March 5 , 2003


President Bush did not provide much hope for the cash strapped governors in his presentation to them last week.  He mentioned the federal deficit and called on others to put their houses in order. 

Certainly, some states were too aggressive at cutting taxes in the past decade as their revenues were bloated by capital gains payments.  California also set up an energy marketing program that dramatically exhausted state resources.  Other states used the temporary surge in tax collections to finance programs with long term obligations. 

However, the governors can also show that some of their woe is the result of federal mandates.  An increase in our alert status from code yellow to code orange immediately required more intense use of safety personnel, paid out of state and local budgets.   Those police checking beneath the cars at Hartsfield are not  paid by the federal government. 

Also, Medicaid criteria are written in Washington and paid in the states.  In Georgia alone, mandated Medicaid payments added more than $300 million to a budget already in deficit.  Even the President's education program requires state and local school authorities to pay for the testing that determines whether a school is meeting minimal education standards. 

As most states follow federal tax codes, any elimination of taxable dividends at the federal level will reduce revenues at the state level. 

More than a third of the state deficits can be directly placed at the feet of federal authority.  The charge of unfunded mandates that state governors used a few years ago remains the norm. 

Unlike the federal government, states cannot use deficits for general obligations.  Thus, those higher Medicaid payments must come at the expense of some other state programs or spawn more taxes.  (States can be inventive in using their capital budgets, however, as the amount of borrowing has increased by nearly $100 billion in the past three years). 

A couple of centuries ago, some Americans decided it was wrong for a government to quarter troops in their homes and require the house members to feed those troops.  Yet, the federal government is now doing almost an equivalent by mandating responsibilities that require resources without providing those resources.

I certainly do not advocate that states should run to the federal government whenever they have budget problems.  Even if states must raise taxes to maintain programs, that is not sufficient for federal aid.  However, state tax increases are factors that should be considered by the federal government in determining what stimulus package should be provided to the nation. 

Also, states should not immediately use the unfunded mandate argument to hide their own inappropriate budgetary behavior.  Even if all mandates were funded, I still would oppose even a single dime of our budget going to transportation projects or the administration of that department from resources other than transportation use taxes such as tolls and gasoline taxes. 

However, I do believe that Congress should not pass mandates without funding them.  Whenever, we go from a code yellow to a code orange, federal budgets should shoulder the police and fire overtime that will be needed.  When new procedures are passed for Medicaid or the administration of schools, federal resources should be granted to finance those procedures. 

Now I do not believe that any costs associated with administering such programs should automatically go against the federal budget.  That would lead to inefficiency in the administration of such programs. 

Instead, state grants should be provided based upon the relevant population.  Thus, the mandate may require an additional x dollars per Medicaid patient throughout the nation.  Each state would receive x times the number of qualified patients. 

Any state that wishes to extend the federal mandates could do so with their own funding.  However, by requiring that the federal government pay for their mandates, we could avoid the current process of burdens being shifted from Washington to the state houses.  We might also avoid some federal legislation, if the financing burdens are placed with those who created the legislation. 


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