discussion board The Politics and Policy of Taxes and Deficit Spending

The politics of expenditures is a politics of choice. Revenue is never sufficient to satisfy all possible claims on the budget, so governments have a formal and sometimes informal process for making budget requests, sorting through them, prioritizing them, trimming them back, and approving the resulting plan. If there is a tight ceiling on spending, those proposals low on the priority list may be cut deeply or eliminated completely. The stakes are high, the competition may be intense, and the associated politics is often lively.

Who gets what, who wins, and who loses is not just a function of who can make the best case for public funds (strategy); it also depends on program structure and on changes in the environment that make some needs more urgent than others and sometimes overwhelm the budget. Winners and losers are also influenced by the political party in power and its agenda. The decision process, program structure, and even prior levels of debt may build in or lock in some priorities, so that they are not reconsidered at annual or biannual intervals but form a protected base, forcing more intense competition for the rest of the dollars not so protected. Some decisions are thus made for the long term, while others are shorter lived. The intergovernmental system, our federal government, with its cooperative and competitive elements, influences, if not determines, parts of the budget, through grants, loans, mandates, and cooperative programs that are run jointly by the national and state governments. The courts play their episodic role in expenditures, as they do in revenues and budget process.

Strategies

Though good strategy is not enough to determine the outcomes, program advocates try to devise the best case possible for agency or program funding. The following are strategies that are common and have often (though not always) proven effective over the years.

Please the politicians. Agency heads try to gain support by including in their budgets the policy preferences and/or pet projects of elected officials. Bureau chiefs or department heads often describe in their budget requests how their budget proposal will address the goals of the chief executive or legislators, such as increased food safety, fewer child deaths, or lower rates of errors in billing. At the local level, department heads often scrutinize council transcripts, looking for clues as to what the legislative body considers important, and slant their budget requests to include those preferences. In performance budgeting, where it exists, legislators, the executive branch, and sometimes members of the public set goals for the departments and programs that are then reflected in the budget requests.

Sometimes agency efforts to please legislators can result in choices that could not be justified on technical grounds of cost or efficiency. The federal government spends a great deal of money on contracts each year. These contracts are usually awards to U.S. companies, located in someone’s congressional district. Awarding a contract or subcontract to a company in a particular legislator’s district helps gain that legislator’s support for a program. Legislators sometimes reward campaign contributors with contracts through earmarks in appropriation legislation or other means. (To see how this works, see the minicase “A $17,000 Drip Pan” below.) Defying such earmarks risks loss of a legislator’s support for a budget request.

Minicase A $17,000 Drip Pan

From time to time, some outrageously overpriced commodity purchased by the Department of Defense (DoD) comes to light, such as an $800 toilet seat. The DoD is often blamed for poor financial controls and ineffective contracting, but the source of the problem may lie elsewhere. Consider the $17,000 drip pan for catching transmission fluid on Blackhawk helicopters. A competitive product from another company only cost $2,500. It turned out that the chair of the House Appropriations Committee, Kentucky representative Harold Rogers, wrote an earmark for the purchase into 2009 legislation. Not only was the company that provided the part located in Representative Rogers’s district, the president of the company was a frequent donor to Representative Rogers’s political reelection committee. Rogers delivered over $17 million in business to this company between 2000 and 2012. The DoD was not willing to offend the chair of the House Appropriations Committee by choosing a more cost-effective alternative.

Source: Eric Lichtblau, “Earmark Puts $17,000 Pans on Army Craft,” New York Times, May 18, 2012, www.nytimes.com/2012/05/19/us/politics/behind-armys-17000-drip-pan-harold-rogerss-earmark.html?_r=1.

Build a geographic coalition. When asking for program funds, administrators try to demonstrate that the program benefits everyone. If this is not possible, they might try to gain support by expanding small programs or locating physical facilities in multiple geographical locations, to win the support of multiple legislators in different states, building a coalition large enough to pass legislation.

One way to claim that a program benefits everyone is to describe what are called positive spillovers, that is, benefits that accrue to others not directly affected by a program. Backers of mass transit often argue that many others benefit from mass transit besides the riders. Drivers benefit from less crowded roads, for example, and reducing driving reduces pollution, with benefits for everyone. Even with a vivid imagination, not all program advocates can claim much in the way of indirect benefits, but it may be possible to spread the direct benefits around a bit. One way of building a geographically based coalition is to spend money on defense contracts that are managed and built in a number of states and provide thousands of jobs. Main contractors often subcontract parts of the work, gaining legislative support from more senators and representatives. The strength of such coalitions is sometimes such that even when the Defense Department backs off a project as ineffective and overly expensive, Congress keeps it going. The result is sometimes called a zombie program, one that cannot be killed but isn’t alive and functioning either. One recent example is a high-tech blimp built for the army to detect cruise missiles; in 2015, the program was seventeen years old, had cost $2.7 billion, and did not work. The huge white blimps are vulnerable to storms and are sitting ducks in any kind of combat situation. Their computer programs never functioned properly, and they sometimes failed performance tests. The blimps were also attacked by privacy advocates who feared the blimps would be used to monitor citizens’ activities. Yet the blimps lived (limped?) on.

Why did this program persist so long? The blimp program sustained jobs in Maryland, California, Texas, Virginia, North Carolina, Massachusetts, Oregon, Alabama, New Mexico, and Utah.1 In the budget for FY 2017, Congress finally defunded the program; the blimps were put in storage. Reportedly, members of Congress were upset when one of the blimps broke free from its mooring, floating over Pennsylvania, knocking out power in several places along its journey, and finally being shot by state troopers to speed its deflation. The Defense Department wanted to continue the program and even tried to reprogram funds to keep the high-tech blimp going, but Congress rejected the effort. For now, at least, the blimps are grounded.2 Because legislators have so much invested in physical facilities and workers based in their districts, closing a post office, military base, or government office in a legislator’s district is dangerous. To minimize the anger of legislators in stricken districts, military base closings have been done by an independent commission appointed by the president and approved by the Senate. In the last round of closings in 2005, money accompanied the base closings to help repair economic damage to the communities in which they were located.

In part because of reduced staffing in the military, the Defense Department has extra space (estimated to be about 20 percent of DoD property), and to save money under the sequester (the across-the-board cuts mandated in 2011), the DoD has repeatedly requested Congress to reconvene the Base Realignment and Closure Commission (BRAC), but lawmakers so far have not been friendly to the proposal. They fear the economic impact on their constituents and note how expensive prior rounds of closures have been.3 One money-saving strategy for the DoD has thus been taken off the table for the near future.

Build broader coalitions by adding constituencies. Expanding programs so more people in more places benefit is not a possible strategy for all programs, but it is often possible to add a program that serves a different constituency or demonstrate a policy goal or achievement that appeals to a different set of legislators, thus expanding the potential coalition of support. One well-known pairing occurs in the Agriculture Department, which services farmers and ranchers but also provides food programs for the poor and ensures food safety for the public, thus gaining support from legislators in both rural and urban areas. A second example occurs in transportation, which includes both highways and mass transit, serving both remote rural areas and large urban ones. These pairings have often been problematic and sometimes contradictory—food safety, for example, might require imposing costs or regulations on farmers who object to them. Supporters of highways and of mass transit have often been at each other’s throats. Yet these odd bedfellows have generally benefited from their shared berth.

