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HomeSpotlight Story | Bird’s Eye View | Budget & Taxes | Politics & Leadership | Governors | Hot Issues | Once Around the Statehouse Lightly
As Election Day nears, Democrats seem on track to regain some of the ground they have lost to Republicans in statehouses during the Obama years. But celebrations by the victors, whether Democrats or Republicans, are likely to be muted as states confront troublesome accumulated problems on health care, pensions, immigration and other issues.
No matter who wins the presidency – and Hillary Clinton is solidly ahead in most polls – states will seek more flexibility from the new administration in dealing with “the tangled web of Medicaid,” says Scott Pattison, executive director of the National Governors Association. Medicaid, the federal-state program that provides health care for the poor and disabled, is in most state budgets the second costliest item after education, and costs are rising. States want room to innovate to reduce costs and improve care, Pattison said.
The Obama administration has been gradually heading in this direction, issuing waivers to six states that allow them latitude in expanding Medicaid. Most recently, Washington Gov. Jay Inslee (D) announced a $1.1 billion federal grant for a five-year demonstration project that includes prevention of conditions such as diabetes, treatment for mental illness, increased home care and support for unpaid care givers. An additional $375 million was earmarked for reducing the costs of Apple Health, as Medicaid is called in the Evergreen State.
The biggest challenge both for states and the new administration in Washington, D.C. will be dealing with a range of growing problems that beset the Affordable Care Act, better known as Obamacare. Echoing congressional Republicans, GOP presidential nominee Donald Trump, has promised to scrap Obamacare and start over. Republicans generally favor increased tax credits, greater use of health savings accounts and allowing insurance companies to sell policies across state lines.
Campaign rhetoric aside, repeal of Obamacare is a non-starter. Even in the unlikely event that Republicans controlled both houses of Congress and the White House, Democrats could block repeal with a Senate filibuster. Reform, rather than repeal, is a more viable option. Health care experts have warned that the Affordable Care Act, despite success in enrolling 20 million previously uninsured people since 2014, is on shaky ground as the fourth open enrollment season begins Nov. 1, a week before Election Day. Consumers face higher premiums and fewer choices as major insurers such as Aetna, Humana and UnitedHealth have withdrawn from many of the exchanges that sell Obamacare policies. “...Mr. Obama’s signature domestic achievement will almost certainly have to change to survive,” Robert Pear wrote in the New York Times. “The two [political] parties agree that for far too many people, health plans in the individual insurance market are still too expensive and inaccessible.”
The nature of the changes could be influenced by November ballot initiatives in Colorado and California. Amendment 69 in Colorado would create ColoradoCare, a single-payer government-run plan dear to the hearts of liberals and long the norm in the United Kingdom, Canada and Scandinavia. Martha P. King, health program group director for the National Conference of State Legislatures, says that other states could take their cue from the voting results on this ballot measure.
Polls show Amendment 69, which would be financed by a 10 percent income tax increase, heading for defeat. But because of its ballot wording, Amendment 69 may not be a fair test of voter sentiment on universal health care. It begins with an off-putting question: “Shall state taxes be increased $25 billion annually in the first full fiscal year…?”
Proposition 61 in California would prevent drug companies from charging state health programs more than the negotiated price paid by the Department of Veterans Affairs. This measure, put on the ballot by the AIDS Healthcare Foundation, leads in polls despite opposition from the California Medical Association and a television advertising blitz from pharmaceutical companies, which have raised more than $86 million to defeat it. Drug prices are a contentious issue in the Obamacare debate; advocates are pushing a similar proposal in Ohio that could reach the ballot in 2017. Other states that use the initiative process may follow suit if Proposition 61 passes.
States will also face increased pressure in the coming year to reform public pension systems. Because of insufficient contributions and weak investment performance, unfunded state liabilities for public pensions ballooned by 40 percent to $1.75 trillion through the 2017 fiscal year, according to Moody’s Investors Service. Moody’s found in a recent report that half of all states did not put enough money into their retirement systems in 2015 to curb the growth of unfunded liabilities. Overall, state pension funds earned just a median 0.52 percent on investments in fiscal 2016 versus an average assumed rate of 7.5 percent, Moody’s said.
The need to make up for pension shortfalls has led to credit-rating cuts in Illinois and New Jersey and several cities, most prominently Chicago. Pension fund shortfalls in California contributed to the bankruptcies of the cities of Stockton, San Bernardino and Vallejo.
In California, as in many other states, public pensions have long been considered a vested right that could not be altered. But in August a California appellate court opened the door to changes when it found that “reasonable” pension cuts were allowable. Without defining “reasonable,” the court upheld a lower court decision in which Marin County, a wealthy area north of San Francisco, redefined employees’ retirement benefits to prevent pension “spiking,” which boosts compensation at the end of an employee’s career to increase benefits.
The Marin Association of Public Employees said it will ask the California Supreme Court to overturn the decision, which both the union and pension-reform advocates see as a crucial change in pension law. Although the decision has no legal impact beyond California, it could inspire local governments in other states to seek changes in pension benefits.
On another front, states will again be left to their own devices in dealing with immigration issues. Although the Supreme Court has held that immigration is a federal responsibility, Congress repeatedly has declined to step up to the plate. Prospects are dim for a comprehensive immigration reform bill, which the Senate passed and the House rejected in 2013. And although immigration, with Trump as the catalyst, has been a sensitive – some would say demagogic – issue in the current presidential campaign, it’s a muted one in states with large numbers of Latino voters. California, home to an estimated 2.4 million unauthorized immigrants, has in many respects become an immigrant haven. Most California law enforcement agencies no longer inform federal authorities when an unauthorized immigrant is apprehended for a misdemeanor. These immigrants can get driver’s licenses and receive in-state tuition at public colleges. Their children are eligible for health coverage and under a law signed recently by Gov. Jerry Brown (D), adults can enroll for Obamacare, although unlike citizens they receive no subsidy.
In Arizona, once considered hostile to unauthorized immigrants, an agreement signed in September by the state and the National Immigration Law Center, banned the practice of allowing police to demand the papers of people suspected of being in the country illegally. This practice, the result of a 2010 state law, was considered odious by immigration activists, business leaders and several city governments. It ignited national boycotts that economically harmed the Grand Canyon State.
Many other thorny issues will confront state governments after the end of the long and divisive political campaign. In facing these challenges, states will be swimming upstream against what Scott Pattison of the NGA calls an “undercurrent of economic concern that has been reflected in relatively cautious budget projections.” Memories of the 19-month Great Recession that ended in 2009 linger in the states, where revenues did not return to normal for four or more years.
Now, despite a relatively healthy domestic economy, 30 states reported lower-than-expected revenues in the first quarter of the fiscal year that began in July. Is this a harbinger of economic downturn? State budget officials don’t know the answer to this question, but they’re not inclined to wild spending in the year ahead.