One provision in last year’s stimulus bill gave “enhanced” funding to the states to cover Medicaid expenses. Another was a boon to state-run public-education budgets.

These payments were presented as a way to help states out of a jam, not as a permanent new source of funding. Secretary of Education Arne Duncan even warned schools and states not to use the stimulus funds in a way that, as the New York Times wrote, would lead to “dislocations” when they dried up.

But frighteningly, most state budgets are worse off today than they were 16 months ago. And many states have assumed that the funding will be extended. According to the National Conference of State Legislatures, at least 29 state legislatures have passed budgets assuming the federal government will pony up another $25.5 billion.

Sure enough, “with a sense of urgency,” President Obama requested an additional $50 billion bailout package last week. With two failed Senate votes this week, however, the package’s fate is far from certain. A failure to pass a new stimulus would add a $1.5 billion hole in the already gaping California budget deficit. Pennsylvania anticipated about $850 million, Massachusetts $700 million, Georgia $370 million, and New York $1.1 billion.

It seems that the “one time” cash infusion merely allowed many state legislatures to put off difficult budget decisions. And if the federal government throws more money at the states, it will merely put off the day of reckoning further. When that day comes, we will see an epic, and endless, battle for scarce funds between two stalwart Democrat constituencies: public-education advocates and public-health-care proponents, including hospitals.
 

Thanks to the new health-care-reform law, states are severely limited in their ability to cut Medicaid spending. For each state, the law effectively set a “floor” of eligibility at whatever level existed in that state on June 16, 2009. If a state moves to make eligibility more stringent, the federal government will rescind all matching funds. Using pre-stimulus-bill numbers, according to the Kaiser Family Foundation, that would be a loss of more than $19 billion to New York State and more than $2.5 billion to Virginia, for example.

States, therefore, are stuck in a very bad place. More or less forbidden to stem the number of enrollees, they are forced to give Medicaid recipients “insurance without care” — by reducing provider payments, decreasing coverage, and eliminating services. Health-care providers, including hospitals, many of which are located in urban areas and depend upon Medicaid payments to keep their doors open and lights on, are not happy, and are lobbying states hard to not see their budgets trimmed.
Education advocates are no better off. Stimulus funds totaling nearly $100 billion will have been doled out to states from Washington by the end of the year, but National Education Association head Randi Weingarten, writing in the Wall Street Journal, claims that 850,000 teachers will receive “pink slips” if an additional $23 billion is not approved.

Historically, education and health care have been on the same team when it comes to funding — as recently as last month in Arizona, the two groups worked together to get a temporary 18 pecent increase (from 5.6 percent to 6.6 percent) in the state sales tax passed with 65 percent of the vote. (The state will continue to have a huge deficit requiring substantial cuts anyway.)

But the battle lines are being drawn. Some pleas for budget overrides for education have not been successful. It is only a matter of time before one group fires the first shot with a claim that “health care must take precedence over education,” or that “schools will be decimated if we don’t cut health care.” And, once it does, an internecine political battle will ensue that will rattle the core of the Democratic party, and political races at every level.

– Eric Novack is chairman of both Arizonans For Health Care Freedom and the U.S. Health Freedom Coalition.