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It would be another big increase in welfare payments down the road:  Governors worried by healthcare bill costs

The nation’s governors, Democrats as well as Republicans, voiced deep concern yesterday about the shape of the healthcare bill emerging from Congress, fearing that the federal government is about to hand them expensive new Medicaid obligations without providing the money to pay for them.

…They are already anticipating large gaps in Medicaid financing after 2010, when stimulus money will no longer be available. And they point out that Medicaid already suffers from low payment rates to healthcare providers, discouraging some doctors and hospitals from accepting beneficiaries. If Medicaid is expanded, states would almost surely have to increase payments to doctors to encourage more of them to participate.

Governor Phil Bredesen, a Tennessee Democrat, said he feared Congress was about to bestow “the mother of all unfunded mandates.’’

“Medicaid is a poor vehicle for expanding coverage,’’ said Bredesen, a former healthcare executive. “It’s a 45-year-old system originally designed for poor women and their children. It’s not healthcare reform to dump more money into Medicaid.’’

More at the link.


And drown in red ink.  It’s not just a government-backed health insurance plan that will cost taxpayers an arm and a leg in Congress’s health care reform plan.  From WSJ, States Fight Medicaid Expansion

Some governors are pushing to scale back or kill proposals to expand Medicaid to provide health-care coverage to the uninsured, raising a new challenge to President Barack Obama’s effort to overhaul the system.

Medicaid, the health-care program for the poor, is funded through a combination of federal and state tax money. Proposals in the House and Senate would expand the program to cover at least a third of the nation’s 46 million uninsured, but states are worried they would get stuck with a big part of the tab.

We’ll take care of you, says Washington to the states:

In private meetings, Senate Democrats working on health care have assured the governors that the federal government will assume all the costs for the expansion at first, followed by a transition to shared responsibility. House Democrats are pressing to have the federal government take on the full cost permanently.

It could prove to be the final blow for California:

California is in “a state of financial catastrophe,” she said on CNN’s “State of the Union.” “[I]f you change the Medicaid rate, for example, it has an impact on California between $1 billion and $5 billion a year. Now, how could I support that?” she asked. “It would take down the state.”

The House and Senate compete to increase the national debt and the number of government dependents:

The House Democratic plan would offer coverage to any uninsured American with incomes up to 133% of the poverty line, with the federal government assuming all the cost of expansion. Proponents haven’t said what that will cost.

A proposal by the Senate Health, Education, Labor and Pensions Committee may go up to 150% of the poverty line. The federal government would assume all the cost for five years. During the next five years, the states would gradually assume half the cost.

The Senate Finance Committee is working on legislation along the same lines, but not as generous. Pregnant women would be covered up to 150% of the poverty line. Childless adults could be closer to 115%, a senior committee aide said.

The Obama Administration isn’t finished dreaming up ways to spend other people’s money:

White House officials appear to be looking at other options for the uninsured poor.

“It’s too early in the process to determine how low-income individuals without health insurance will be covered,” said Kenneth Baer, a spokesman for the White House budget office.

Must be too much to ask that Congress reform insurance regulation in a way to let the free market make it possible for low-income people to buy what they can afford, if they choose.  Can’t let them develop illusions of independence.

The notion that some businesses are too big to fail, the rationale behind the federal takeover of much of the financial industry and the nationalization of car makers, has trickled down to the local level.  From USA Today, Localities aid developers, but critics cry ‘bailouts’

The federal government has committed $2 trillion in financial help to Citibank, AIG, General Motors, Fannie Mae, Freddie Mac and other large corporations and financial institutions. Now, the same thing is happening locally. Prominent businesses are seeking — and in some cases getting — cash, tax forgiveness, loans, loan guarantees and other types of aid to help survive the recession.

Supporters call the deals crucial economic development programs that will create jobs and generate taxes.

…Critics call the deals bailouts. “It’s developer welfare,” says Kevin O’Connor, an activist in Evanston, Ill., who opposed that city’s decision to rebate $4.1 million in taxes to a developer. “How can you not call it a bailout?”