Demonstrate effectiveness and efficiency. Agencies that have been criticized for inefficiency or those that have had difficulty demonstrating their effectiveness sometimes engage respected sources to do performance evaluations and then use these evaluations in budget justifications to demonstrate that they are doing a good job. If agencies can demonstrate their effectiveness in achieving goals that Congress supports, they may be able to resist budget cuts. Subtle failure to achieve congressional goals may not be life threatening, but flamboyant, undeniably public failure, as occurred with the DoD high-tech blimp, may result in budget starvation or outright termination.

Demonstrating performance became a little easier for some agencies with the passage of the Government Performance and Results Act (GPRA), which was updated in 2010. Critics have argued that Congress doesn’t use the performance measures that it asks for, but more likely, it uses the information among other sources or at intervals. The executive branch too sometimes asks for and may use performance data. In 2012, as agencies prepared to submit reduced budgets under the Budget Control Act, the director of the executive Office of Management and Budget urged agencies to use evidence and evaluation in setting priorities for their budget requests.4

Link programs to goals of (nearly) unlimited value. Examples of programs with goals of unlimited or nearly unlimited value include national security, economic development, and job creation. Saving lives also fits into this category. Administrators who succeed at this strategy do not have to prove efficiency or even effectiveness.

Public employees trying to hang on to their pensions in states eager to reduce them argue that, collectively, retirees have a major impact on local economies, implying that cutting their pensions would pull the rug from under the state’s economy. Firefighters asking for an additional ambulance note that every moment after a heart attack reduces the chance of survival, and further, that emergency medical technicians can revive people whose hearts have stopped. They thus link their budget request to a goal of unlimited value. (For an example of how this strategy has been used successfully, see the following minicase on Homeland Security; for an example of a failed attempt to use this kind of strategy, see the minicase on the Amtrak train wreck on page 165.)

Minicase Homeland Security—A Program Tied to a Goal of Unlimited Worth

If an agency can make the case that what it is trying to accomplish is so valuable that it is in fact priceless, it can write its own ticket, and it won’t be judged or evaluated in terms of whether its programs achieve their goals or whether the spending is cost-effective. One example is the Department of Homeland Security after the terrorist attacks of September 11, 2001.1

1 Anita Dancs, “Homeland Security Spending Since 9/11,” June 13, 2011, http://costsofwar.org/sites/default/files/articles/23/attachments/Dancs%20Homeland%20Security.pdf.

As Richard Clarke, the chief counterterrorism adviser on the National Security Council, described, “As soon as we went to the Congress, they said, ‘Just tell us what you need.’ Blank check.”2 The budget allocation to the Department of Homeland Security was also described as “a candy store without a price tag.”3

2 Quoted in Public Broadcasting Service, “Frontline: Are We Safer?” www.pbs.org/wgbh/pages/frontline/are-we-safer/etc/transcript.html.

3 Anthony Cordesman, Center for Strategic and International Studies; ibid.

The budget more than tripled from 2001 to 2013, and certainly would have been unsustainable if it had continued to grow at that rate. But the spending peaked in 2006 at $69 billion, then dropped, and with some variability, stabilized at about $45 billion a year. (See Figure 5.1 for a graphic illustration.)

Figure 5.1 Federal Homeland Security Spending (in billions)

Source: U.S. Office of Management and Budget, “Budget of the U.S. Government: Historical Tables,” Table 4.1. F.Y. 2017. Department of Homeland Security.

The strategy of using a disaster to motivate support for a spending proposal failed after a major bridge collapse in Minneapolis in 2007. Major highways in the United States are supported by federal grants, but the formula for distribution of the funds allocated 25 percent of the money to all states, regardless of need, leaving the states with more urgent needs with less money. The formula reflected the political requirement to extend the geographic benefits widely to get enough congressional support to pass the legislation.

But in Minneapolis’s case, there was another underlying cause both of the bridge collapse and the inability of the federal government to respond to the general problem of underfunding of bridge repairs. The money that states do receive need not be spent for bridge maintenance and repair. Many state legislators prefer to spend the federal money on new or expanded roads rather than bridge repairs, because developers who sometimes contribute to campaigns want the new projects. In the three years prior to the bridge collapse, legislators in Minnesota had diverted 50 percent of their bridge funding away from bridge repair and maintenance.5

Minicase Amtrak Train Wreck

Sometimes the claim that spending more money after a disaster will save lives does not work. If opponents of a specific spending proposal can delay action long enough so that memory of an accident subsides, they can often derail budget increases. In 2015, there was a massive Amtrak train wreck in Philadelphia, with loss of lives, on a stretch of track that lacked a functioning safety feature (called positive train control) that would have slowed the train going into a curve and may have prevented the accident. One reaction to the accident was a Democratic amendment to the transportation appropriation for $825 million for technology improvements for Amtrak. The House Appropriations Committee voted down the amendment and voted for a 20 percent cut to Amtrak’s budget.

When the transportation appropriation bill came to the House floor, a group of Democrats moved to increase spending for positive train control to $750 million. The proposal was defeated, 182–241.1 Opponents of spending for Amtrak argued that cuts were needed to stay under the 2011 caps and that the cause of the accident was not definitely known.2 It would be some 18 months before the investigation of the cause of the crash would be completed and made public, by which time the sense of urgency would have long since passed. Some have argued that the loss of life from train accidents is negligible and that the money would be better spent on other safety advances, such as passenger underpasses that would prevent riders disembarking from trains from walking across the tracks. The political lobbying firm Capstone explained the reluctance to fund Amtrak in political terms: The main routes of Amtrak are in the Northeast, and there are many more riders in Democratic districts than in Republican ones. Hence the lack of Republican support for the Amtrak budget.3

1 Keith Laing, “House Dems Seek to Boost Funding for Automated Trains,” The Hill, May, 19, 2015, http://thehill.com/policy/transportation/242556-house-dems-seek-to-boost-funding-for-automated-trains).

2 Heather Caygle, “House Panel Votes to Cut Amtrak Budget Hours After Deadly Crash,” Politico, May 13, 2015, http://www.politico.com/story/2015/05/amtrak-budget-house-panel-crash-117904.html.

3 The Washington Report, May 15, 2015, http://capstonenationalpartners.com/the-washington-report-may-15-2015/.

The minicase is not about who is right and who is wrong on this issue; it is about the pressure to do something after an accident and the response of delaying, and hence possibly derailing, action to prevent a reoccurrence.

