As Arizona Goes, So Goes the Nation: How Medicaid Ruins the States' Fiscal Health

As Arizona Goes, So Goes the Nation: How Medicaid Ruins the States' Fiscal Health

No. 6, July 2008
All is not well in Senator John McCain's home state. Confronted with a general fund budget shortfall of more than $1.3 billion, the Arizona legislature in June enacted modest cuts (primarily in community college and prison budgets), a stepped-up traffic enforcement system to produce some $90 million in speeding tickets, and $2 billion in new debt--half of it to close the hole in the $10.9 billion budget. (The other half will fund university construction.) The budget is a stopgap measure that bodes ill both for next year's budget and for the state's fiscal future, and no Arizona politician pretends otherwise.
Measured as a percentage of the state's fiscal year 2008 general fund, Arizona's projected FY 2009 deficit was the most serious shortfall of any state, exceeding even California's....
Arizona's fiscal crisis is due chiefly to the state's expansion of its Medicaid programs. That decision, in turn, is largely attributable to the perverse incentives created by Medicaid's inordinately generous transfers to the states. To oversimplify slightly, states get into fiscal trouble not because the feds shirk their obligations, but because they have made promises to pay in the first place. While Arizona's problems are exacerbated by a dysfunctional political system, the state's predicament illustrates a pervasive structural crisis.
Despite a relatively conservative political climate, Arizona used to be a high-tax state. Over the decades, however, Arizona's tax burden has remained roughly constant, while that of many other states has risen. As a result, Arizona has improved its position relative to other states. By the most widely used measure (the Tax Foundation's index of state tax burdens), Arizona is now near the median in terms of combined state and local tax burden on citizens....
However, the fiscal effects of federal-to-state transfers are not unambiguously positive, even for net recipient states like Arizona. While federal grant programs may have some fiscal substitution effect, on balance they increase state and local taxation and spending. By making program expansions look cheap and making cuts look outrageously expensive, federal matching grants ratchet up spending and taxes and tend to exacerbate the states' boom-and-bust budget cycles. All else equal, those effects increase in proportion to the matching program's size and generosity....
Under Medicaid, the federal government reimburses between 50 and 77 percent of a state's qualifying expenditures, depending on the state's wealth. Put differently, a state can purchase a dollar's worth of Medicaid health services at a cost of less than fifty cents to itself. Less happily, it cannot cut a dollar from its domestic budget without "losing" federal transfers....
Some states now cover families with incomes of up to 275 percent of the poverty level. Almost all provide long-term care for the poor and low-income elderly. In a few states, one-third of the population is now on Medicaid. In Arizona, about one-fifth of the population receives health care coverage through AHCCCS [Arizona Health Care Cost Containment System]....
Unsurprisingly, Medicaid expenditures constitute an ever-growing share of state expenditures. In 1987, that share amounted to slightly more than 10 percent. In 1992, the number was 17.8 percent; in 2006, 22.2 percent....
In Arizona, the crowding-out has been far more severe and rapid. The state's involvement with Medicaid did not begin until 1982, with the creation of AHCCCS. Previously, Arizona had been the only state to reject federal Medicaid funds. (Individual counties provided a piecemeal system of health care for the state's indigent.) AHCCCS was the first statewide Medicaid program to use managed care, offering recipients a variety of private and public health plans that channeled them into private physicians' offices. As recently as 2002, AHCCCS was cited as a model Medicaid program.
But AHCCCS has since caused much fiscal and budgetary trouble. These difficulties can be traced to the enactment of Proposition 204 in 2000, which substantially expanded Medicaid-eligible populations and services. Proposition 204 significantly loosened eligibility requirements for several AHCCCS programs. (For example, it allowed persons with incomes above the poverty line to spend down their income on medical bills to qualify for coverage.)...
The option of finding offsets for increased Medicaid spending elsewhere in the budget is illusory. Only the general fund and "other appropriated funds"--less than half of all state expenditures combined--are actually subject to the legislature's appropriation authority. "Other" appropriated funds are earmarked, and even within the general fund, about 60 percent of spending is essentially nondiscretionary, as it is automatically set to increase or decrease each year.[9] Thus, short of closing down community colleges and state prisons (or, perhaps, launching an aggressive pro-smoking campaign to raise short-term revenues and long-term mortality rates among Medicaid consumers), the Arizona legislature can do only what it has, in fact, done: enact phony cuts, use traffic enforcement as a revenue device (not a tax and therefore not subject to the Proposition 108 two-thirds requirement), and issue a pile of new debt....
 Arizona instead resorted to aping the Bush administration's major domestic policy innovation: the tax-free, debt-only finance of a major public health program.
No state can avoid the choice between more debt or rip-roaring tax hikes, combined in some way. The only plausible solutions to the states' Medicaid-induced fiscal troubles are to be found in Washington. Those solutions, however, have foundered and will continue to founder--paradoxically, due to the opposition of the states.