What constituencies are the favored ones?

Developers of luxury real estate projects started during the real estate boom are the most aggressive at seeking help, which puts governments in the uncomfortable position of directing taxes to businesses that cater to the wealthy…

One such luxury project is Terranea, in Rancho Palos Verdes, which offers hotel suites for $3400 a night and “casitas” going for $2 to $4 million.

Terranea could generate $8 million a year in taxes for the city if the resort is successful and the homes sell. “It’s a spectacular asset for our city,” says Mayor Larry Clark, who favors the loan.

The proposal calls for the city to give most hotel tax revenue — up to $8 million — from the resort back to the developer for 34 months. The developer would use that tax money as collateral to get a bigger, private loan to finance the cost of opening the resort. The developer would later pay back the city with interest, according to the agreement.

Taxpayers are at risk because other creditors get paid first if the developer defaults on its debts. The developer declined to personally guarantee the loan.

Did you notice all those “ifs?” If it’s successful, if the homes sell?  What if they don’t?

Bexley, Ohio, an affluent Columbus suburb, has a similar “too-big-to-fail” dilemma: the Gateway Residences, a luxury condo and townhouse development located at the city’s entrance. Today, there’s little demand for $1.6 million penthouses, leaving the buildings largely vacant.

The developer wants the City Council to increase his property tax exemption on the homes from 50% to 100%. The change will reduce taxes by an additional $2.2 million over 15 years. Mayor John Brennan supports the deal: “Any time someone wants to invest $38 million in our city, I’ll bail them out,” he says.

There is opposition:

“Developers are wise to the fact that they can get subsidies pretty easily,” says Clint Bolick, litigation director at the conservative Goldwater Institute in Phoenix. The institute won a ruling against Phoenix’s $97 million subsidy to the developer of CityNorth, a multibillion dollar residential and retail development.

An appeals court ruled that the subsidy — returning sales tax revenues to the developer — was an illegal gift to a private company. The city is appealing to the Arizona Supreme Court. “The government shouldn’t use tax policy to pick winners and losers,” Bolick says. “The small guy never gets a subsidy. How are they supposed to compete?”

Small businesses and taxpayers in Kansas City have paid a steep price for local politicians’ largesse:

Kansas City, Mo., Mayor Mark Funkhouser says elected officials get blinded by promoters talking about grand projects and fail to understand the harm subsidies inflict on businesses that don’t get tax breaks.

He cites his city’s popular Power & Light District, a new retail area that benefited from large subsidies, including $295 million in city-issued bonds for development costs. The subsidized district contributed to the demise of 30 traditional restaurants outside the zone, the mayor says.

Kansas City taxpayers are on the hook this year for $14 million in loan payments because developers didn’t generate enough cash to repay their city-guaranteed debt.

Come one, come all:

Former Milwaukee mayor John Norquist says once a city starts offering subsidies, developers come to expect it. “You’ll have one or two connected developers with their hands out doing all the deals,” he says. “The little guy — the plumber who builds five houses — can’t afford lawyers and lobbyists.”

Rancho Palos Verdes is quickly learning that lesson. As soon as Terranea asked for financial help, the mayor got a phone call from another developer. It was Donald Trump, who built what he calls the world’s most expensive golf course near Terranea.

“Trump said he wants the same deal or he’ll add this complaint to a $100 million lawsuit he has against us,” says Clark, the mayor. Trump sued the city in December over planning rules that govern his 580-acre oceanfront development. “We want equal treatment,” says Scott Wellman, Trump’s lawyer. “It’s fundamental fairness.”

No, it’s a system that favors the politically-connected, at the expense of everybody else.  Nothing fair about that.

Which segment of the economy was the $787 billion stimulus bill meant to energize, the productive private sector or swollen government bureaucracies?  Either way, it’s not working:  Despite Stimulus Funds, States to Cut More Jobs

Eleven weeks after Congress settled on a stimulus package that provided $135 billion to limit layoffs in state governments, many states are finding that the funds are not enough and are moving to lay off thousands of public employees.