After the bridge collapse with loss of life, Democratic representative James Oberstar advocated a dedicated source of funding for bridge maintenance, repair, and replacement for the national highway system. Oberstar’s proposal passed the House by a wide margin in July 2008, passed a Senate committee, and died right there. Later, in 2012, legislation (Pub. L. 112–141) eliminated the Highway Bridge Program, allowing further choices between new road projects and bridge repairs. That shift reflected the political choices being made at the state level throughout the country. In addition, the ban on earmarks that included transportation projects made it more difficult to get money for specific, geographically limited projects that had no way of gaining nationwide support.

Make programs look cheap or free. Opponents of spending proposals often argue that programs will cost too much or would require a tax increase, which is considered a political nonstarter. Program advocates have an easier time gaining approval for their requests if the costs are moderate or the program seems free. One budget strategy therefore is to make programs look inexpensive, by underestimating the costs or spreading them out over several years. Loan programs, because they appear free or nearly free, are easier to sell than grant programs, which clearly cost the government money. Those who wish to curtail a program or cut its budget often work to make invisible expenditures clearer or exaggerate the costs in a variety of ways, for example, by reporting many years of expenditure in a single budget rather than just one. The result of this strategy is to create a politics of cost estimation, where advocates’ and opponents’ estimates battle each other. In the midst of competing estimates, elected officials need a neutral analyst. (See the minicase on the Congressional Budget Office on page 167.)

One example of the kind of magical thinking that can result from supporting spending programs while seeming to avoid tax increases to pay for them occurred recently in Indiana. Governor Mike Pence proposed a billion-dollar spending program on highways over four years, pledging that it would not result in any tax increases. The proposal would be funded by drawing down reserves that normally are set aside to moderate cuts during a recession and by borrowing. Pence did not discuss how the debt would be repaid or how the reserve fund would be rebuilt.

Sometimes a program can be made to look more or less expensive by a change in accounting and reporting rules. Education loans and loan guarantees provide one example. (See the minicase about higher education loans on page 169.) In the example of college loans, the choice of structure of program delivery affected how expensive programs looked, what the actual costs of the program were, and how the benefits were divided among groups of claimants. The structure also influenced the vulnerability of the program to corruption.

Minicase Congressional Budget Office and Scoring

How can you make a program look cheap or free? Advocates of a program might estimate costs low and benefits high; opponents do the reverse. Neither one has complete credibility. What is needed is a neutral arbitrator whose estimates are widely accepted, an office staffed with technically competent modelers who examine proposed legislation and report on its likely impact, in terms of cost, benefits, impact on the budgetary balance, and compliance with rules. At the national level, that office is the Congressional Budget Office. CBO staff score, that is, estimate the impact of proposed legislation according to a set of rules. As the agency scores proposed legislation, it can puncture a political claim, thwart a policy, kill or support proposed new programs or program expansions, and point out violations of laws and rules. To do this successfully, the legislative budget office must have a reputation as a neutral arbiter that does not bend the rules according to political party allegiances or policy preferences.

The CBO earned a reputation for being nonpartisan and, as a result, became a critical actor in some major policy decisions. During the Clinton administration, the president’s proposal for health care reform was defeated, in large part because of a CBO judgment that costs that the government imposed on the private sector counted as governmental costs, even when they did not directly impact federal spending. The result made the program look too expensive. More recently, when the Obama administration pushed for health care reform, despite considerable skepticism on the part of the public and many budgeteers, the CBO estimated that the legislation would help balance the budget, as the president claimed. Had CBO ruled otherwise, it is doubtful that the controversial legislation would have passed.

In 2015, Congress mandated the CBO to use a scoring rule, called dynamic scoring, whenever feasible. Dynamic scoring requires an estimate not only of the direct costs of legislative proposals but also the long-term impacts on the economy. The methodology for doing such analyses is crude. The major reason for the change is to make a tax reduction look less expensive by offsetting the costs with (uncertain) future economic growth.

CBO was in a difficult spot in 2017 when Congress was considering a major tax reduction. It was supposed to report on the size of the stimulus effect of the tax reductions on the future growth of the economy, but without a generally accepted way of doing so. CBO used the estimates of the Joint Committee on Taxation, and then examined the tax legislation to see what behavioral incentives were included and how that might change the economy; it also looked at how the tax legislation might influence disposable income in different income groups, assuming different propensity to spend disposable income, and how that might drive the economy. CBO also looked at the impact of increased borrowing and the impact of the cost of borrowing on the private sector. Putting all this together, but without adding “macroeconomic effects,” CBO predicted the rate of growth of the economy would not be sufficient to offset the costs of revenue reduction and economic growth would be way slower than the president claimed. (The Joint Committee on Taxation did include dynamic effects, in some of its analyses, coming up with a somewhat smaller increase in debt than the CBO, but also found the tax reduction would nowhere near pay for itself.)

Early in February 2018, the House Budget Committee held five oversight hearings on CBO—an unusual number for a single agency—concerning how CBO made its estimates and with what assumptions. From the questions members asked, CBO’s modeling was an ongoing concern. One legislator testified that he had introduced a bill that would require CBO to share all its models and assumptions with members and the public (the CBO Show Your Work Act) so members could take CBO’s models to other organizations or experts, check them, and run them with different assumptions. The bill was referred to committee, but as of August 2018, had not come up for a vote. CBO’s response was that there are many ways to become more transparent, the office welcomes questions and opportunities to explain what it does and how it does it, but that perhaps sharing the algorithms and details of every model used was not the best way to be more transparent, in part because some of the data the office uses are private.

The hearings demonstrated a fair level of support for CBO as a neutral analyst on which Congress depends, but they also revealed the continuing pressure on the agency to make it easier for members to design legislation to win favorable scores from CBO. Being the agency that sometimes says this legislation is too expensive or will not do what you argue it will do, puts the CBO continually in the line of fire. Maintaining its neutrality is essential, but the agency is often criticized and pressured to use particular assumptions and come up with favorable reports. (For more on the Congressional Budget Office and its role in health care legislation, see Philip Joyce, The Congressional Budget Office: Honest Numbers, Power, and Policy Making [Washington, DC: Georgetown University Press, 2011]).

Backlog. If an agency can claim that it has an unacceptable backlog of work, say issuing passports or visas, or court caseloads, it may be able to make the case for an increase in budget. A whistle-blower after 9/11 charged that the FBI ordered translators to slow down, to create a backlog so it could use that backlog to justify an increase in budget and staffing. (The Department of Justice inspector general was not able to find sufficient evidence of intentional slowdown as a budget tactic.) Whether the backlog was intentional or not, the FBI has continued to use backlogs as justifications for more budget and staff, as seen in their budget request to Congress in 2016.6 Backlogs of vital work of interest to the president and Congress are commonly used in budget justifications.

Structure

While strategy is important, it is far from the only factor in determining winners and losers. Program structure is also important. One major distinction between program structures is between discretionary and mandatory programs. Another important distinction has to do with the strength of walls around a program, that is, whether it has a dedicated source of revenue and how easy it is to transfer money out. The process of budgeting, the predictability and controllability of costs, and the degree of competition any program faces depend on program structure.

