Transcripts For CSPAN2 The Urban Institute Hosts Discussion On State Budgets 20170126

I really encourage all of you to share your thoughts and observations using life at urban. We encourage you to ask questions by emailing event at urban. Org. We will make a point to use these questions in the q a portion of the program. Im excited to join the Tax Policy Center and i thank you for important issues surrounding our states fiscal futures. The panel would examine obstacles and opportunities, governors and legislatures will face in the decision as they passed a budget. The budget this year of the budget process this year appears to be exoptionally challenging. But federal policy will look like in a wide range of areas. As the new administration fans at the new policies are shaped, its important to recall many programs being discussed are implemented at the state and local level. Educating children, building roads, the social safety net is largely done by state and local governments of federal funds paper 130 state expenditures. The federal government through provision of funds and policies affects the overall agenda. Concerns about changes are not limited just to democratic governors. Governors from arizona, kentucky and michigan are urging caution especially with respect to healthcare. Par discussion will discuss the effects of federal policy and whats happening in state capital and todays session should provide lively commentary. Also, a brief available for a finance initiative examining post policies. We are also excited to announce that the spending drivers at web tool is going live today and this tool will allow you to delve deeper into spending differences across states. We are fortunate to have a group of expert ish. Lori montgomery of the washington post. Lori will be the moderator. Its important to know she began her career in texas. Lets me kicked things off by turning the microphone over to lori montgomery. Hello and welcome to the state of the state. Its my job to introduce your panel. To my right we have joe, the Vice President of legal and state projects at the Tax Foundation. Jon hicks, executive director of the National Association of state budget offices. Kim rubin, director state local finance initiatives at the urban institute. Nick johnson, senior Vice President for state fiscal policy at the center of budget and policy priority. So, we will start off by talking about a survey of the states. Is going to be a very uneasy time in washington we are having a hard time grappling with the new reality. I think since friday we have had executive orders on aca repeal, building a wall, banning syrian immigrants, cia black sites, i mean, we have put out the front page in the evening and we rip it up before we go to bed, so i can imagine what state budget officers are feeling right now. Could you tell us where things stand . Would be glad to. My theme is cloudy with a chance of storms. State revenue spending in the introduction stated that its been growing more slowly suffer Great Recession than Previous Post recession periods. Mark said we had 32 states that are still not spending at the level that they were before the Great Recession adjusting for inflation. When you adjust for population, 39 states are spending at a level prior to recession and for recovery thats a bit of a surprise. Last year in fiscal 2016, half the states had revenue shortfalls and this year half the states are predicting revenue shortfalls. We have not seen numbers like that since the Great Recession went 36 states had a shortfall in 2010. Prior to that, postrecession, we average about 10 states a year who have revenue shortfalls, said to have half the states in backtoback years have revenue shortfalls, its accommodation of things. One, predict ability and Economic Conditions underlie most of state revenues. States are procyclical many most of their money comes from income and sales taxes, so why were they short in the last two years and the answer is because economic forecasts were overstated. Growth and income and output and other things did not reach what stevenage estate revenue forecast. Last year, state general fund tax revenues grew at 120 . Thats a low despite the low unemployment. This year, state reviser estimates are bit expected to grow without 2. 3 , again a low number in the next year they projects a little sunnier revenue situation at 2. 9 . Those are still historically low numbers. Personal income tax took a hit the last spring. Nonwage income came in lower than everyone estimated and sales tax revenues are surprisingly weak given the economic recovery. You will see under 2 sales tax a growth this year for almost a back to back year. Economists give explanations like lower prices on goods and a gap between what is consumed and less being taxed for that consumption. Online sales tax for example not being collected for states. You will see Corporate Income tax receipts declined for the second straight year. We dont know yet what the impact of prospective federal pacs changes will hold for this spring. Did Capital Gains get deferred from december to january and what will we see in april, so we dont know yet. Energy states are still suffering. Oil states and particularly to cold states, wyoming and west virginia. Medicaid grows has been growing faster than state revenues have grown. Pensions are more notable issue that states have been dealing with in the last decade. Most of the states have reformed their pension systems in some form, but investment returns are still causing the state to get up the checkbook. Medicaid has gone from 14 of the states general fund to almost 20 in the last 20 years. That has crowded out other spending. Higher education has declined in terms of the share of state spending. One good news, states have stocked up their savings account , their Rainy Day Fund since the Great Recession took states on average are sitting at about 5 of state revenues, which is a bit higher than where they were before the last two recessions, so states have taken from the Great Recession. Kim has a new report out state budget in the trump era. What can you tell us about what the federal government is about to bring into this cloudy forecast . So, this is sort of either an exercise in, you know, optimism or pessimism or thinking that we know something about what is going to happen based on what people have proposed before. What i did with richard here who is my colleague at the Tax Policy Center as we went through some of the things proposed before by both President Trump during the election and speaker ryan and people in congress to try to figure out whether we could forecast what we think is going to go what they are going to do going forward. We talked a lot about taxes based on stuff going on in the Tech Policy Center in healthcare , aca medicaid based on work that was done by our Health Policy center. But, its not complete. Its a things we felt like we had the best rap on grasp on. There is nothing in this report that talks about the pa, not on my agenda. Like the fact that that is where we went first is interesting. What we do . As mark said before, tax systems and spending are really reliant on with the federal government does, so about a third of the money comes from federal sources to state local governments. They send some of the rules on the agendas and we think about whats been going on with healthcare in terms of sort of the expansion in coverage, largely based on incentives that will come and play by the federal government for state local government. So the tax system, they typically use the federal tax system and of the terms and definitions to do their own taxes especially their income taxes, so if you think about especially states that are reliant on income tax systems, often they can conform to the federal system, so as we change the federal tax system is going to trickle through an effective wet states do, so if i go through broadly some of these areas and then we can get into detail as we go along, on the tax system, we think there will be a lowering of rates. There is some discussion of getting rid of some of the deductions like the state local tax directions. There are some not a lot of detail about broadening the base , so if we change at rates that will not directly affect states. If we brought in the base that could help states. Also, the uncertainty of what is killing states right now and i think part of the reason states revenue is below where they thought they would be is because people are waiting to see whats going to happen, especially for taxes on Capital Gains in corporate taxes and makes those to go down. If you are a high income person and you have the option of realizing Capital Gains now or waiting a few months and doing it in 2017 when the tax law and tax breaks might be different, you actually have incentives to wait and i think partly we have already seen that in sort of