…The layoffs are one early indication of how the stimulus funding could be coming up short against the economic downturn. As the stimulus plan was being drawn up, there was agreement among the White House, congressional Democrats and many economists that a key goal was to keep states from making big layoffs at a time when 700,000 Americans were losing their jobs every month.

The poor economic forecast for many states remains, even with billions of Federal money pouring in:

Ray Scheppach, executive director of the National Governors Association, told a Senate committee last month that states are facing a $200 billion deficit over the next two years. At least a dozen states, including California, Georgia and New Jersey, have ordered furloughs of workers, and increasingly, layoffs loom as the next step.

Some state legislators are thinking ahead:

In some states, layoffs are occurring partly because legislators are not taking every step to avoid them. Republican lawmakers in Missouri want to use less than a third of the state’s $2.1 billion in flexible stimulus funds to close budget shortfalls. They want to proceed with cutbacks and return $1 billion of the money to residents in the form of tax cuts. Using the money to plug budget gaps, they argue, will leave a deficit once the stimulus money is gone in 2011.

In other states, the Obama Administration is calling the shots.

It’s not all bad news for troughfeeders:   It’s A Good Time To Work For Uncle Sam

President Obama’s call last year for “shared sacrifice” doesn’t extend to federal employees, at least based on the details of his administration’s 2010 budget released this week.

At a time when the official unemployment rate is nearing double digits, and 6.35 million people are receiving unemployment benefits, the U.S. government is on a hiring binge.

Executive branch employment — 1.98 million in 2009, excluding the Postal Service and the Defense Department — is set to increase by 15.6 percent for the 2010 fiscal year. Most of that is thanks to the Census Bureau hiring 102,000 temporary workers, but not counting them still yields a net increase of 2 percent in one year.

There’s little belt-tightening in evidence in Washington, D.C.: Counting benefits, the average pay per federal worker will leap from $72,800 in 2008 to $75,419 next year.

…The final evidence that it’s a good time to have a .gov e-mail address? Civilian government employees are set to enjoy a 2 percent raise. Not only are private sector workers are struggling to keep their jobs, but their earnings are stagnating and pay cuts are no longer uncommon.

At the local level.  Keeping his eye on the prize, Kansas’s new Democrat governor approves coal-fired power plant:

TOPEKA-In a stunning reversal from his predecessor, Gov. Mark Parkinson on Monday signed an agreement ending a two-year fight over plans to build coal-fired power plants in western Kansas.

The compromise allows Sunflower Electric Power Corp. to build one 895-megawatt coal-fired power plant near Holcomb, instead of two 700-megawatt plants that were repeatedly blocked by Kathleen Sebelius when she was governor.

In exchange for the go-ahead, Sunflower will build more wind turbines and agree to more pollution controls and a greater investment in energy efficiency.

…Parkinson said he reached out to Sunflower soon after he was sworn in to replace Sebelius a week ago. He explained that he was frustrated by the political stalemate that saw the coal issue derailing efforts to encourage renewable energy. He said a little coal and a lot of environmental legislation was better than nothing.

Political calculation played a part:

O’Neal said Parkinson may have realized that lawmakers were close to overriding Sebelius’ veto of legislation to resurrect the plants.

“We felt like the momentum was finally moving in our direction,” he said.

Good for electricity consumers in Kansas and the environment, too.

Berkeley voters waking up to the costs of going green:

After two years of public outreach and debate on an ambitious and controversial plan to curb global warming, Berkeley’s city council this week was forced to water down the proposal — which initially required an energy audit of every home — after angry homeowners complained the plan could cost them tens of thousands of dollars.

Experts say Berkeley’s retreat may serve as a cautionary lesson to other cities and counties contemplating plans to fight global warming: Even residents of the nation’s most liberal jurisdictions may balk when it comes to paying the price of going green.

