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More Fed Money for Profligate States?



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Many state leaders are lobbying the Senate to extend the Medicaid bailout enacted in the February 2009 stimulus bill. While several attempts by Senate leaders to extend the bailout have failed, it will be brought to the floor again on Monday, this time bundled with additional spending on education.

Talk about throwing good money after bad.

For both Medicaid and education funding, a continued bailout would disproportionately benefit the most irresponsible states and would allow them to delay taking the steps they must to live within their means.

Federal taxpayers fund a large portion of state Medicaid spending, ranging from half the bill for the wealthiest states to 80 percent of the bill for the poorest states. When state leaders complain they need more money, some perspective is in order. National Medicaid spending nearly quintupled between 1990 and 2008, which resulted in overly generous programs that couldn’t be maintained when the economy dipped into recession.

Bailouts relieve states — temporarily — of the need to make difficult budget cuts. Congress has already bailed out state Medicaid programs three times in the last decade, in effect forcing federal taxpayers to rescue irresponsible state politicians. The most recent bailout, in the February 2009 stimulus bill, cost taxpayers an estimated $87 billion. Every state knew that additional federal funding would expire on December 31, 2010, yet many state leaders are clamoring for a bailout extension.

Perhaps the best way to evaluate state Medicaid programs is to compare state Medicaid spending per person in poverty. Many wealthier states, such as New York, Massachusetts, Vermont, Rhode Island, and Connecticut, have extremely generous Medicaid programs that effectively force federal taxpayers to support many individuals who earn well above the poverty level. For instance, New York spends $18,344 on Medicaid for each person in poverty, with half that amount coming from federal taxpayers. At the other extreme, Nevada spends only $4,568 on Medicaid for each person in poverty.

States that have excessive programs would unfairly benefit from a continued bailout. New York, with less than 7 percent of the nation’s poor, would receive 15 percent of the bailout. Additional federal funds would have the effect of punishing states such as Texas, Georgia, and Nevada that essentially lived within their means.

The same overall principal holds true when it comes to education spending. Since 1970, per pupil inflation-adjusted spending has nearly tripled. Government education spending, at all levels, has grown to $580 billion annually, more than 4 percent of GDP. On top of that, the Department of Education got an extra $100 billion through the stimulus bill, effectively doubling the agency’s budget in a year.

Although per pupil spending now stands at more than $10,000 and education funding is at an all-time high, the administration, certain Members of Congress, and teachers’ unions are pressing for more taxpayer dollars under the guise of avoiding “catastrophic” teacher layoffs.

But a closer look at historical trends in school staffing paints a different picture.

Since 1950, student-teacher ratios have declined from 28:1 to 16:1. Moreover, in 1950 there were 2.4 teachers for every non-teaching staff position. Today, that ratio is about 1:1. This means that for every teacher in the classroom in today’s public schools, there is a corresponding non-teaching staff member. This bureaucratic growth is one of the greatest strains on state budgets.

But there are other strains as well. Researchers Josh Barro and Stuart Buck estimate that state pension plans face a shortfall as large as $900 billion. Yet many states continue to offer retirement benefits far more plush than those in the private sector.

State budgets are also strained by the exorbitant cost of the public-education sector’s health-care benefits. New Jersey governor Chris Christie put it best in a statement earlier this week:

[Teachers are] getting 4 and 5 percent salary increases a year. In a 0 percent inflation world. They get free health benefits from the day they’re hired for their entire family until the day they die. They believe they are entitled to this shelter from the recession when the people who are paying for that shelter are the people who have been laid off, who’ve lost their homes, had their hours cut back. And all we ask them to do is freeze their salary for one year and pay 1.5 percent of their salary for their health benefits.

Governor Christie is correct. It’s always difficult to make budget cuts. It’s difficult for families; it will be difficult for states.

But another public-education bailout from Washington isn’t the answer. Instead, states and local school districts should downsize their bureaucracies and reform their hiring and firing practices as well as teacher tenure and compensation models.

Spending on both Medicaid and education has grown irresponsibly over the past several decades. Increasingly, the benefits flow to public employees, not patients or students. Further federal funding would delay states from making the difficult budgetary decisions necessary to effect long-term Medicaid and education reform while disproportionately benefiting states that have behaved the most irresponsibly.

Brian Blase is a policy analyst in the Center for Health Policy Studies at the Heritage Foundation. Lindsey Burke is a policy analyst in domestic-policy studies at the Heritage Foundation.



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