some of the week state budget forecasts. If we think about healthcare, there are two things, if we basically repeal without replacement of aca, that means if states do nothing they will actually save a bit of money, but millions of people will be uninsured. If they decided that acceptable to have that many more people be uninsured, their costs will go up. If things had stay the same like we already see their costs go up because that 100 pick up on the federal government would start declining and so they already thought that their aca costs would go up. Irrespective of that, we also think that depending on independent of whether they keep the expansion or not with medicaid is pretty likely they will change sort of what the rules are and theres a lot of discussion about block granting, which would basically means that states would get a certain amount of money based on whats going on now, which could grow over time and then states would have more discussion, but then they would also have more responsibility for making sure that all of the services are covered. Given that healthcare costs are growing faster than most of the economy that could leave them on the hook for more and more overtime. There were some estimates that came out of the organization that while it would only be a couple shortfall in the next couple of years once you get out 10, 12 years that could be up to a 33 the client in the amount of federal money going for medicaid, which would mean states would have to figure out ways of replacing the money or cutting the services that they offer. Nick and joe, i would guess that there might be some opportunities for states here, but it sounds like there are many more challenges. Do you want to start, nick . Sure. I would say, with a chance of the storms is an optimistic forecasts. I think it will be stormy and thank you all for having this session. A great turnout here, which i think testifies to a recognition that in this era in the trump era states may matter now more than ever before. What happens in state capital, what happens to states will have a big impact on everything that happens in this country over the next several several years. You know, the reason i think we dont have to be answered in our forecast that it would be stormy is that every president every presidency the first year the Administration Big things happen, i mean, there is a lot of uncertainty about which of the many big things on the table will happen, but if you think about the first year of the Obama Administration and that recovery act, the first year of the Bush Administration, the tax cuts that year and the first year of the clinton administration, reagan administration, big stuff happened and particularly when we are talking about stuff that involves dollars, budget stuff. Stuff can get through the senate with a 51 vote majority. You dont need 60 votes to do something if you do it through the budget reconciliation process and a lot of the stuff on the tax side, medicaid and other programs we will talk about fall under that category. Stuff done through the reconciliation process, so it will be a challenging and interesting year. Heres what im concerned about. In terms of the federal estate relationship, one of the most important roles that states play in our federal system is reducing poverty and expanding Economic Opportunity for families for so many families having troubles making ends meet and for the last half century this been a partnership between the federal government and the states. The federal government provides much of the funding, provide much of the structure and structured in a way to meet changing needs, so if its a locality are particularly Community Despite a factory closing or a National Recession these programs adapt, so the federal government is providing a lot of funding and structure in the states have some ability to innovate and to do things differently statebystate, community by community and this partnership has turned out to be very effective. The best available data shows that the percentage of people who are having a hard time making ends meet as measured by our best approximation of the poverty rate, the number of folks living below. Party has declined by about 41 over the last 51 years largely thanks to the federal state partnership, about one in four to about when seven, americans living below the poverty line. Here is what as at risk of happening, the proposals we have seen or expect to see from this administration and this Congress Based on what has come out of the House Republican caucus in previous years, what is in trumps own plan, what his health and Human Services nominee has put forward, these proposals would cripple this really Effective Partnership with the damaging impact on states and families. Basically we would shift this responsibility from the Health Family helping families make ends meet and we would shift from the federal government to the states at a time when states really cannot afford to take on this big neighbor south ability. As john said states are already facing budget shortfalls and things will be tight in coming years. Rainy day fund, reserve fund at 5 is great, but nowhere near what it would take for them to get through a recession particularly if these federal programs arent there anymore. Talking about medicaid block grants, i mean, its not just 10 or 12 years out. Very few years states will get under the proposal for instance what the house proposal put out last year, in a few years states will get much less money than they would under current law to the point where 10 years from now they would get 33 another key program is the snap program formally known as food stamps. Right now its 100 federal dollars, so states administer it, but they dont pay for it. A block grant which have that responsibility to the states and give states this new area of responsibility for funding. Again, without additional dollars to pay for it with less money. This isnt just theoretical about what would happen because we did this 20 years ago. 20 years ago we took the tennis program, which was a Important Partnership and turn that into a block grant. It was 16. 520 billion years ago and is still 16. 5 billion in nominal terms which means after you adjust for inflation is 40 less beneficial and because its a block grant and states can pull money out of it to fund other things the money going into assistance has dropped even sharper even further, dropping about 73 , so the number 20 years ago for the tanf program was helping about two thirds families living in poverty and now it helps about one in four, so we have seen what happens. So, that is my big fear and from a state perspective, from a state policy perspective they will have all this new responsibility, no new revenue, uncertainty on the tax side, uncertainty with other parts of the budget and we talk about Discretionary Spending and all of the other ways in which states get federal money and it adds up to a really dangerous and a challenging time i think for state government. Joe, what are you taking away from this . First, i want to thank you for hosting this. Theres a lot of panels and events in washington dc all the time, but this one i know for a fact has real impact, real decisionmakers watch these and have a takeaways from these and leave it with real results and i think as nick mentioned its a full room here. Every seat is field build and we have people in the back, so certainly a hot issue in washington dc right now. I think im going to disagree with a lot of nick said. Let me start off with an area of agreement with that being he and i certainly walk the talk in terms of states mattering. We have dedicated our professional careers to stay policy and something i think a lot of people just given lip Service Service to, but his organization and hours are out there trying to make the states truly equal partners in the federalist structure we have in the us. With that said i will disagree with his characterization of it as a partnership. No disrespect to any Congressional Staff or federal workers who may be in the audience, but for the most part federal employees use administrative arms for spending money that they get to them and when this money comes when it does the round trip to the back to the state it picks up all of these mandates and conditions and i have had plenty of democratic legislators and governors from the state complain about these let alone republican wants. Usually the democrats behind closed doors, but certainly it is not any partisan divide that it is not so much a partnership, but the feds set the rules and give the money and if you dont do what the feds say they take the money away. We have talked about medicaid of it. Medicaid, i have seen numbers recently and correct me if im wrong, but its growing and state budgets about four to 5 a year and its crowding out Everything Else and may be just