“I think we can expect to see episodes like the controversy over mandates in the plan more and more, because environmental and political leaders haven’t been responsible about the costs of climate stabilization,” said Michael O’Hare, professor of public policy at the University of California-Berkeley. ”If you don’t level with the public about the first part, it’s not surprising when people balk at climate policy that requires them to do some heavy lifting.”

Durango, Colorado, decides jobs are more important than using more expensive windpower:

For two years, the city of Durango, Colo., bought electricity for all its government buildings from wind farms. The City Council ended that program this year, reverting to electricity derived from coal-burning plants and saving the cash-strapped city about $45,000.

“It’s very hard for us to lay off an employee to justify green power,” City Manager Ron LeBlanc said. “Those are the tradeoffs you have to face.”

How vulnerable is your state to job losses if cap and trade passes?  The Heritage Foundation has a map.


Details by various states at the link.

From WSJ, a breakdown of states’ budget and revenue stats.

From The Wall Street Journal, Why South Carolina Doesn’t Want ‘Stimulus’

Here’s the background: Before the stimulus bill passed, I asked for states not to be bailed out. After it was signed into law, I said that a state bailout would create more problems than it solved, and that we shouldn’t spend money we don’t have. That debate was lost, so I looked for a reasonable middle ground. I asked the president for his support in using the $700 million to pay down state debt.

If we’re going to spend money we don’t have at the federal level, it becomes all the more important that our state balance sheet is in good order — particularly if this is a protracted downturn. But many people do not realize that the stimulus money runs out in 24 months — at which point South Carolina will be forced to find a new source of funding to sustain the new level of spending, or to make sharp cuts. Sure, I could kick the can down the road; in two years, I’ll be safely out of office. But it would be irresponsible.

If South Carolina could use stimulus money to pay down debt, in two years we will be able to spend, cut taxes or invest even if the federal government can no longer provide more money — not a remote possibility. In fact, paying debt related to education would free up over $162 million in debt service in the first two years and save roughly $125 million in interest payments over the next 13 years — just as paying off a family’s mortgage early frees up money for other uses.

More at the link.

They’re from the government and they’re here to help:  From Fox News,
Free Market Meltdown? Economists Fret Over Return to Price Controls

State officials across the country are proposing price controls to help fix the economy, riling economists who warn they can harm the economy and even destroy cities.

The downside of government-controlled prices:

“Economists widely agree that price controls often lead to shortages. There are many examples throughout history, and we have seen more recent demonstrations of this principle of economics in Venezuela and Zimbabwe,” said Dr. N. Gregory Mankiw, a Harvard University economics professor and former chairman of the Council of Economic Advisers under President George W. Bush.

Dr. Edward Glaeser, a Harvard economics professor who researches the effects of rent control, said price controls have “a whole litany of problems that make them among the most foolish forms of economic populism known to man.”

“In a free market system,” Glaeser said, goods go to the people who value them most; in a price-controlled system, goods go to whoever is lucky enough to get them. As a result, people hold on to rent-controlled apartments even if they barely use them.”

Nonsense, say big-government types–it’s for the people:

“The housing affordability crisis trumps any theoretical recommendations of economists,” New York State Assemblyman Jonathan L. Bing, a sponsor of many of the rent-control provisions pending in New York, told

Didn’t the government’s attempt to provide affordable housing get us into this financial mess in the first place?  Fannie Mae, Freddie Mac, anyone?  But, hey, let them do it again because they’ll do it right THIS time.

How well has rent control worked in the past?

“In New York City, the Bronx basically fell to pieces because of rent control. You even had the extreme of landlords burning down their houses.”

The South Bronx lost 40 percent of its housing stock in the 1960s and ’70s, largely due to arson. Many buildings were suspected to have been torched by the landlords themselves, who found that their buildings were literally worthless: There was no way to make a profit due to rent controls, and nobody would buy a building that could not make a profit. Burning the building allowed them to collect insurance money and pay off debts.

“The reason people ask for [rent control] is that those with contracts gain in the short term … It’s a way that politicians can buy votes,” Lindbeck said. “But the policy really hurts people entering the market — young people and immigrants.”

