Fiscal Federalism VII: Texas to End Medicaid?

In a previous blog a new study by Mercatus found that federal grants often drive up state and local taxes because the federal funds dry up leaving them to pick-up the tab.  Another way this can happen is through programs with a federal match.  In the quest to get the federal dollars, state and local governments must raise some revenue of their own.  The largest of these is the Medicaid program–to see how various states are addicted to federal Medicaid money see this post.

Today the New York Times is reporting that Texas is planning to do something about this inversion of fiscal federalism–do away with the federal Medicaid program and put in place a state-run system.  Here’s why:

“With Obamacare mandates coming down, we have a situation where we cannot reduce benefits or change eligibility” to cut costs, said State Representative Warren Chisum, Republican of Pampa, the veteran conservative lawmaker who recently entered the race for speaker of the House. “This system is bankrupting our state,” he said. “We need to get out of it. And with the budget shortfall we’re anticipating, we may have to act this year.”

The Heritage Foundation, a conservative research organization, estimates Texas could save $60 billion from 2013 to 2019 by opting out of Medicaid and the Children’s Health Insurance Program, dropping coverage for acute care but continuing to finance long-term care services.

As the old saying goes, “Don’t Mess with Texas!”

Fiscal Federalism VI: Federal Grants to State and Local Governments

Following on my three previous blogs (here, here and here) . . . this blog shows federal “grants to state and local governments” spending as percent of personal income. What is this?

According to the Consolidated Federal Funds Report (pdf) from which this data is drawn from, “grants to state and local government” constitute federal dollars that are provided to other jurisdictions.  This category is dominated by Medicaid which consists of federally-matched dollars tied to state spending.  Another major component are grants for infrastructure spending.

The table below shows the wide range of federal “grants to state and local government” dependency by state. The states that are most dependent are: Alaska (9.7 percent), Wyoming (9.2 percent), New Mexico (8.8 percent), Vermont (8.7 percent) and Mississippi (7.9 percent)

On the other hand, the states that are least dependent are: Virginia (2.8 percent), Nevada (3.1 percent), Florida (3.1 percent), Colorado (3.3 percent) and New Hampshire (3.6 percent–Woo Hoo!)

Federal Grants to State and Local Governments as a Percent of Personal Income for 2008

Fiscal Federalism IV: Federal Retirement and Disability

Following on my previous blog which showed overall federal spending as a percent of personal income . . . this blog shows federal “retirement and disability” spending as percent of personal income. What is this?

According to the Consolidated Federal Funds Report (pdf) from which this data is drawn from:

Retirement and disability programs include federal employee retirement and disability benefits, social security payments of all types, selected Veterans Administration programs, and selected other federal programs

The table below shows the wide range of federal “retirement and disability” dependency by state. The states that are most dependent are: West Virgina (12.8 percent), Alabama (10.4 percent), Arkansas (10.1 percent), Mississippi (10 percent) and Kentucky (9.8 percent).

On the other hand, the states that are least dependent are: Alaska (4.6 percent), Connecticut (4.7 percent), California (4.8 percent), Massachusetts (5.1 percent) and New Jersey (5.1 percent).

Federal Retirement and Disability Spending as a Percent of Personal Income by State for 2008

Fiscal Federalism I: Federal Expenditures

Today, the U.S. Census Bureau released their annual Consolidated Federal Funds Report which tracks federal spending by state.  The vast sums of federal dollars that flow to the states has radically transformed the meaning of “Fiscal Federalism.”  Fiscal Federalism use to mean that most spending decisions were made at the state and local levels.  Now, the role of the federal expenditures in any given state exceeds the influence of spending by state and local governments.  As a result, the federal government has usurped the role of state and local government to decide their own economic destiny.  Is this what the Founding Fathers intended?

The chart below shows the growth in federal spending by major category.  Overall, federal spending increased by 16.1 percent to $3.2 trillion from $2.7 trillion.  However, that growth varied dramatically by state.  The state with the highest percentage change in federal spending was Hawaii with an increase of 64 percent to $24.6 billion from $15 billion.  The state with the lowest percentage change was Kentucky with a decrease of 4.3 percent to $50 billion from $52 billion.  And, of course, its always interesting to see what’s going in Maine and New Hampshire.

This report is full of good stuff so stick with us at Wealth Alchemy as we plumb this data in more detail in the future.

Federal Expenditures by Major Category for 2009