more evident about how the aca has not effectively been a cost service. Something that has not been mentioned on the panel at all, which i think is a fundamental thing and if you take anything away from what i say is this, Economic Growth is the underlying issue because if the economy continues to grow at one or two or 3 a year you can complain all you want about how the feds are not getting 7 a year or revenues are not growing six a year or the feds are not providing more money and all that because if income and sales and Property Value and everything are only growing up the pace of the economy theres not more money to spend on these services and these programs. The pie is stagnant and everyone has to fight over the crumbs, so we can talk all we want about how do we restructure these or complain get the feds to give more money to the states or whatever solutions we come up with, but ultimately if you want to solve this problem we had to figure out why are we growing so in the meekly and weiser national gdp so low and how quick fix. Im not eight trump parson and i dont think anyone can accuse me of that, but the focus on taxes, federal tax reform i think is a good one because that has a track record of being able to fix things if done correctly in the right way. At the Tax Foundation we had our economic model. If you have a tax proposal we run it through there and see what impact will be on Economic Growth, job creation and the federal deficit and we have gone back historically employed at two other ones and we see results as the kennedy tax cuts and the first reagan tax cut that did do well for growth and some of the other tax changes that did not do so well for tax growth. There are similar characteristics especially in the treatment of capital and investments and Wealth Creation that matter quite a bit. Some of the ideas emanating out of the House Republicans and the Trump Administration talking about a border adjusted tax, talking about expensive for new investment, talking about getting rid of a lot of loopholes of the corporate code that induce companies to move overseas and outsourced back to the us, moving to a territorial system where right now us companies have to pay to taxes, us tax and overseas tax where foreign competitors only have to pay one and addressing those issues will have an impact. As you mentioned, some people are sitting on their hands waiting to see what will happen before they said spend money especially on tax policy and i think that is correct. Tax policy does change behavior and doesnt his people to make different decisions than they would otherwise. So, we are waiting to see what will happen on federal tax policies. I know state legislators are waiting to see what will happen, especially with the close relationship with federal tax code and state tax code, but its the only real good idea i have seen out there in terms of, we talk about that either Economic Growth cost cuts once we figure out a way to get our gdp backup to what it was historically, then maybe the pressure will ease up and we will have a few more sunny days and nick wont be so much worried about programs against each other. So, thats kind of what i see the big debate happening right now and i hope we can keep the discussion focused on Economic Growth. Kim, you seem to have something to say. Well, i guess i would love there to be, you know, more Economic Growth and higher Economic Growth and i think you are correct. If growth was higher a lot of the problems would be easier. And lot of the things and on the corporate side i think, you know, there might be things that if they get it right it would be helpful, but i think a lot of what is being proposed by both the people in congress and by trump give a lot of tax breaks to the top of the Income Distribution and its not clear that it will lead to growth and it will increase the size of the deficit. If that we actually have an additional six chilean dollars in our budget deficit and our debt in our debt, not the deficit, i think that could slow down growth. I think there is some evidence that some tax cut in some tax reforms have helped, but i dont necessarily, you know, personally i dont think comparing sort of cutting tax rates and comparing that to sort of what was going on in the Kennedy Administration makes sense given how high they were then and i think taking some lessons about what we saw under bush is really important and so, you know, i am afraid we will see, you know, a return to what we saw under the Bush Administration where they cut taxes first and then they say that we are going to have the reform, but there is no money left and how you do that is really hard. So, i guess i was optimistic that we will see growth, from what is being proposed on the tax side as it now stands and how its being proposed. I think there is some room to view some of the things, but i would like to think if they are going to do changes to corporate they at least do it sensibly and if we are going to expensive things we cut, tax break for interest say which is not necessarily something that President Trump has proposed, so i dont want them to do things that we know will cost money and leave us even in worse shape to actually have funds to pay for things in the social safety net. Two points. One, there is a paper on our website that goes to the historical tax changes and you can see what was different about that kennedy and bush tax cuts compared to proposals today especially on the impact of Economic Growth. Kennedy did a lot and bush did not do so much. Why is that . Both were tax cuts for the wealthy, but had very different impacts. The second point on the impact of revenue, absolutely agree with you and that is one of the reasons we embark on our tax model to be able to emphasize, look, there are tradeoffs. My montreux is always there is no solution to Public Policy, only tradeoffs. Im hopeful that it wont be returned to bush strategy as i said. As far as working to make sure theres reform, i look forward to our two organizations working together. They have following our lead on developing an economic model that calculates that its finally happened and we can debate on a level that incorporates the different positions. I think in part, ill stop after this and we can get back to the states, in part of it we were relieved, incorporating the growth is the process thats so consumption driven so when you are doing dynamic modeling scoring, knowing how much of it comes from the assumptions that are based in these models and how it goes is really important and thats something we took seriously so we are moving in that direction, thats right, but part of that is about how much we are seeing as being driven by assumptions versus the actual policy. Thats the debate we should be having. It makes sense although maybe i will make more. I mean generally, thats the debate we should be having. I think to the extent state policy makers are thinking about the current federal basin what they want to say about them, i think its an enormous mistake for any governor or state legislature to sit back and say well, were just going to wait for the economy to start growing again thanks all this wonderful tax policy thats about to come out of washington. I dont want to get into a big debate about federal tax policy. I dont think thats where state policymakers are and i dont think thats where they areto be. They policymakers should be thinking about spending that Economic Growth and in fact thats one of the main things that seek care about , and state legislatures always think about their economy, their local economy, their state economy. Medicaid, just go back to that for a second. Its actually going slower than private insurance and its cheaper than private insurance. They have a lot of incentive and a lot of tools with which to keep the cost of medicaid down. Picking up 43 percent of every dollar spent in medicaid so that 52 percent. They have strong incentives they have incentives to keep those costs down. They also have incentives because the other big part of the budget, education, transportation, public safety, are things voters care very much about and also things important to state state Economic Growth. When you think about taxes, i that dvd is by the model and the Tax Foundation is a model in the states we have examples of what happens when you have these tradeoffs. What happens when you do big tax cuts because states have to balance the budget. They take it out of the spending side and what we see in both states is look at the states that have done huge tax cuts over the last few years. You have kansas, ohio, michigan, maine, north carolina. Economic growth has been below the National Average or right around it. You think that would have no impact or good to the economy, you have most of the states and in fact they are not. What they are doing is they are taking money away from