States Left In Lurch By Impasse Having Cut Taxes, Legislatures Await Word On Federal Funds
State legislators across the nation convene this month as virtual captives of the budget impasse, with no idea how much federal money they will receive for Medicaid and welfare, how much flexibility they will have in spending it or how much state money they must contribute.
In addition, many states cut taxes in 1995, often with the same desire to reduce the scope of government as congressional Republicans have had. For the first time in a decade, the total amount of state tax cuts exceeded the amount of state tax increases. As a result, states will have difficulty if they want to make up a loss of federal money from their own treasuries.
Frustration is running high because Republican members of Congress raised the expectations of state officials, promising a reversal of the trends that concentrated power in Washington for 60 years.
“I wish the members of Congress would hurry up and do it - send states the money and let us manage it,” said Mark W. Killian, the speaker of the Arizona House of Representatives, and a Republican. “They ought to quit fooling around and get it done.”
Most state officials expected that by now, three months after the start of the federal fiscal year, Congress would have transferred federal money and decision-making power to the states. The states could then chart a new course in social-welfare policy, rewriting state laws that define eligibility and benefits for Medicaid and cash assistance to the poor.
Instead, state legislators are convening without knowing whether they will receive lump-sum payments, or block grants, of federal money, as promised by Republicans in Congress. And they do not know whether the changes in Medicaid and welfare will be retroactive to Oct. 1, as some Republicans want.
Proponents of block grants say states can get along with less federal money if they have more freedom to decide how it is spent. But for many, there will also be less state revenue.
In all the states, the only major taxes that were raised significantly in 1995 were those on hospitals, nursing homes and other health care providers, the conference said. States use such revenues to help pay their share of Medicaid, one of the fastest growing items in state budgets.
Jane L. Campbell, a Democrat who is assistant minority leader of the Ohio House of Representatives, said: “We’re in this never-never land, an extraordinary budgetary limbo. The dominant issue in the next session of the Legislature here is how we’re going to respond to the changes in Washington. If we could figure out what those changes are, it would be much easier to plan.
“If there is a block grant, the money still has to be spent in accordance with state law,” Campbell said. “Without some clarity about the level of federal financial participation in Medicaid and Aid to Families With Dependent Children, we as a state cannot make a determination about how to proceed.”
Under current law, anyone who meets eligibility criteria for Medicaid and welfare is entitled to assistance; federal aid increases automatically when the need expands. By contrast, under the proposals by Republicans in Congress, each state would receive a fixed amount of money for each of these programs. Medicaid grants would be set by a complex formula that would take account of need and population growth.
Congress approved such changes as part of a huge budget bill that President Clinton vetoed on Dec. 6. Now states are waiting to see how much of the original bill will survive. Until Clinton and the leaders of the Republican majority in Congress agree on a compromise, states cannot be sure how much money they will receive for Medicaid and welfare or whether it will be in block grants.
Medicaid is one of the thorniest issues in the budget negotiations between Congress and the White House. Under a possible compromise, Congress would limit Medicaid spending, as Republicans want, while still guaranteeing health benefits for most of the people now covered, as Democrats want.
State officials uniformly said they were very worried that the federal government would cut money while still imposing detailed restrictions on how it is spent. “If we don’t get the flexibility to manage the program,” said David R. Leitch, a Republican member of the Illinois House of Representatives, “that would be a real disaster,”.
Paul Burke, a Republican who is president of the Kansas Senate, described his state’s predicament: “Under the latest proposal in Congress, our Medicaid block grant would grow 5.9 percent a year, but in recent years our Medicaid program has been growing at an annual rate of 12 percent to 14 percent. We will have to figure out how to address that mismatch.”
One state that has done more than many to get ready for a new era in federal-state relations is Michigan. Its governor, John Engler, a Republican, worked closely with Congress in designing block grants for welfare and Medicaid, and signed a state law on Dec. 7 specifying how Michigan would use the authority it hopes to receive, making it, he said, “the first state completely prepared to carry out Federal block grants.”
The Michigan law would impose new work requirements on welfare recipients, including the demand that welfare mothers under 18 attend school and live under the supervision of adults. Low-income workers eligible for food stamps would get cash benefits rather than coupons.
Another state that has begun to prepare for major political and fiscal changes is New York, where Gov. George E. Pataki has proposed a budget echoing many of the themes of Republicans on Capitol Hill.
The governor’s budget for 1996-97 assumes that any agreement by Clinton and Congress “will cap federal Medicaid spending,” and that New York, because of its historically generous benefits, will have to cut its Medicaid program more than most states. He would impose time limits on welfare for the first time.
Pataki also proposes to give each county a block grant to finance home health care services for Medicaid recipients and to give counties the option of taking welfare money in the form of block grants.
In Florida, a committee of the State House of Representatives recently held hearings on a proposal to distribute Medicaid money to counties in block grants.
Under this proposal, the state could tap revenues raised by its counties to help offset the loss of federal Medicaid money.
But Carol L. Bracy, a lobbyist at the Florida Association of Counties, said: “Counties are very hesitant to assume new responsibilities, given our limited revenue-raising authority. Under the state constitution, there is a limit on county property taxes, our main source of revenue.”
James A. Scott, the Republican president of the Florida Senate, said welfare and Medicaid would be “the dominant issue” of the legislature’s 1996 session if Congress turned over responsibility to the states.
“We are ready to go,” Scott said. “As soon as Congress acts, we are prepared to deal with welfare reform and revamping Medicaid to do more with less.”
But Dr. Ben Graber, a Democrat who is chairman of the Health Care Committee in the Florida House, said he welcomed the impasse in Washington because Florida, with its growing elderly population, would be harmed by Medicaid block grants.
“Our hope is that the whole thing will unravel in Washington and we won’t have to deal with it at all,” Graber said. “I recommend to the president that he not compromise, that he carry this issue into the 1996 election, so we can consider other, more workable options” for controlling Medicaid costs.
xxxx State taxes In 1995, 25 states cut taxes by a combined total of $2.1 billion.