It is tempting but wrong to view Medicaid's stupendous, irresistible growth trends and its effects on state budgets as accidents. Medicaid is designed to be fiscally unsustainable--but politically self-sustaining....
Medicaid has created a political wonderland: to a man and woman, public officials who know the program to be ruinous to their states nonetheless clamor for more of the same. There is no will or incentive in Washington for a call to reality--not among Democrats, who rightly view Medicaid (and SCHIP) as HillaryCare on a bicycle, and not among Republicans, who are receptive to the intergovernmental lobby's call for "states' rights" and its clamor against "unfunded mandates" (and never mind that Medicaid is neither).
Eventually, Medicaid will fall victim to the late Herbert Stein's law: something that cannot go on will eventually stop. No one knows on what terms it will stop. We do know this, though: before it stops, there will be a lot more Arizonas.

My thoughts:  ...And socialism sucks.  I still can't excuse our legislatures for our debt.  They are there to be leaders and to tell the truth not lie and be cowardly.

AZ News & Blogs 7/6/2010

• Arizona Voters Should Decide If Secret Ballots Are Fundamental Right 
• Arizona voters will have the opportunity in November to decide if secret ballots should be a constitutional right during public elections and the creation of labor unions, unless a union succeeds in its bid to have the proposed amendment removed as a ballot measure. 
• In June 2009, the Legislature referred Proposition 108, also known as Save our Secret Ballot, to Arizona voters. The United Food and Commercial Workers union, which represents grocery store workers, went to court 11 months later and demanded that Prop.108 be struck down as a violation of the requirement in the Arizona Constitution that voters consider only one subject in each ballot measure.
• State Keeps Spending at Record Levels Despite Huge Budget Shortfall 
• Arizona is still spending at record levels despite a $2.7 billion dollar budget deficit and an 18 percent state sales tax increase to help fix it. Today marks the start of Fiscal Year 2011 and, according to a spending clock sponsored by the Goldwater Institute and the Arizona Free Enterprise Club, Arizona is on track to spend $29.3 billion this year.
• Even though Arizona has had a budget deficit for three years, spending is still on the rise. The state spent $888 per second in FY2009 and $920 per second in FY2010. Now Arizona is spending $929 per second in FY 2011. 
• "There goes the notion that government is doing more with less," said Steve Voeller, president of the Arizona Free Enterprise Club. "It's doing more because it has more."
• Sheriff Joe, Sheriff Mack and Derek Sheriff: Three Views on Arizona’s New Immigration Law 

• Building Codes and Protectionism 
• I have written a lot about state licensing typically being more about protecting incumbents from competition than consumer protection.  This is a story in a similar vein, where plumbers worked to stop the approval of waterless urinals because they required, well, fewer plumbers to install.  In the end, there was a compromise — the plumbers would support waterless urinals in the code, BUT the code would also say that water still had to be piped to the urinals that don’t need water.  I kid you not.
• to Hyperinflate 
• This potential move gives the deflation versus inflation debate a new perspective. We have written in the past that we had questions about the Great Depression based on conflicting opinions of Murray Rothbard, Milton Friedman et. al. Living through the "Great Recession" has begun to clear them up. It is a little like being a lab rat; it is painful, but the experience gives you an insider's look at the scientific method. Or in this case a fiat-money economy.