schools, higher ed. Transportation. Which is stuff that we need to grow truly vibrant state economies. You had Economic Growth in this country, right . There are people in this country doing very well. They tend to be at the top of the income scale. Think about what the opportunities are that we are missing. Where are we missing chances to unleash economic potential of americans who are being left behind and i think investing more in education, investing more in support for children and families, investing more in infrastructure may be a way to get around this Current Issue of our Economic Growth and perhaps its not where we wanted to be quite we can spend our time talking about tax cuts and Economic Growth but i want to remind people outside the room that if you have question, you should direct it to robison. Org. In the meantime whats the path to, lets take things in the order that Congress Takes them and go back to obamacare and the repeal of the Affordable Care act. There are a lot of different tackles a bit on effective states and one since you have subsidies, marketplaces, the increase in insurance and on the other hand you have the expansion of medicaid. Could we talk about what we expect them to do and how states will be looking at this, particularly since our president is saying nobodys going to lose coverage and is going to be better for everyone . Let me start there. As relates to Affordable Care act i want to be sure and be clear, there really are three big elements in the private Insurance Market and health exchanges. The expansion of medicaid but the core Medicaid Program and the third is the largest element of the state turnabout. The partnership is at least financial partnership. As nick described, the idea of states all raise their hand if they say we could need more flexibility. 50 governors will raise their hand as well all of the legislatures. Block grants dont have to be the same thing. States already examined, they want to be at the table. This is the single largest expenditure in their budget. It is the second largest expenditure of state dollars so while tenet maybe an example, weve never seen anything like the prospect of block granting medicaid at the state level. This is a first. We have nothing to compare it to. So good or bad, the states prospect is as i said earlier, state revenues are tied to Economic Conditions. Medicaid intentionally set up as partially an automatic stabilizer when there is i unemployment and people lose their jobs in healthcare as a necessity. We have higher enrollment. When theres higher enrollment in medicaid you have higher expenditures, state revenues dropping or not growing very much at the same time. Those two things, states are not set up to be Counter Cyclical and their financial arrangements, that was intentional so states want to make sure that there can be some innovation that states are still permitted to do in healthcare. States have been aggressive in changing the cost that medicaid, it is a myth and believe that the next rate of the federal dollars leads us to spend more in medicaid. You put the budget together with a governor and legislators, they dont want the next dollar to medicaid, they want education and economic development. Thats where they invest so states have been , have worked hard at combining lower costs and Better Health outcomes and do not want to take on the responsibility of being Counter Cyclical when the recession comes. You ask what is likely to happen, i dont know. What theyre doing so far is dealing with the fact side of the epa. Theyre going to go away. Theyre going to do anything on the other side of the programmatic side, senator collins put up a proposal and senator rand paul, i guess hes been busy area so we will see what comes of that. Healthcare is tied to discovery or background especially like the taxes are important, high taxes but the deduction from florida provided healthcare is wrapped up into that. 80 percent of americans or whatever get their healthcare through their employer. Step one is the decision do you see that working at the same because its a very different decision afterwards. And at least a lot of the healthcare experts i talked to dont like that. They think it works with decisionmaking, it drives costs up and its a fundamental flaw there but certainly its one that people are used to. On medicaid, im glad you brought up the flexibility effect. Its a big part of the budget and it certainly to the changes to it. The question of whether you raisethat , and my husband mentioned, you have the Vice President in medicaid in his state in a way that he got a waiver from the services and a way to bring some cost awareness to the trunk camp so if you make it stressful you have to put some dollars for your code or your deductible and cost it from kind of the cost of compromise to meet everybody on both sides so that it doesnt appear as an expansion on medicaid. I dont know how people, again, i dont think anybody know how involved any particular player will be, thats one piece of data. Thats whats down the road. To be back on that, this brings up an important point. When we talk about sort of broad banding and getting more flexible he, you get away from the fact that the state are having amount of flexibility, that they were able to take that money and apply for waivers in an experiment and do something so i dont want to over value that flexibility with a block grant. I also think its important, i think the point that its a Large Program is relevant, i do think its worth focusing on appointment made that when we actually broadband the tanf money, a lot of that is not going to the same purpose is been going for and its going to pay for other things of that value. So part of it is you actually think theres a fundamental value to the safety of that and that having the federal government provide some older level that states could be providing is important because there is less competition if they are setting some of the rules. Theres benefit for there being a federal role in this. People complain about their time our hands and to setting these policies we have to follow. Its important to note that we are a country people can move from place to place and i think its important to set what we think are basic standards of what we think are important for people to have in some of this health care in terms of the village to live. So i think that there is some flexibility now but i think state if we move in this direction where we are repealing it, a block grant that was also that part of medicaid that speaks to a couple things. It could lead to some tradeoffs. If some of the federal money is sort of a certain level, and its no longer mandated to healthcare, they then have to make the tradeoff between do they want to use other funds to keep the population covered or do they want to spend less money but have larger uninsured populations but they are probably going to pick up in terms of other ways they have to pay about ensuring other things so i think there were tradeoffs there and there is a big benefit to having the federal government sort of partner and play this role. And not just say okay, were giving you extra amount of money. Is there a difference in how lieutenant governors and democratic governors are talking to washington about what they expect and want out of the process . Whats surprising is how much similarity there is in democratic governors are saying. Theyre saying we want to innovate, we want to continue to get these funds. We dont want state cuts and the other things that are similarities are democratic governors have done using these programs for flexibility and innovation and its not just about flexibility in terms of how much authorship and beneficiaries, its responsibility on things like how do you get providers Work Together to reduce duplicate care, communicate better on care that gets concentrated on by a small number of people. There are ways that states are, and a lot of the debate is because there is a lot of partisan fights but over time policymakers Work Together to keep the cost of medicaid and a reasonable place. I dont think theres any way that the scale of the cuts that are being envisioned in some of these block grant proposals or other proposals in the legislature, theres no way those can be accommodated at the state level without taking people off the program or severely cut taxes to benefits they receive and that will have a negative effect on peoples health, peoples ability to afford healthcare, the longterm Health Prospect of kids and their ability to contribute to the economy over the long term. Coming back, thats the question. How do we strengthen state economies . Being the healthcare is tough. Steve suggested that its hard to tell what exactly they might do on the policy part of this. Do we actually think that obamacare is going to go away . I dont think anybody would disagree