Two examples illustrate different impacts of structure on expenditures. The first is about the federal college loan program, where the structure influences how expensive the program looks; the second is about budgeting for immigration enforcement (see the minicase on page 171), which suggests the impact of openness to the environment on the unpredictability of expenditures and describes the implications for budgeting when one agency controls the demand for services from a second agency.

Minicase Budgetary Implications of Direct College Loans Versus Loan Guarantees

The federal government has for years loaned money or guaranteed the loans of students paying their college or graduate school tuition. The idea was to provide loans to students who had no income and nothing to offer as collateral and hence would have to pay unaffordably high rates to banks. Direct loans from the government looked low cost, until credit reform in 1990 made their real costs more transparent and made full costs visible in the year when the loans are issued. By putting the total costs over the life of the loans up front, loans appeared more expensive than loan guarantees run through private banks. In the loan guarantee program, banks lend money to students, while the federal government reduces the risk to lenders by committing itself to repay the loan if the student defaults. With zero risk, banks can afford to lend money to students at much lower interest rates than in normal unguaranteed loans. In fact, however, the complex program of loan guarantees run through private sector, profit-making banks was more expensive than the direct lending program. As a result, in 1993, a historic agreement to begin to restore the budget to balance included a provision to phase in a program of direct lending until the ratio of direct government loans to government guaranteed loans reached 60 percent.

In 1994, Republicans took control of both houses of Congress. The new Republican leadership in Congress slated the direct loan program for termination, preferring the program that worked through the private sector, allowing the banks to loan money risk-free and make a profit from those loans. But many universities and colleges preferred the simpler direct loan program. The result was a compromise that forbade the Department of Education to encourage or mandate the direct loan program but allowed the private sector lenders to openly compete for the business. The consequence of the private sector’s efforts to gain the loan business caused a shift back toward guaranteed loans but also resulted in a set of scandals revealed in 2007, involving kickbacks to universities to steer students to the private loan businesses. The kickbacks resulted in higher loan costs to students. The scandals fed pressure for publicly provided direct loans.

By 2008 and 2009, the economic environment had changed. The housing market sank in 2008, banks had little money to lend, and many opted out of the loan guarantee program. In the crisis, the federal government created a temporary program to buy the education loans of the private sector banks, creating a pool of funds that the banks could then relend. Ultimately, the reduced costs of direct loans compared to loan guarantees won out in tight government budgets and the loan guarantee program was terminated in 2010.

In this example, the portrayal of program costs as higher or lower influenced the outlays and choice of program structure between direct government loans and loan guarantee programs run by the private sector and backed by the government. Another factor was political contestation between ideologies and parties in 2004 (direct government programs on the left versus programs provided by the private sector on the right). Beginning in 2008, the economic environment, which reduced the amount of money that banks had to lend, and growing federal deficits created pressure to choose the more cost-effective program. Scandals among businesses competing for the loans, uncovered by news media, probably also played a part in taking the luster off the private sector provision of loans.

Sources: New America Foundation, “Federal Student Loan Programs History,” http://febp.newamerica.net/background-analysis/federal-student-loan-programs-history;

Associated Press, “College Loan Program ‘Like Peeling an Onion,’” April 10, 2007, MSNBC, www.msnbc.msn.com/id/18040824/ns/business-personal_finance/t/college-loan-scandal-peeling-onion/#.UAxX25HYF6E.

Minicase An Open-Ended Discretionary Program—Immigration Enforcement

Budgeting for immigration enforcement, including border patrol, detention facilities, and judicial procedures, is complicated and unpredictable. Immigration enforcement is open ended and demand driven, based in part on the number of illegal immigrants trying to cross the border, a number which varies depending on economic conditions in the home country and in the United States. It also depends on policy, because the level and type of enforcement at any time influences the number of potential immigrants to be housed in detention facilities, the number of immigration hearings to be held, and the number of prosecutions for criminal activity. Two executive branch departments are involved, the Department of Homeland Security, which does the enforcement part, patrolling the borders and capturing border crossers, sometimes detaining them; and the Department of Justice, which is responsible for the administrative hearings and criminal trials. The decisions of the Department of Homeland Security affect the numbers of people processed by the Department of Justice, but there is often inadequate communication and coordination between the two, not only on policy but also on budget requests. As government staff try to adjust to fluctuating workload within a budget that cannot possibly keep up with changing demands, they sometimes work faster or adopt technical solutions, such as having judges hear cases remotely or putting four or five defendants into one trial.

Budgeting for immigration control is difficult, not only because of the unpredictability of the numbers of people who will be caught at any time but also because of the program structure: there are three different agencies within Homeland Security that are active in pursuit of law breakers and two different departments, with separate budgets, separate budget priorities, and different appropriations subcommittees that make decisions without much reference to each other.

The result is uneven treatment. The courts sometimes get overloaded, resulting in long backlogs and judgments that are not well researched. While it is possible to deport someone summarily, without a trial, those who get a trial may have long waits because of the shortage of judges. After a slight dip in the number of cases in 2006, there has been a steady rise in the size of the backlog, and correspondingly, the number of days that the typical individual must wait for their day in court. As of April 2017, the number of cases waiting for a decision had reached 585,930 with an average waiting time of 670 days. In the courts with the largest backlogs, the wait times are even longer. San Francisco has some individuals waiting more than five years (Tracimmigration, http://trac.syr.edu/immigration/reports/468/). The structure of the program, its open-endedness and unpredictability, and the shared but uncoordinated responsibilities of two executive departments resulted in inadequate budgets and uneven justice—some would argue injustice.

Sources: Suzy Khimm, “Many Immigrants Facing Deportation Must Wait 550 Days for Their Day in Court,” Washington Post, February 22, 2013, http://www.washingtonpost.com/news/wonkblog/wp/2013/02/22/many-immigrants-facing-deportation-must-wait-550-days-for-their-day-in-court/;

Steven Redburn, Peter Reuter, and Malay Majmundar, Budgeting for Immigration Enforcement: A Path to Better Performance (Washington, DC: National Academies Press, 2011).

Discretionary Versus Mandatory Programs

A major distinction in structure of spending at all levels of government is the degree of discretion that officials have over spending. In so-called discretionary programs, officials can choose (control) the level of spending, increasing some and decreasing others, as long as they stay within overall revenue constraints. The level of competition is usually very high in discretionary programs—roads compete with mass transit, capital spending for construction may vie with operating budgets for salary and benefits, or programs for local police communications might compete with drug interception programs. Discretionary programs include direct service provision, such as police and fire at the local level, some grant programs, and many loan programs. Even spending for open-ended programs like immigration enforcement can be controlled, cut, or capped, although the result may be overloaded judges. By contrast, with mandatory programs, budgeters have less discretion. The spending may be automatic, based on need, demand, contract, or formula. Mandatory programs include debt repayment and entitlement programs like Medicare and Medicaid. They also include some state payments to local governments. Mandatory programs generally face lower levels of competition: They normally come first, while discretionary programs compete for the rest of the available pool of revenue.

