Spending by states pits kids vs. grandparents

TRobert Samuelson

o those paying attention, the recent strikes for higher teachers' pay in West Virginia and Oklahoma are a harbinger of things to come. You can attribute the strikes to the stinginess of the states' political leaders. After all, average annual teachers' salaries in these states ranked respectively 49th lowest (Oklahoma at $45,276) and 48th lowest (West Virginia, $45,622) in 2016, reports the National Education Association. But that's the superficial explanation. The deeper cause is that teachers — and schools — are competing with the elderly for scarce funds. The struggle will intensify. We all know — or should — that the United States is an aging society (the 65-andover population was 12 percent of the total in 2000 and is projected to be 20 percent in 2040). It's also common knowledge that spending on the elderly, mainly Social Security and Medicare, has squeezed other federal programs, inflated budget deficits and created pressures for higher taxes.

Spending on the elderly is squeezing K-12 schools, police, parks, libraries, roads and other infrastructure (water projects, sewers), mainly through two programs: a) Medicaid, a joint state-federal program of health insurance for the poor, which pays about half of nursing home and longterm care costs for the aged and disabled (on average, states pay about 37 percent of Medicaid's costs); and b) contributions to underfunded pensions for state and local workers.

Here's how the Rockefeller Institute of Government, a nonprofit think tank, assessed the situation in a 2016 report:

"In 37 states, pension contributions plus state-funded Medicaid grew by more than state and local government tax revenues between 2007 and 2014, in real per-capita terms. In response ... state and local governments have cut infrastructure investment, slashed support for higher education, cut social benefits other than Medicaid, cut spending on K-12 education ... and reduced most other areas of the budget."

No doubt some legitimate savings can be achieved; and conditions vary across states and localities. Still, state and local tax revenues are growing slowly, and virtually all the increase from 2008 to 2015 (88 percent, to be precise) was absorbed by higher pension contributions and Medicaid costs. Meanwhile, tuition at state colleges and universities rose from 29 percent of total educational revenue in 2000 to 47 percent in 2014; and per-pupil K-12 spending, adjusted for inflation, fell 5 percent from 2008 to 2014.

The squeeze will worsen. As baby boomers age, more of them will end up in nursing homes. Similarly, the Affordable Care Act included an expansion of Medicaid benefits that, so far, 33 states have adopted, according to the Kaiser Family Foundation. The federal government initially covered all of the expansion's cost, but this share is scheduled to fall to 90 percent in 2020. There will likely be proposals for states to pick up even more of the tab. Congressional Republicans have suggested converting the federal share to a block grant, which would probably raise states' costs. What should be done? I have long advocated that Medicaid's coverage of longterm care — the costliest part of the program — be moved into Medicare, which is fully paid by the federal government. This would break the automatic link between an aging population and the pressure on states and localities to cut nonhealthcare spending. It would be easier for them to set their own priorities, rather than being bound by the trajectory of health spending.

Under this proposal, the states and localities would take full responsibility for Medicaid's coverage of children and poor adults, who represent about threequarters of beneficiaries but only one-third of costs. This would reinforce states' and localities' existing responsibilities to educate and protect children through K-12 schools and traditional welfare.

To make the transfer of responsibilities budgetneutral, some federal aid programs for states and localities — transportation and K-12 education pop to mind — could be ended. The truth is that we can no longer afford overlapping bureaucracies, which are often expensive and ineffective.

Of course, this proposal stands virtually no chance of passage. Hard choices couldn't be avoided. The underlying issue is genuinely difficult. It's children vs. grandparents.

A sensible society would direct its governmental programs and investments toward preparing for the future. Until we muster the courage to be candid about the choices, we will be stuck in a place we don't want to be.