this is going to be an unconventional administration. I think the president might even hang that banner in his office. So you are trained never to say i dont know on these panels because youre an expert, you must know. I dont know what the administration is going to do on healthcare and i dont know if they know what they are going to do. As i said, a lot of people get their health through their employer and you dont change that fact, it limits what else you can do. You end up back in the same decision that the democrats ended up in in 2010 when they were drafting the Affordable Care. But that has a lot of downsides to. The fact that it is tied to employment means a lot of people are petrified about losing their jobs. Thats one of the first things you think about leaving your job is what will happen to your healthcare and your family. Its how affordable it could be if it was individuals because its almost all thirdparty pay whether that thirdparty is an insurance or an employer, or a government agency, nobody ever asks for answers the question of how much things cost. You want to have a ball in the hospital or with your doctor, ask them how much service costs, they have no idea. A third or half of their clerical staff get to the answer and we all getthis , its not a bill and i can go on and on. There is a fundamental problem with our Health System that the Affordable Care act didnt come close to addressing. One of the plate ways the care act tends to address the problem of employerprovided health care is the tax policy. The cadillac tax. Exactly. I had written about this in a while. It goes into effect 2018 . So do we think thats actually going tohappen . [laughter] i would think and again, i dont know what they are actually going to put in place but the things that i personally think they are most likely to get rid of our the taxes on the cadillac plans and on medical devices. The things that they could take away the tax and say they cant change it and maybe thats my optimism that maybe if we can do a couple of things around the edges, we can call it somethingelse. Maybe not disrupt all of healthcare for kids and lead to nobody being able to have health care coverage. But i would think that the things that are helping to balance the budget and make sustainable credibility feel like their core market, are most likely to be caught. I dont know. Let me make a broader point about tax policy. That goes back to the conversation about states. So joe pointed out the number of members of the policymakers in the federal level has said nice things about importance of donor neutral tax changes. The reality is that we actually sit down and score the trump plan, whether its proposals, we are seeing tax plans that will cost the federal government money. Thats the jump in, a lot of the taxes get approval on paper, 5 to 10 trillion with it and we can only talk about state budgets, we dont get near payroll. Five to 10 trillion over 10 years. So in that context where these enormous tax cuts have been orderlies, they been on the table into the tax debate, we have this debate about are we going to broaden the base, narrow the base care coverage, how is this all going to pan out, theres a big perspective where you are thinking okay, if they broaden the base, that might be something in the 1980s state tax reform, that might merely get one windfall and we choose a lot of revenue. I think the whole tenor of this debate is going to be much more toward narrowing the base then broadening the base and thats going to be a disaster for states so these are all around permanent exemptions for expensing, two percent cushions for Capital Gains, these kinds of proposals really seem very damaging for state revenue. Another one, the estate tax. How does that happen in the first few days of this administration, taking tax rates to, but its been their plan to repeal the federal estate tax, its been the president certainly in the past state indicated that he would like to repeal it also. There are 14 states that have estate taxes, the piggyback on the federal estate tax. For all the states it is the most progressive part of their tax bill and is a small number of high income folks who have money to pay for education and health care and services and transportation and other things states need to do so the federal government reveals estate taxes, is going to be harder for states taxes, and thats going to cost them 3 billion dollars here which is difficult money in those 14 states. Now watch as this tax debate carefully as it unfolds because its really important for states and im not confident the tax reform at the federal level in this environment under this president will yield anything close to the kind of windfall the states need in tax reforms that work to be revenue neutral. It works on any number of different ways. When you Start Talking about this i thought where you were going to go is sort of when we blow that kind of windfall in the federal ags and we have sections about whats on the table and whats off the table, what does that mean to discretionary funding . While there are programs they are already zeroing out, its worth keeping in mind a lot of this goes down to states and local government so if you actually have less money coming in and youre saying that were going to spend more on defense, where you make up that money and what that looks like in terms of spending on these other projects that are even things that are said to be a priority, i dont know if you bring up big infrastructure, if you cut the other side so i think its worth keeping in mind that the size of the budget needs to Work Together. That if you have less money coming in and we get this sometimes in washington because the deficit seems to be big and evergrowing, but its at some point you are going to have to figure out how you actually, you know, balance your budget. At a some level, whether you are cutting spending or raising taxes , or at one point people stop buying our debt. So lets take questions very shortly. Its urban. Org. But this is a really great point because in all of the proposals weve seen from this administration so far, the paperwork is really Something Else so its clear. And i would think infrastructure in particular has got to be an area where states are going holy cow, what . Why dont you explain what the proposal is . Let me try. One of the ideas is to repatriate corporate profits back in the United States and provide and if you will tax bracket that those are invested into Public Infrastructure projects of a certain type. Here in the United States we call it publicprivate partners. In terms of the type of financing arrangements that may go into particularly transportation in the United States, notsolely so but mostly but in that case , there are a good Publicprivate Partnership project thats out there today can get financing. People are waiting to invest in good products so increasing the supply of capital could be invested wont necessarily increase the number of private Partnership Projects because its really the quality of the project and its ability to make returns that is the base for that so that doesnt necessarily on itself create more infrastructure but if it is also seated with real money, federal taxes or even state dollars that combines many of these that have a combination of funding, they are not often 100 percent privately funded and thats the prospect of having more infrastructure with both investment from the public side as well as the private side. I was going to be a Debbie Downer again. So weeding through what was proposed when they are talking about 7 million in investments, this is baffling to me and then its it doesnt even specify which projects are eligible. Others thing that worries me is the tax credits and this investment is supposed to be keyed through money raised through this project which could work if you are talking about our highways. Maybe even an airport but if you are talking about things like wastewater or treatment or does that need to be rebuilt or in a place that doesnt have a lot of traffic and its really important, we dont necessarily want bridges falling down in nebraska just because theres the volume to taste for the building. I didnt see anything in that proposal that led to increased money for things like maintenance or for prospects that were going to have some private return. I agree with that. Use an example that i think a lot of people start with which is the bridge that connects arlington self cemetery. Reaching its end of life, is going to start going down in dc. Enjoy it. And theres no cold or anything on the bridge. I think it probably carries more foot traffic and road traffic. Its not the name bridge between virginia that the commuters take. How do we fix that . Im not really sure whether this is the district of columbia or who is responsible. Regardless, the administration or at thetime