Discretionary Programs: Direct Service, Grants, and Loans

The costs of some types of programs are more controllable during budget preparation than others. Budgeters work out how much a program is likely to cost during the budget year (or biennium) and allocate some or all of that amount to the program. Program administrators work to keep within those spending limits. If a school system gets a budget that is less than what it estimated it needed, it may have to reduce service levels by reducing the number of staff and increasing class sizes or eliminating courses, such as language or music classes, or it may delay necessary building maintenance. Direct service, some grant programs, and loans and loan guarantees fall in the category of more controllable—discretionary—programs.

Direct Service.

At the national level, an example of direct service provision is the Department of Defense, which hires soldiers, buys planes and weapons, and fights wars. At the state level, highways, courts, and prisons are examples of direct service provision. At the local level, public schools, street cleaning and repairs, water and sewer service, and fire and police are direct service programs. Direct service programs do not just hand out money, they do something—put out fires, arrest criminals, fill potholes, or fly planes and drop bombs.

The cost of direct service programs can usually be estimated reasonably well in advance, but they are open to the environment. For example, budgeting for snow removal in the northern part of the country is difficult, because the timing and amounts of snowfall are unpredictable from year to year. Border protection costs depend on the number of people trying to get across illegally and the costs of detention centers depend on the number of people arrested. (See the minicase on immigration enforcement below.) Many services are demand based, such as fire calls or homeless shelters. To deal with such uncertainty, budgeters may have to estimate expenditures high, save money in a contingency fund, or build up fund balances from year to year to be in position to deal with an unusual demand situation—heavy snow, a hurricane with massive flooding, or a huge wildfire. Or they may have to stretch their existing resources in some way, requiring overtime, increasing workloads, or adopting new technology.

Grant Programs.

An intergovernmental grant is a monetary award from a higher level of government to a lower level or from government to a nonprofit organization. Grant recipients may have more or less discretion about how the money can be spent. Grants may be highly specific about what may be done with the money, like giving a gift card that can only be redeemed to buy a pair of shoes, or they can be fairly broad, enabling the recipient to buy any of a variety of related goods. A broad (or block) grant might be for any public safety improvements, any of a variety of street improvements, or any of a range of social services.

The total amount of grants can be capped; capped grants are predictable in terms of costs. While many grants are discretionary and can be estimated in advance and reduced if needed by the donor government, some have more open-ended or automatic features, such as formulas, or have some mandatory features, such as California’s constitutional requirement to make up for school revenues taken by local development districts.

The grants may come with strings, such as a requirement for matching contributions or requirements for maintaining previous levels of spending so the grant actually increases the amount of money spent on the target programs. Sometimes grants include mandates about tangentially related matters, such as requiring the states to have a legal drinking age of twenty-one; failure to comply with such requirements may result in reductions in grant amounts.

The purpose of intergovernmental grants is to encourage a given activity. Officials are likely to invest in activities where they get many grant dollars, even when those are not the top state or local priorities, because with grant funding, these activities look cheap or free to local residents who do not have to pay for them out of local taxation.

Grants are ways that the national government can get states to carry out federal policy mandates; they offer incentives to engage in certain activities or increase services levels. This tool is thus of critical importance in a federal system where the national government has limited authority to order states to carry out national policy. This system of grants has a weakness, in that the dollar amounts of grants may not match the costs of policy mandates, creating unfunded or underfunded mandates. State or local governments may be required to carry out particular policies but not be given enough money to do so. And sometimes, there may be questions about exactly what, when, and how much the federal government can require as a condition of grants. The Trump administration has threatened to cut the grants to the state and local governments that refuse to comply with his anti-immigrant policies—the so-called sanctuary and welcoming states and cities. (See the minicase below.)

Minicase Trump, Immigration Enforcement, and the Threat of Grant Denial

In our federal governmental system, the states retain considerable autonomy and sovereignty. Responsibility for immigration enforcement rests with the national government; in this, as in other areas, the national government may not force the states or local governments to carry out its laws, though it may solicit voluntary cooperation. President Trump issued an executive order shortly after his inauguration, threatening to cut off all federal funding for state and local government programs if a state or local government does not agree to provide information on illegal immigrants and detain prisoners after their sentences are served until federal immigration staff can collect them.

This policy was problematic for several reasons. First, while some grants build in the possibility of discretion for departmental officials, many are formula based and directed by Congress, with minimal discretion for the executive. Second, even if the threat of cuts in funding is limited to grants related to law enforcement in which there is discretion, the policy implies force, not cooperation between the states and the federal government, and hence may be unconstitutional under our federal system.

Quickly challenging the executive order in court, San Francisco and Santa Clara County charged that the president was usurping congressional powers by changing the conditions attached to grants and was illegally coercing state and local governments. Responding to these charges, a court in California issued a preliminary injunction, blocking the executive order from being implemented. The judge argued that the executive order would cause immediate damage to the plaintiffs and they had a good case that would likely win. The administration backed down a bit, narrowing the definition of sanctuary city and limiting the types of grants that could be blocked. Nevertheless, in November 2017, the California judge made his ruling permanent.

So, the president could not deny sanctuary cities and states all funding, except as mandated by law, as he had wanted to do, but the Department of Justice (DOJ) continued to threaten sanctuary cities and states with denial of justice and policing grants. The DOJ had more discretion over these grants, but Chicago claimed that the denial of public safety grants violated separation of powers and violated citizens’ rights not to be held in custody without being charged. A federal judge agreed that the DOJ had overstepped its authority, substituting its own policies for congressional ones. He initially issued a temporary injunction against the DOJ, citing irreparable damage that would likely occur to the city’s relationship with its immigrant community under the DOJ policy, and later refused the DOJ’s request to narrow his injunction just to Chicago. The DOJ appealed the judgment and continues to threaten cities, calling them in violation of laws, and demanding proof of conformity with DOJ policies. Los Angeles sued the DOJ over its scoring of grant applications that awarded extra points to cities that complied with DOJ demands on immigration; in April 2018, the city won its case. The ruling will apply nationwide.

Loans.

Governments at all levels—federal, state, and local—may offer loans at below-market rates. Loan programs from the federal government help businesses recover from disasters, help states deal with high unemployment rates, or as described earlier, help students pay for college tuition. They help veterans buy homes. Compared to direct grants, these programs look very inexpensive, because the loans are normally repaid with sufficient interest to cover most if not all the defaults. Their relative inexpensiveness has advantaged this type of program. While the initial amounts to be lent are easily determined and controlled, if default rates should be higher than anticipated, the funds can run out of money.

Mandatory Programs

Mandatory programs are those for which the government has a legal obligation to pay, and where the payment is automatic. They represent commitments made in the past that are paid in the present. They include entitlements, debt repayment, loan guarantees, and pensions. Court orders also can be considered mandatory. Budgeters do not directly control the amounts in any given budget year; whatever the costs turn out to be, they have to be paid. Future costs can be reduced or increased by changing the design of the program or reducing borrowing; but for the current budget year, the costs are what they are. This is when you pay for the goods and services you bought last year or ten years ago, and you do not have a second opportunity (usually) to undo those purchases or bargain over price. The costs of mandatory programs are sometimes difficult to predict.