Jan Brewer a Democrat or Neocon?

• Jan Brewer Continues to Fabricate Position on Taxes 
• As Jan Brewer continues to portray herself as a conservative, her record on tax and budget matters tells a different story. Brewer’s record on fiscal policy is one of higher taxes, more spending, and budget deficits as far as the eye can see.
• In 2009 Brewer increased property taxes in Arizona by $250 million by vetoing the permanent repeal of a state property tax....As a member of the Maricopa County Board of Supervisors, Brewer repeatedly voted for higher property taxes (Arizona Republic, 2002).
• Brewer’s Idea on Jobs? Another Government Agency 
• Since Jan Brewer took office, Arizona’s unemployment rate has jumped from 7% to nearly 10%. Despite efforts from state lawmakers to cut taxes, Brewer simply raised them $3.25 billion.
• Her latest idea is to create yet another government entity focusing on job creation. To kick-start the new Commerce Authority, she handed them a government check for $10 million.
• Arizona’s Truth-Teller-in-Chief Eyes Tried-And-True Violation of Truth-In-Taxation Law to Balance Her Unbalanced Budget 
• The state’s Joint Legislative Budget Committee official estimates say Arizona is $368 million in deficit already and we’re only a week into the fiscal year. Add to that the $400 million in federal Medicare matching dollars that was counted on that’s not coming. That’s a budget out of whack by nearly three-quarters of a billion dollars and we really haven’t gotten started on this year’s faux-balanced budget fashioned under the flinty Governor Brewer last February.
• Oh yeah, that Brewer budget is also predicated on passage of both Prop. 301 and Prop. 302 this November. The former steals $125 million from the Growing Smarter fund for land preservation and the latter steals $325 million from the First Things First fund for “the children”. Well-funded “no” campaigns are already gearing up to defeat those measures ironically consisting of many of the same interests behind Prop. 100’s grand coalition of multi-millionaire spenders.

AZ News & Blogs 6/25/2010

Drugs

• All’s “normal” after Rocky Point police chief, bodyguard shot 
• Puerto Penasco, Mexico Police Chief Erick Francisco Landagaray, and his bodyguard Luis Huerta Ibarra, were gunned down over the weekend while patrolling the seaside city, also known as Rocky Point.
• Mexican drug lords creating havoc in southern Arizona 
• Mexican drug cartels have set up shop on American soil, maintaining lookout bases in strategic locations in the hills of southern Arizona from which their scouts can monitor every move made by law enforcement officials, according to federal agents.
• Possession of Any Recreational Drug Has Been Legal in Portugal Since 2001… 
• …and the country hasn’t fallen apart. (I know—you’re “shocked.”)
• See the video. 

Oh, Politics!

• WSJ: “JD Huckster” 
• The Wall Street Journal has weighed in on the reality of JD Hayworth.  Not the spin, not the shiny object, revisionist history campaign fluff…the real story.  This reality is best personified in the portion of the infomercial  starring the “former member of the powerful Weighs and Means Committee” where he uses the trust of the people who elected him to sway the hearts and minds of others into a complete and total scam.
• Why Jim Deakin Should Support JD Hayworth for the US Senate 
• If anything, he brings lack of experience.
• My thoughts:  The one good thing.
• What’s this? NRA rejects own board member Buz Mills, endorses Brewer 
• Arizona gubernatorial candidate Owen “Buz” Mills, a honcho with the National Rifle Association (NRA), got a rear-end full of buckshot as the organization endorsed his adversary, Gov. Jan Brewer.
•  Listen to Ernest Hancock talk on the corrupt NRA with Sheriff Mack.
• Jan Brewer's new motto: "Damn the facts, full distort ahead!" 
• The example he cited involved her saying, during a debate between the R candidates for governor that the majority of undocumented immigrants were engaged in narcotics trafficking and extortion and that they are responsible for a massive crime wave in Arizona.
• As this Think Progress piece from writer Andrea Nill points out, during a period in Arizona's history that has seen an increase in undocumented immigration, there has been an actual decrease in crime in AZ.