the campaign , the document on that focused entirely on finance products. That have a stream of revenue so over three years, how do you turn that into money up front . I dont know how much that is a roadblock. That was unintended pawn to one of these projects so a lot of us are how do you get the funding for how do you get to do it so i dont know how much it will cost. But how do you get themoney to be able to do that. At the state level , they are solving this through raising more money in the states and vastmajority of cases , the gas taxes for inflation, they dont cut bait. And i has something on the debate and thats last year. Theres been more Publicprivate Partnerships on toll roads, more innovative ways to get the money on the rail lines thats being built in maryland. They call the contractor in the stream of revenue and they will be able to do it that way so theres a lot of innovation certainly in transportation but it doesnt come, you get to the point where you need one or 2 trillion and in tax credits are not going to do it. The vicechairman of the National Governors association of nevada said i dont have toll roads and i dont want them. But joe is right, states have to increase state revenues at this time of low Economic Growth and cutting other kinds of taxes, personal income taxes in some cases. They, and they are spending more and raising more. In order to fill the transportation, what theyre doing is taking their income tax money and sales tax out of it. And other places and using it to bail out the transportation funding. Ive done this for a decadeuntil last year. And they found they can actually fix it, they muscle the Port Authority to get all their money to stay transportation, everything you can do short of raising the gas tax. I understand raising gas taxes are popular, theres that congresswoman was the deciding vote on the 93 one when they all heard marjorie and the congress and sent by marjorie because they knew what was going to happen to her but weve all gotten used to saying halfprice for roads and bridges. Theres vehicle license fees, gas taxes are covering the cost. So eventually you can only post on that again, so long. That raises an important question about the relationship between state and federal governments going forward. One attitude the state could be taking, we are agreeing they should be taking to say okay federal government, were going to wait for all this wonderful infrastructure to slow down. Of course you can start a different course but to say people in washington are battling over trauma or whatever you want to call it, in the state is attributable to charters, where going to create in a different way of doing infrastructure and Human Services, fighting poverty and k12 education, higher ed. Taking Early Childhood education, talking about all these tools so i think its increasingly aware of the governors and policymakers are looking at whats happening in washington and saying the antiinvestments, antitax codes, the federal government is not working in our state. Were going to take them into our own hands and i think its going to create tensions between the feds and what the state wants. And i know we have questions for the audience but we also want to talk about immigration which is a huge stance in localities. All these things before we go to questions, releasing any states where there are innovations that could come from washington. Are there states that are solving these problems for figuring out how to tax in ways that washington should Pay Attention to . There are a lot of those and the National Conversation with between state legislatures which is a group and all the state legislators come together, they are on all these panels of events of heres the legislature, they tried something and heres the results and the bad results and take that at will. Many tax issues i write on his Marijuana Taxation. And states are going different ways on how they are legalizing and taxing and how they are structuring that. Its good, every time i come to this panel i have this term i use, the laboratories of democracy. If you want high tax, low tax, low Level Service that there for you. We are always on the lookout for high tax, low service or high tax lowlevel and we all want to find a high tax, high level but its a fundamental tension. What kim talked about, we want the state level where people disagree on what the baseline is. So instead, all of our elections and all of our debates are what should washington onesizefitsall policy should be when i think weve got to do more letting states decide and letting people find out at the state level and then we can come here and have these tax sides or New Hampshire side over which one is doing a better job. I did be happy with less state innovation. The problem i see the next few years as the government will make it harder for the states toinnovate. John, you said earlier that we dont want to spend more money on medicaid then we have to but of course there are times when that medicaid funding seems helpful for a state who wants to say, address the opioid epidemic. Perhaps a Mental Health issue, the debate on Mental Health issues that are driving homelessness. This medicaid money is for Community Health which have been proven to be so effective and safe. Or education, investing in things that we know work, better training for our future, classsize reduction for certain populations. The federal cuts that have come are going to get in the way are using those Revenue Streams to experiment with implementing stuff approved. Ill say one last thing. One thing that is going on in the states and this is often where we are, seeing states innovating on the tax side. That Marijuana Tax and sugar taxes. They are looking for ways to raise money in states if they need funds going to tobacco taxes. The problem with having their budgets relying on these taxes that are arguably there, i dont think marijuana is something to discourage people to smoke it but in general the way these taxes are set up, theyre there to raise money but they are mostly there to try and upset Public Policy so that there becomes attention if the state budget becomes too dependent on these taxes that arguably we should want to be zero because they want the behavior to stop. If we think about Something Like cigarette taxes or think about Something Like the new soda taxes so we can sort of discourage young kids from drinking a lot of soda and getting obese, in some ways youre going to end up setting up the tension between your budget and the Public Policy if too much of your tax revenue is coming from those. If its revenue neutral, the spending goes up or revenue goes down and you have this gap. You got to remember as i said mostly elastic, growing with the economy revenue stream, some of these other revenues are stabilizers. They are not large portions of the budgets but that next million is an important million. Okay, lets go around the room if anyone has a question. In the back. Lets identify yourself and your affiliation. Thank you. My name is renc bryce ports, a consultant in dc. A lot of the conversation has loaded around healthcare and infrastructure which is understandable. I have a workforce and education question. I talk to employers in arkansas, ohio, california. The frame that you hear again again is we cant find workers to fill the jobs we need and the actual number of people that quibble about it but theres a trend towards meeting more education you need the jobs that are out there. Had Hillary Clinton one, but thought was there about helping students pay for their education. Maybe not going to happen here. As you see it, the situation where the state and helping students get the education they need to fill the jobs that we have . I would start, states are working hard on that. The state of the state addresses by governors and you will see that very question, that problem raised and ideas about how to improve that. A number of states are now moving to last dollar in for twoyear credentials or below. States are moving heavily into apprenticeships and nontraditional areas like ip. A lot of governors are trying to get to that issue of distilled gap, particularly in advanced manufacturing, healthcare and it or several areas that are being focused on so kennedy, oregon, kentucky, several states are also putting money where their mouth is in terms of assisting individuals who help pay for a post hostile credential that is related to in demand industries and in demand jobs. I was just going to say, i think under the clinton plans we saw more focus on incentivizing how you get training and more training and i think thats really important. I think in some ways, im a little sad we are missing that part of theconversation , that if you think about whats being talked about, how we are going to restore good jobs for people who live in america, im sad about the fact that theres