Entitlements.

Entitlements are open ended. Total spending is not determined in advance. Every person or business or government entity that meets given criteria is “entitled” to—that is, has a legitimate claim to—a predetermined level of benefits. The actual cost in any year is the result of the size of the benefit, which is usually known, and the number of applicants, which usually is not known in advance. Costs are controlled going forward by either reducing the size of benefits or tightening up the eligibility requirements, so that fewer individuals, businesses, or government units qualify for benefits. Entitlement costs are sometimes called uncontrollable, which is misleading, because they are not uncontrollable but require a different kind of legislation, a redesign of program characteristics rather than a direct spending limit.

Even with program redesigns, however, entitlements remain open to the environment, because actual costs in any given budget cycle depend not only on the number who are eligible for benefits, but also on the number who actually apply for benefits. Entitlements are therefore less deterministic than discretionary programs, and absent the political will to reduce benefits or curtail eligibility, program costs may grow out of hand.

It is not just that entitlements are less predictable than discretionary programs; they reduce the flexibility in the budget, because their claim on the budget takes priority over the discretionary programs that are structurally easier to cut on short notice. What makes entitlement spending particularly problematic for budgeters is that the revenues that pay for them tend to decrease just as more people become eligible for them during a recession. Entitlements may consequently result in deficits or cuts in discretionary programs.

Debt Repayment.

Governments incur debt for a variety of reasons, and that debt must be paid back in a timely fashion, with interest. Debt repayment often comes first in a budget. At the state and local levels, it may be possible to borrow when interest rates are low and use the proceeds to pay off more expensive loans, thus reducing the debt burden. Debt can sometimes be spread out over more years, substituting a new, longer-term note for an older, shorter-term one, thus reducing the annual payments, if not the total amount borrowed or the interest rate. With these exceptions, debt is rigid; debt locks in future payments, which means that it locks in past priorities. If you borrow to pay for a project, then the next administration is stuck paying for your project, even if it would have preferred to spend the money on something else.

Repudiating public debt is rare. It is not possible for the national government to declare bankruptcy, and generally speaking, it is not possible for states either because, to be eligible for bankruptcy, states would need to be able to prove that they absolutely could not raise taxes to pay the bills. Some states allow their local governments to declare bankruptcy. Local governments, controlled by the states, might actually be in a position in which they cannot raise taxes. One of the key issues in a state’s decision about whether to allow a local government to declare bankruptcy under federal law is which of the local government’s creditors will not be paid. Under a bankruptcy proceeding, all creditors are likely to take a hit, including banks or bondholders. When the state steps in and takes over local finances, there is more discretion about canceling and renegotiating labor contracts, cutting pensions, selling assets, or cutting services more deeply. A state receiver, taking over a local government’s finances, can decide that employees’ wages will be cut but bondholders will get all that they are owed or vice versa.

Pensions and Other Post-Employment Benefits.

Pensions and other post-employment benefits, such as health insurance, are a form of delayed payment for services already received. Employees get some of their wages when they work and the rest after they retire. Because governments have already received the benefit from the work of the employees, the governments they worked for are obligated to pay the rest later. These payments become controversial when state and local governments fail to put aside enough money in current budgets to pay for future benefits. In defined benefit pension plans, the costs to government depend on how old people are when they retire, how long they have worked at what salary levels, how long retirees live and continue to collect their pension, and on the rate of inflation. A market crash may reduce the value of the money that the government has invested to pay the pensions, requiring additional contributions. Whatever the costs, the governments are obligated (mandated) to pay them, but as demonstrated in Chapter 2, raising taxes is difficult or impossible. Raising them to pay for public pensions would be highly unpopular.

Not everyone agrees that delayed compensation is a mandate, and many elected officials would like to just reduce what they owe, abandoning health insurance for retirees, requiring larger employee contributions to pensions and health insurance, and reducing cost-of-living adjustments for those already retired. Less drastically, many governments are redesigning pension systems to make them more affordable going forward. One popular proposal is to eliminate defined benefit plans, the cost of which varies with the return on investment, pushing up costs when recessions pull revenues down. Recommendations include substituting defined contribution plans, in which government employers contribute a fixed sum each year, regardless of what the stock market does, how long people live after retirement, or what the rate of inflation is. From the employees’ perspective, this is a greatly reduced benefit that leaves them with considerable financial insecurity.

With mandatory expenditures, the costs may rise beyond expectation or affordability, tempting some to want to change mandatory programs to discretionary ones that can be more easily predicted, controlled, and cut back.

Constitutional and Court Requirements.

If the Constitution or a court directive requires a given payment, that directive is a mandate, and it thus must be paid. Courts have ruled that some jails or prisons are overcrowded, resulting in inhumane conditions. The Constitution bans cruel and unusual punishment, and so the governments responsible for overcrowded jails or prisons have to pay for new or expanded facilities or divert some prisoners to other facilities or to house arrest or change the laws so that not so many people are incarcerated. Government can be mandated to spend money on something, regardless of whether the budget has sufficient revenue to cover the costs. Constitutions are supposed to trump every other card, other than bona fide emergencies, creating a nonnegotiable mandate. (See the minicase on California and redevelopment agencies below, for an example.)

Minicase California and Mandatory Spending on Redevelopment Agencies

In California, there was no discretion in the state’s responsibility to replace funds lost to the school districts when redevelopment agencies took (legally) some of the schools’ revenue.1

Citizens in California had passed Proposition 98 in 1988, a constitutional amendment requiring the state and local governments together to maintain a minimum level of education funding, determined by formula. So, when local redevelopment agencies began to rely heavily on a form of financing called tax increment financing (TIF), allowing cities to use revenue for their economic development projects that would otherwise have gone to the school districts, the school districts lost the use of those funds and the state was required to make good on the losses. While the legislature can suspend these payments to the schools by a two-thirds vote for a single year, the result is higher payments in following years to catch up. This state spending is automatic and unavoidable, because it is constitutionally mandated.

Proposition 13 in California had limited property tax assessments, curtailing local revenues. One adaptation was for local governments to expand the tax base through TIF funding. The dollars involved were huge and getting larger year by year. In the Great Recession, California was hard hit; the state could not afford to keep paying the school districts to replace the money they lost to TIF, but neither could it violate the constitution. The governor argued that the money would be better spent directly on the schools instead of redevelopment activities, so he proposed elimination of the redevelopment agencies.

The state offered the local governments the option of keeping the development agencies if they voluntarily made the school districts whole; in other words, if the cities instead of the state replaced the schools’ losses from the TIF. The court ruled this latter option illegal, so the economic development agencies were terminated.

