Interplay of State, Federal Budget Issues Places Premium on Reform

Posted by Andre Mayer on Mar 28, 2013 1:23:00 PM

What does the ongoing fiscal crisis in Washington have to do with the debate over taxation and spending on Beacon Hill? More than we've been hearing. And that's a problem.

SequestrationCongress's acquiescence in sequestration represents an inflection point in federal fiscal policy. Spending is getting tighter. Someday there will be a new, real federal budget in place of the series of continuing resolutions that basically roll forward existing accounts, and that budget is likely to make significant changes not just in levels of expenditure, but also in spending patterns.

Transportation and education, the twin foci of the governor's plan on the program side, are both areas where the future federal role is very much in doubt, and there are major implications of a somewhat different kind for health care, the largest component of the state budget.

Some observers believe that the federal government is essentially getting out of the land surface transportation business (as opposed to air and sea).  Federal highway funds come primarily from a gas tax that has not risen in 20 years, and the military considerations that justified the creation of the interstate highway system have dissipated. Railroads and mass transit are regional issues that do not command majority support in Congress. 

Education likewise faces budget cuts, immediately and in the longer run. Dollars from Washington play a major part in student aid and research support in higher education (and Massachusetts institutions have done well in capturing these funds). They provide the backbone of public funding for early education, and make a lesser but still significant contribution to K12 public education.  The workforce development system is largely structured around federal funding streams.

Health care is in a different situation, but is also in play. The federal role was already immense, in dollars and through the basic framework created through Medicaid, ERISA and reams of detailed regulations. Now with the Affordable Care Act, as well as burgeoning Medicare population, it becomes even greater. Here too there are strong pressures to control spending; and through its role as by far the largest purchaser of services, the federal government has the power to substantially reshape the health care system through market power.

Massachusetts can survive all this – in only a few fields are we clearly getting "more than our share" back from the feds – but different federal roles will require that the commonwealth rethink its own structures and priorities, which means hard and controversial decisions. Ultimately state spending is may well increase in the areas the governor cites; but we do not know now what the funding needs will be, or what the receiving programs will look like if the federal funding streams around which they are currently structured disappear.

In this situation, AIM's insistence on "reform first" carries an extra level of meaning.

Topics: Sequestration, Budget, Issues

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