not more emphasis on how we get people to do new jobs rather than focusing on sort of eating up why jobs have left, theres this sort of backward looking rather than forwardlooking and i think theyre trying to figure out ways of getting their population for these jobs. But i dont think we see a lot of expectation of that. Theres far more technology than trade and i talked to a lot of people and i hear the exact same things, that our Education System is not preparing people for the modern economy. Back in my grandfathers day, to have a job at 20 and you graduated and you are hired at five, thats the one john you would have in your lifetime. Thats for our generation and the one back road, theres going to be a lot of jobs over your lifetime and you have to be flexible enough to do all those things and we are just not preparing for that. There is innovation from the states but theres a lot more that needs to be done to completely overhaul it and a lot more accountability. And from california originally and people still talk about the days when patdown brown was governor in the 60s when he filled the University System and the water projects in the highway system and a lot of capital investment, a lot of rethinking how to do things. The university, later we constructed it was new and different from how it was constructed in the past. A lot of focus on the real life and i think it takes that kind of reinvention now and the reason we dont have the money to spend in education, a lot of the money in education goes to Union Salaries to protecting everybody in the Public School has that employee or that teacher who checked out long ago and they just didnt get rid of them and theres a lot of Public Employee Pension Funds that are underwater and a lot of money in chicago for education, to bailout thePension Funds. The reason is underwater is not because too much money has gone in, its how much has gone into them and what happened is education over the last 10 years has been a flatlining of funding. Weve got a lost decade going back to 2007, 23 states spending less in k12 education than they were before the recession in this era where education and investment in workforce is probably more important than its been in the past. Theres a situation in Higher Education that even worse. Most of our sister seem less in education and diversity in higher ad than they were 10 years ago. The challenge of course is thatstate in some degrees dont have enough money for education is that education is funded at the state and local level and as we talked about , at great length on similar panels in the past , but state systems are antiquated and in desperate need of modernization. The tax bases or for goods and services are not not taxing on goods purchased over the internet as they should be, corporations have far too much room to move their products around from state to state. A lot of states have flat personal income taxes, so at the top of the income scale. Tax rates for senior citizens, states and localities are some of the blame here for failing to attend to the revenue of something that would generate the funds necessary to make the investments like you what you were talking about. Speaking and spending adjusted inflation, i retweeted out a draft somebody posted on various costs over the last 10 years for adjusted inflation. Tuition was number one on the list. And in real terms, student taxes were not far behind so thats where i think a lot of the money it ends up going and whose pocket it ends up in. And then a lot of other parts are at the inflation level and clothing, computers, etc. Were far below. There were less of them back then. It still shocks me that with the technological revolution that we had with the transportation and Communications Revolution that we had, that we still teach students very much the same way we did 150 years ago and that have to change. Right here in the back. Im from the American Federation of teachers. To minimize. Lots of questions but ill start with this one. I guess im surprised that nobody had talked about the impact of the sequester and what thats going to do to the state budget as they travel around the nation. Talking with union leaders, i tell them to anticipate a 10 to 15 percent cut in federal dollars coming to the state based on the eventual implementation of the sequester. And i think talked about that in as he was going around the nation and i wondered if you could ask a dress that. Thats all ive been talking about. Weve been talking about nondefense discretion, you talked about it over there. Let me give you some numbers on the state level. The last 10 years, if you talk about medicaid, states get about 13 and a half percent of their budget last year to federal funds excluding medicaid. That was the lowest we could see about 10 years so states have already been living with slightly declining domestic discretionary programs. Now our friends at the federal funds in information for the states know that if sequester goes into effect in 2018 i think there was about a 4 billion drop since 19 billiondollar days so dont yet see what that is and to which program in the education states receive significant amounts of money on title i, the ipa funds, school administration, those are some of the biggest federal grants in those states that art medicaid. So we are waiting to see, dont know what the percentage changes but based on that information there is , that would be a one plus percent. I was just going to say, i think part of the reason i didnt use the term sequester and we havent really talked about that is because of all those things that are leaving. I feel like those rules are in place but we have a republican majority and a president who is arepublican. And its how they play with that budget and how they come up with their decisions. Im not sure what was decided there is going to be whats relevant. Thats not to say i think its going to be better because we have less money and theyre talking about having more money in defense and we dont actually know that they are going to do with Social Security and medicare. And might actually be less money available for those discretionary domestic programs. So i think there would be worse than what were expecting under this letter. I think what were going to do is to see a reset and how they want what the technology is. Your basic point is right, its important to Pay Attention to that category that we so heartily call discretionary, i dont know why we dont have a better phrase. People dont understand what were talking about. School lunches or the wic program or both for safety, Police Officers in city or housing, community development, housing doctors. Just a whole range of programs, Scientific Research that are under this awkward docket and a lot of states , a lot of state legislatures dont get it but as that gets ratcheted down over time, and it has been, that category of spending is now at its lowest level near the economy since the 1960s so we are squeezing that chunk of funding and potentially accelerating the squeeze in the coming years depending on what the budget parameters. Thats what people want to keep an eye closely on. You want to put that quote of the Republican Congress where they agree that its happening, i think its more of a structural thing as opposed to that, the ceos and communities responsible for a federal budget, theyre putting out protections for years and years talking about how we put everything on autopilot, and we want to talk about everything eventually in the coming years. But its first if you actually cut taxes. Theres a lot of things you can do to make it worse but its something thats on the radar and i think for states that are used the getting so many millions or tens of millions of dollars, i think you are right to be saying its something we have to think about that this may happen and whoevers telling you its not going to happen, tell them to think about it. Lets not imagine that trump is major, its a policy that is very likely that, theres leaders in this administration who tried to accelerate that trend down the caps further. Over here in the checkered. You. My name is chris sharon. I also worked for the senate or financial office. My question is broader on what the administration has talked about. On tuesday the Budget Committee had their hearing for the nomination of the office of management and budget, congressman mulvaney and they really tried to hit home about his ideas for entitlement programs and reform but they also tried to hammer home about contrary and the inferences in the Trump Campaign and how he does not want to cut various programs. How do you see the differences between the new proposed leader of the omb and the Trump Administration and how thats going to affect their policies and their Budget Priorities . I feel like the person whose taking the fact that you have numbers that have to add up or