1 Mac Taylor, “The 2012–13 Budget: Unwinding Redevelopment,” California Legislative Analyst’s Office, February 17, 2012.

In recent years, some governors have been treating court mandates as something they can resist in various ways. In Illinois, when the government was without a budget because the Republican governor and Democratic legislature were at loggerheads, the governor insisted that regular state employees continue to work and get paid but blocked payment to many nonprofits serving needy populations. When an agency serving the developmentally disabled sued, a federal court mandated the state to pay up, but the governor failed to do so, claiming lack of funds. Washington state ignored court requirements for school funding for three years before the court imposed huge fines. As described earlier, the State of Kansas has been wrestling with the courts for many years over required education funding, which was cut back during the Great Recession and not restored afterward. This sharp uptick in conflict can result in huge fines or school shutdowns as well as drawn-out and expensive court fights.

Walled Programs, Earmarked Revenue

Some programs are broken out of the general budget, have earmarked revenue or raise their own nontax-based funds, do not compete for funds with other programs, and may spend their money only for designated purposes. These include special districts, government-sponsored enterprises, and trust funds.

Government-Sponsored Enterprises.

The federal government has set up a handful of government-sponsored enterprises (GSEs). These are quasi-public, quasi-private organizations. On the private side of the ledger, these GSEs are businesses that bring in their own revenues. GSEs are privately owned, some by investors, others by their borrowers. GSEs do not have the power to tax, and their staff members are not government employees. However, on the public side of the ledger, they pay no federal or state income taxes and they have implicit—but not explicit—government backing. They are created by an act of Congress and their scope of responsibilities is limited by government charter. They can borrow and loan money and issue loan guarantees. The purpose of the federal GSEs is to make credit markets work more smoothly. This odd structure has been problematic. (For the dramatic history of two large federal GSEs, see the minicase “Fannie and Freddie” below.)

Minicase Fannie and Freddie: Government Bailout, a Loan, or Investment?

The national government includes two huge government-sponsored enterprises (GSEs): the Federal National Mortgage Association (FNMA), nicknamed Fannie Mae, and Freddie Mac, the Federal Home Loan Mortgage Corporation (FHLMC). The goal of these two GSEs is to make more mortgage money available to lend. They buy mortgages from commercial lenders. The commercial lenders who sell their mortgages to Fannie and Freddie get their money back immediately rather than over the life of the mortgage, and thus can relend it immediately. Over the years, these GSEs have made money, requiring no taxpayer support, but they had implicit federal government and taxpayer backing, which enabled them to borrow at below-market rates and improve their profitability.

In the 1970s and 1980s, Fannie and Freddie began to issue mortgage-backed securities; that is, they bought mortgages, insured them, pooled them, and sold shares of the pool. They also held some of the mortgages in their own portfolio.

As commercial lenders accepted more and more high-risk borrowers before the bubble in property prices burst and as variable mortgage rates became more popular, Fannie and Freddie came to hold a riskier portfolio. When the real estate market collapsed and the foreclosure rate skyrocketed, the value of the portfolio declined. The GSEs had to make good on their guarantees to buyers of mortgage-backed securities. Investors lost confidence: Shares of Fannie and Freddie tumbled more than 90 percent in one year. Fears of undercapitalization led investors to worry that the GSEs might declare bankruptcy.

In September 2008, the government took over both Fannie and Freddie. For now, a federal regulator makes their business decisions. Estimates of the cost of the bailout have varied, but the figure mentioned most often is about $187 billion. The implicit government backing of the GSEs, along with the impact on the housing market and economy of failure of these two giants, made it desirable for the federal government to bail out these two quasi–private sector organizations, at great public cost.

During the federal bailout and takeover, the implication was that when the GSEs had recovered, they would be returned to the shareholders, but that did not happen. When Fannie and Freddie returned to profitability, in 2012, their profits became revenue for the federal government. The bailout was treated not as a loan, but as an investment, and hence the agreement was written in such a way that Fannie and Freddie could not pay off the original bailout, no matter how much money they turned over to the government. As of 2017, they had turned over $270 billion, considerably more than the estimated $187 billion cost of the bailout.1

1 Gretchen Morgenson, “Fannie and Freddie and the Secrets of a Bailout With No Exit,” New York Times, May 20, 2016, https://www.nytimes.com/2016/05/22/business/how-freddie-and-fannie-are-held-captive.html.

Although the GSEs have become a good source of revenue for the federal government, the Trump administration has expressed an interest in ending their conservatorship after reforms that would minimize risk to the tax payers. Congress was considering various reforms in early 2018 but had not yet come up with a single approved plan; in the meantime, the GSEs continued to turn over their profits to the treasury, despite multiple lawsuits of investors wanting their share of the profits.

Publicly Owned Enterprises.

Privately owned, government-sponsored enterprises are characteristic of the federal government, while state and local governments sometimes spawn enterprises that are fully government owned. Common examples at the local level are golf courses, electricity production, water works, airports, and sewage treatment plants. Public transit is also often run as a public enterprise. At the state level, tollways and lotteries often operate as publicly owned businesses. These enterprises provide some or all their own revenue from fees for service. Their revenues are generally restricted to paying for their own operations, though they are sometimes required to subsidize other governmental functions and sometimes they are subsidized by general taxation. Because they are mostly if not completely walled off from other programs, the level of competition between them and other public programs is generally low.

Programs that bring in their own revenue in the form of fees or charges for service may seem free or cheap and so escape the scrutiny that other programs confront. Their budgets may be relatively secure in the sense that they are unlikely to lose their revenue to other programs. However, to the extent that their charges are market based and their services discretionary, program managers may have to worry about how high they can set fees without losing customers. This situation would apply to public buses, golf courses, and water parks, for example. But when the charges are for services that people must have—for instance, water or sewer services—determining the appropriate rates may be a political process and service quality may be a public controversy. Some local governments buy and resell electricity, using the profits to spend on other services to hold down unpopular property tax rates.

Trust Funds.

Government trust funds allow very little discretion. They tie a given revenue source or tax amount to a specific spending program. The earmarked revenue can be spent on nothing other than what the trust fund specifies is legitimate and approved.

Budget analysts are quick to argue that there are no real trust funds in government, because elected officials can change the revenue stream or the spending constraints. What we have in government is a structure like a trust fund but not as inviolate. (See, for example, the minicase on New Jersey’s fund diversion on page 183.) This structure is called a trust fund, for lack of a better term. Examples of these government trust funds at the national level include Medicare and highways. The former is paid for through a payroll tax and premiums paid for by retirees; the latter is funded through gas taxes. Unemployment insurance is a joint program between the national government and the states; the revenue mostly comes from a tax on employers, though in some states employees also contribute, and fund balances draw interest. This money is held in trust funds until it is spent to support unemployed workers. Many states have transportation trust funds. At the state and local level, pensions are held in trust funds.