Oh, Politicians!  Time to get rid of the welfare state!

• Sells Islands? 
• On the surface it seems shocking that a nation would sell off parts its physical environment because of public sector debts. But this has been going on for a long time in impoverished nations. First profligate nations are lent a lot of money by private sector banks. Then the nation becomes over-extended revenue-wise. Finally the IMF is called in to provide a "loan" that must be paid back. The impoverished nation cuts its bloated public sector, raises taxes and sells of chunks of its public portfolio, maybe to the fraternity of banks that lent it money in the first place.
• My thoughts:  Et tu Arizona?

Living

• Living on (a Lot) Less 
• I spent last weekend at a lake house in Maine with a broken water pump. For three days, we had no running water. Being beside the lake gave us ample access to water, but nothing flowed from the taps.
• It turned out that five of us could live pretty comfortably on about five gallons of water a day.

AZ News & Blogs 6/15/2010

• Discussing Private Management of Public Parks 
• Coyote blog discusses private management of state parks, a way to keep them open.
• Immigration Debate May Get Uglier (and Nuttier) Here in Arizona 
• But that was 1868. Today, Pearce says the 14th Amendment has been “hijacked” by illegal immigrants. “They use it as a wedge,” Pearce says. “This is an orchestrated effort by them to come here and have children to gain access to the great welfare state we’ve created.” Pearce says he is aware of the constitutional issues involved with the bill and vows to introduce it nevertheless. “We will write it right.”
• Economic News From Far Away to Close to Home 
• Over in Mesa, the last citrus packing plant is shutting down due to reduced volumes. Fruit will now have to be trucked to Yuma at considerable expense to be processed. This will shut down most of the remaining groves in the area.
• Finally, Arizona has sold the state Supreme Court building among others to raise $300 million in cash to help fund the budget. The state will buy the buildings back over the next 30 years.

AZ News & Blogs 6/12/2010

• Police and Accountability 
• I have written before that the inexpensive handheld video camera is perhaps the most important innovation in police accountability in my lifetime.  So of course, the police want them banned.
• Clean Elections Candidates Advised to Return Public Subsidies 
• At an emergency meeting Wednesday, the Arizona Citizens Clean Elections Commission declared that taxpayer-funded candidates who have accepted campaign subsidies cannot withdraw from the Clean Elections system and run with private fundraising. But the Commission is wrong, according to the lead attorney who convinced the U.S. Supreme Court to block the use of matching funds at this point.
• “There is nothing in the law that prohibits withdrawal from the Clean Elections system – provided taxpayer-funded candidates return their government subsidies and run with private financing,” said Nick Dranias, the Goldwater Institute’s director of constitutional studies. “No provision in the Citizens Clean Elections Act addresses the issue of voluntary withdrawal from the system. And no rule prohibits the Commission from allowing candidates to withdraw from the system if they return their subsidies.”
• Strange bedfellows 
• Mills' attorney told the commission that it should reject a request from Gov. Jan Brewer's campaign to invoke an emergency clause and release publicly funded candidates to raise private dollars. It's needed, Brewer's crew argued, because of a U.S. Supreme Court ruling that bars the distribution of matching funds to publicly funded candidates.
• Worries increase along with Arizona's debt 
• Paying off that debt will strain state budgets for years to come. For the fiscal year that starts July 1, the state must make a $232 million debt payment out of its general fund.
• Abramoff Released From Prison; close ties to Hayworth linger in the minds of voters 
• This cannot be a good week for Team Hayworth, with reports his campaign is losing steam and this ugly little reminder of just how low some people will go.  You would think after the whole Abramoff “thing”, taking a closer look at folks would have been a good idea.  But, then…I guess some people never learn.