not. In a way that im not sure all of the rhetoric and all of the proposals that we are part of paying and this defense is often the part of any campaign doesnt necessarily add up but think about some of the specific comments that have been made. It is impossible to think about how they are all satisfied. Its not so , cut taxes, guarantee that healthcare does not, nobody loses healthcare and were not going to cut any entitlements but these things dont work and so in some ways, i feel like its possible in those hearings to have to answer these questions if you are a serious person trying to come up with what the policies are because its almost by nature, we seen this and other hearings and beyond in the states, we have seen people sort of ratchet back words or pull back a little bit either from the president or during the campaign. What we hear from the organization on the dais is that we work to make sure the numbers add up. We dont, we want ice cream and cake but people are out there pushing for it and weve got to say, he has a paper route with the urban institute that walks through a lot of those tradeoffs. As for what will happen, i think the impact on the public life and being director in the white house, theres been a lot of private concerns about the president and our ob directors that they are the people who want to make sure the numbers add up but as for what will happen, you are working for swing state senators so you know more than what we do. Lets take a question from somebody watching outside the room. David furman, a professor at the university of illinois. And the university of illinois in chicago. We recently heard that some policymakers are considering the possibility that the apa may be altered to offer states an option between keeping something similar to the current Medicaid Expansion or opting for some kind of medicaid block grant program. Whats the realistic possibility . If so, is it viable and in general is it viable that federal policies often offer choices between different kinds of partnerships with the federal government . You are talking about the collins gap, the proposalthat came out earlier this week. I will it, there are papers on our website. I think the answer to the second question is that the devil is in the details. So if you want to know the devil about this proposal, go to the papers on our website. More generally, john, do you want to tackle the question of whether it makes sense to offer these partnerships to state . Its an interesting question. In general, state as i said earlier, states give less flexibility to tell us what the purpose is in the last engineer the way we do it in our locality so id say the states would be, the setting elected officials in a state would be happy to have the choice. The elected official 20 years from now, im not so certain area the choice is do the same or more but accomplish it with less money . Thats not going to go over very well in mississippi. It depends on the choice. This is something the Obama Administration didnt get enough credit for what they did a lot of programs and small Grant Programs to offer these. They did one on education , your extra education money. You have to either fire your principal or send everyone through training or become a Charter School or use the school option. Nearly everybody pick the senate basic training. Been on unemployment insurance, it was picked two of the fourin order to get extra money for administration and that one i think has better results. Im all for flexibility but of course, for healthcare the goal is to help the americans and either does it do that or does it not . Thats the question. Other questions. Hi there, zach barnes from ceo. One of the four questions when looking at medicaid and likability of the states is how much money to spend on mandatory services as relations versus optimal service, optimal populations. Theres a figure at the aca about 10 years ago that was anticipated and i believe its about 60 percent of the state medicaid spending was that optional population, its the data where its a little bit false at times but with less spending available potentially in the future, where do you think states draw money from other areas to continue funding for Optional Services . Thats where you are going to see people having hard choices to make. We are going to see some states doing that and i think ironically in the course of our policy center here put out years ago, they found the states are more generous now but have an easier time figuring out where to put that money and they can raise more money more easily. It may be some of those Optional Services have been covered with federal funds in a state like mrs. Mississippi. They might have a harder time finding the money to maintain those services but i do think its setting up some tough choices for states to make the decision about whether theyre going to spend money to provide those services or cut those Optional Services. I think in the Great Recession we saw movement on the parts of states i think with dental and vision where basically there are Optional Services that they got ratcheted back and some of it can lead to bad consequences if you think of somebody that has this for a number of years, that could become something more serious so there are more choices but im not sure we know and i definitely dont think its onesizefitsall. I think youre going to see faces they have to come up with the answer. We probably have time for one more question, theres one in the back. Right here. Hi. My name is rudolph, budget director. Yesterday signed the executive order limiting federal grants to state municipalities and the district is a sanctuary city. We received over 1 billion a year in federal grants for everything from Refugee Resettlement to Homeland Security to grandparent caregivers, it runs the gamut. I was wondering if you had any insight on the types of grants that might get targeted through this executive order and the impact on states and citiesin general . Its really unclear. It could be , they could decide that its going to be around a few, security grants, those are around as law enforcement. Or it could be much more sweeping. Its the reason why the executive order seems to contemplate the possibility of draconian hits to cities and a couple of states, like connecticut and california. And the challenge is, from a state and local perspective, the problem is you are catching folks between a rock and a hard place. This sort of nickname of sanctuary cities, i dont think it paints an accurate picture of what actually happens when a Police Department is required to hold people under these standards. There are costs for incarcerating that person, costs for processing that person, there are potentially legal liability costs for hiring those persons for court cases when the locality violated the protections against search and seizure. It was sued because they were doing it at a potato, the federal government doesnt get reimbursed for that. You got a cost to the local city would come about and then they started doing what they wanted to do and on the flipside, youve got the federal government taking away money if they dont. I think the costs are why its interesting, last year more than 20 states actually considered laws that would prevent localities in those states from, they would require the localities to go back to those standards. All of those laws in state legislators including in a lot of conservative state legislatures, i think it was because they were hearing from police, hearing from mayors and city councilmembers but they didnt want those costs and they didnt want their cities made less safe because their Police Department could do their jobs because they were so busy paying attention to what isis was telling them to do. Thats when to be interesting and if they push it , my understanding is that they put and cut to cities who are in the sanctuary city law, were going to see losses about that and its going to be years of legal action back under uncertainties, it will be interesting and challenging to see how that plays out in the coming years. Well, the theme for today is a Stormy Weather and uncertainty so that seems like a good place to close. I want to thank the urban institute for hosting this event and thanked joe, john, nick and kent for having such an informative panel. [applause]. [inaudible conversation] [inaudible conversations] a live picture outside the hotel in philadelphia where house and Senate Republicans are holding an issues retreat. Theyve started yesterday and conclude tomorrow. Vice president mike pence and british Prime Minister teresa may speaking were reports tonight. President trump meets with the Prime Minister tomorrow at the white house. And news a short time ago that mexican president has cancelled his visit with donald trump next week, saying he was upset with the president s plan to move