating reducing special education but we must commit more resources to training unemployed Americans for higher skilled jobs.
Dig into the data a little. Where we spend our treasure is a big factor in America’s future. There will be less federal largess. Let’s spend it wisely.
Supporting less prosperous brethren
There are many financial linkages between various levels of government in muniland but everyone eventually has to stand on their own. It’s like the cousin you grew up with but don’t see much now other than holidays. When your cousin loses their job and their mortgage is being foreclosed you want to help but in a limited way. You want the cousin to get a job and cut a deal on their mortgage or do a short sale. You don’t want them moving into your home or having access to your bank account. It’s the same between the federal, state and local governments. They are cousins. But not that close.
My fellow Reuters blogger, Felix Salmon, said yesterday that states are considered too-big-to-fail by the financial markets:
The middle sadness
The middle sadness
Paul Mason, the economics editor of the BBC’s Newsnight program, recently retraced John Steinbeck’s footsteps during America’s Great Depression. What he found was a broad swath of sadness as he observed many citizens who have lost jobs and homes. It’s the invisible America. From the BBC:
What would a debt-limit crisis cost the states?
Thanks to Jordan Eizenga at the Center for American Progress, you can see some scenarios of the impact of the halt in payments to states if the debt ceiling is not raised. Jordan says:
The key thing to remember is that these are cuts that would occur even if we protected Social Security, Medicare, Medicaid, defense, and UI. Failing to raise the debt limit causes unavoidable pain to states.
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.
The land of 10,000 lakes
It’s hard to imagine a more beautiful name for a state than Minnesota, which comes from a Dakota Sioux word for “sky-tinted water.” Today the state is popularly known as the “Land of 10,000 Lakes,” a nickname that conjures up images of primal forests, deep waterways and lots of summer mosquitoes.
The reasonable-looking man in the video above is Mark Dayton, the governor of Minnesota. Governor Dayton, a Democrat, has shut down the state government over an impasse with Republicans in the state legislature. Bloomberg reports:
The foolishness of Ann and Amanda
Television is my least favorite medium because pundits usually strike outlandish poses that are wholly disconnected from the facts. Case in point is the short video above from MSNBC with Chris Hayes of The Nation, author Amanda Foreman, pundit Ann Coulter and political commentator and comedian Bill Maher. What are these people talking about?
Amanda Foreman: “Government doesn’t create jobs. Ideas create jobs. Innovation creates jobs.”
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:
Real people are connected to every actuarial assumption
Pension reform sounds abstract and distant from everyday life. It is almost entirely confined to state- and local-government workers. Companies stopped giving pensions to their workers decades ago as they switched employees to 401(k)s and other voluntary-type retirement schemes. This removed enormous future liabilities from the balance sheets of companies and shifted the risk of adequate retirement means to individuals.
Public pensions plans are now squarely in the sights of state legislatures. They are terribly underfunded and have grown unsustainable. Changes, though, must be made within the law. For example, states cannot categorically take away pensions because they are “contracted obligations.” But states can and are chipping around the edges and making changes to things like “cost of living adjustments” (COLA) and the required retirement age.
These legislative modifications are being challenged in courts. This is not surprising since people don’t generally give up their benefits or rights on a voluntary basis. In many cases these pensions are the only thing that retirees will have to fund their retirement. Workers are not winning their court cases, though. The WSJ reports that:
“To win the future, we must dream big and build big”
America’s Interstate Highway System celebrates 55 years
This is the best example of how public infrastructure can really anchor tremendous economic growth. We can learn from history and use this time of economic challenge to conceive of equally profound infrastructure goals. From Fastlane, the blog of U.S. Secretary of Transportation Ray LaHood:
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Resident Muniland expert
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