Just following in the footsteps of their hero Hugo :

CARACAS, Venezuela  — Venezuelan President Hugo Chavez is threatening to take over food company Empresas Polar, a company that makes the country’s top beer, but it could be an unpopular move.

Faced with inflation that reached 30 percent last year and tumbling oil revenues, the socialist leader has stepped up confrontations with food businesses through state takeovers, new regulations and warnings he may nationalize Polar if it does not produce food at lower prices.

Short-term political gain vs long-term economic misery.  Any guesses which one politicians will opt for?  They can always blame someone else when things go wrong.

Thanks to The Loft

Governors Rick Perry of Texas, Mark Sanford of South Carolina, Bobby Jindal of Louisiana, Haley Barbour of Mississippi, and Bob Riley of Alabama have rejected stimulus funds that would have gone for unemployment benefits.  Accepting the funds require states to “enhance” unemployment benefits by extending benefits to part-time employees, workers who quit for “compelling family reasons” such as illness of a close relative, and extending the payment window for the unemployed who have used up their benefits but are in job training.

Why are they refusing?  They’re taking the long view:

To get the money, states must expand unemployment benefits, such as covering part-time workers who lose their jobs. Texas Gov. Rick Perry said he doesn’t want the stimulus money because his state would have to raise taxes on businesses or cut back on benefits once the federal funding runs out.

Critics say its all about politics:

South Carolina Rep. James Clyburn, the third-highest ranking Democrat in the House, has criticized Sanford’s position on the stimulus in recent weeks. In a statement Sunday, Clyburn said voters want elected leaders to put aside politics during the economic crisis.

“I think what we’re seeing is some governors making political calculations with an eye toward their next job when they need to be making practical decisions on behalf of their constituents,” he said. “And I think it will backfire.”

He’s not playing politics, of course.  Just looking out for the folks.  What a hypocrite.  Why do I say that?  Look at what accepting the stimulus funds would actually accomplish:

The National Employment Law Project (NELP), which advocates for low-income workers, estimates that 533,902 people would benefit from the changes in the unemployment law set out in the stimulus. Maurice Emsellem, policy co-director for NELP, said some states could face automatic tax increases if their unemployment funding doesn’t keep pace with demand.

“By deciding against taking millions of federal dollars, the governors are denying benefits to hundreds of thousands of workers and triggering tax increases … that are going to hurt the economy when it needs the help most,” Emsellem said.

So, in the normal course of things, without the stimulus, if a state’s unemployment numbers rise, for some states taxes automatically increase.  But the stimulus bill requires states to expand the numbers of people eligible for these benefits, by at least half a million people.  So that extra half million will continue to be eligible for them when the Federal money runs out.  And who will be responsible for funding that larger pool of recipients?  State taxpayers, of course.

What accepting the funds does is kick the can down the road, while giving it steroids.  There will be much larger numbers of people on the benefit rolls with no guarantee states’ economies will be more able to stand the inevitable future tax increases.  Sounds more like a short-term political benefit for the stimulus boosters than any longer-term economic recovery plan for states to me.

A study by the Nelson A. Rockefeller Institute of Government suggests states will have to make difficult decisions once stimulus money runs out. States should use the breathing room provided by the stimulus to look for long-term budget solutions, the report says.

So why not start now, by refusing to expand entitlement programs that you know will burden the state’s economy forever?  I think those Governors are looking out for their states by doing just that.

Other Governors are not:

South Dakota’s Republican Gov. Mike Rounds signed a law last week changing unemployment eligibility requirements to get $5.9 million from the stimulus. Rounds said in a news release that he is considering whether to support making further changes to the system to get more of the money.

Time will tell which kind of thinking, long or short term, will result in the better outcome.  Of course, the evaluation of the results depends on what the real goal is.  If re-election and the expansion of government is the prize, the short-termers may well come out ahead.  That will be a sad day for those of us who prefer the government to get out of our way.