Minicase New Jersey’s Fund Diversion From the Unemployment Insurance Fund

Public sector trust funds are less than inviolable because elected officials can change them, sometimes underfunding them or diverting their earmarked revenue to other purposes. To pay for unemployment insurance, New Jersey taxes not only employers but also employees. The state reportedly diverted $4.6 billion between 1993 and 2006 from the employee share to balance the budget and to pay for hospital charity care. Businesses feared that the diversions would lower the amount of money in the trust fund to such a point that a recession would break the bank—forcing increased taxes on businesses to pay for the unemployed.1 The fund did in fact run out of money during the recession in 2009 and was forced to borrow $1.75 billion from the federal government. The state missed its debt repayment in 2011 and 2012, with the result that the state owed interest on its borrowing; when this happens, an automatic increase in the rate businesses pay for unemployment insurance kicks in.2

1 New Jersey Policy Research Organization Foundation, NJ Unemployment Insurance Trust Fund Diverted Revenues, Low Balance Threaten Fund’s Health, 2006, www.njprofoundation.org/pdf/ffd0906.pdf.

2 Stacy Jones, “Threat of Unemployment Tax Hikes Have Employers Seeing Red,” NJ.com, January 20, 2013, http://www.nj.com/business/index.ssf/2013/01/unemployment_tax_fund_has_empl.html.

This particular diversion will not reoccur, because in 2010, voters in the state overwhelmingly approved a constitutional amendment prohibiting the diversion of funds from the unemployment program for other purposes. With this source of funds blocked, Governor Christie had been aggressive in diverting other funds, particularly for environmental cleanups and clean energy, to balance the budget without tax increases.3 Christie’s successor, Phil Murphy, who had been critical of Christie’s diversions, continued the practice of taking money from environmental cleanup funds to patch holes in the budget.4

3 Mark J. Magyar, “Raids on Dedicated Funds Climb Under Christie,” NJSpotlight, July 8, 2013, http://www.njspotlight.com/stories/13/07/08/raids-on-dedicated-funds-climb-under-christie/.

4 Charles Style, “Murphy’s Cash Grabs to Balance N.J. Budget Reminiscent of Christie,” NorthJersey.com, May 28, 2018, https://www.northjersey.com/story/news/columnists/charles-stile/2018/05/29/nj-taxes-phil-murphy-gimmicks-balance-budget/633913002/.

Trust funds guarantee or lock in program priorities and funding, but they can get into financial trouble if something happens to the dedicated stream of revenue or if the expenditures exceed the amounts built up in the trust fund. As the New Jersey minicase demonstrates, fund diversions, sometimes questionable and hotly contested, can drain revenues. Three of the major federal trust funds have run into financial difficulty in recent years, all for different reasons: the federal Highway Trust Fund, Medicare, and the Unemployment Trust Fund. Pension funds at the state level are also struggling, with many of them cutting back benefits and changing eligibility requirements.

The federal Highway Trust Fund ran into difficulty for several reasons. Intentional underspending in the Highway Trust Fund created fund balances that appeared to offset deficits elsewhere in the budget—even though those totals in the trust fund could not be spent on other programs. In frustration, program supporters passed legislation requiring the estimated revenues in the trust fund to actually be spent, with the result that the large fund balances disappeared. A second reason for the Highway Trust Fund’s difficulty is that its source of funding is the federal excise tax on gasoline, which is levied on a per gallon rather than a per dollar basis. Greater fuel efficiency resulting in fewer gallons sold and less discretionary driving because of the Great Recession held revenue down, so that revenue no longer matched the normal requirements of road construction and repair. To add to this problem, some of the trust fund revenue has been diverted, as legitimate purposes for spending have been expanded to include bike paths, covered bridge restoration, and other projects outside road construction and repair. Highway advocates actively resent sharing their fund with mass transit as well.

Medicare is an entitlement that is maintained as a quasi trust fund, with its own dedicated revenue source. In more recent years, it has had a revenue problem, because most of its revenue is from the currently employed and the long and deep recession threw many people out of work. Of those who found jobs, many took positions paying less than the ones they left. But other factors have been even more important, because as an entitlement, Medicare serves all those who are eligible after they reach age sixty-five, and more people are living past this age. As an entitlement program, it is open to the environment in the sense of having to pay health care providers’ bills, which are going up faster than the economy in general. The Medicare trust fund is thus becoming depleted, putting pressure on politicians to either increase revenue or decrease benefits or eligibility or somehow bend down the cost curve for health care. With so many people depending on the program, politicians are understandably reluctant to tackle this issue.

The Unemployment Trust Fund ran into trouble for different reasons, also related to its structure. The unemployment insurance program is a joint program between the federal government and the states and so represents a form of cooperative federalism. Like Medicare, it is both an entitlement program and a trust fund. All those who meet particular criteria, such as losing their jobs through no fault of their own and actively looking for work, are eligible for payments of some proportion of their prior wages. As an entitlement program, it is open to the environment so that changes in the economy that affect the number of unemployed automatically affect the costs of this program. Employers pay taxes to both the state and the federal government, and proceeds are held in trust funds, which in theory can be spent on no other purpose than unemployment compensation.

The national government pays for the administrative costs of the program, lends money to the states when their trust fund balances are too low to deal with the cost of claims, and funds extensions of eligibility for benefits during especially long recessions. The states determine the formula for benefits and their duration as well as the rate of taxation on businesses.

Because the states control both revenues (taxes) and expenditures, they have the basic tools to manage balance in their trust funds. Nevertheless, because the costs for this program go up during recessions when unemployment is high, balance is problematic for the states, because it is difficult (perhaps impossible) to raise taxes on businesses during a recession to pay higher unemployment costs. To handle this problem, states normally build up their unemployment trust funds when unemployment is lower, and then draw the funds down during recessions.

When state unemployment payments empty the entire state trust fund, states can borrow from the federal government portion of the trust fund. They have several years to begin paying back; if they fail to do so, they must pay interest on the debt, and the taxes businesses pay automatically jump to a higher rate.

During the recession that began at the end of 2007, many states borrowed from the federal Unemployment Trust Fund. Initially, Congress waived the interest on this debt, but the waiver expired, leaving states with not only an urgent need to repay their loans but also with a bill for the interest. Failure to pay on time would result in large increases in taxation on their businesses, and interest payments were not supposed to be drawn from a state’s unemployment trust fund, which is earmarked solely for payments to the unemployed.

The states’ choices could include benefit reductions, a temporary tax surcharge, or borrowing on the market. Businesses faced with increasing payroll tax burdens have pressured the states to reduce program benefits. At least six states opted to shorten the time that unemployed workers can receive maximum benefits to less than twenty-six weeks. Eight states made it more difficult to qualify for benefits.7 Some states, such as Arkansas, Rhode Island, and Indiana, reduced the amounts that could be paid to claimants.8

For states with good credit ratings to pay the government back, it was cheaper to borrow than it would have been to force businesses to pay the penalties for late payment, as the federal government interest rate is 4 percent. Some states either borrowed or were planning to borrow money, charging their businesses the lower cost of these loans rather than the higher federal interest.

While businesses advocated cuts in benefits for the unemployed, advocates for the poor have noted that the trust funds that ran out of money were often inadequately funded during years of low unemployment. Wages generally rise with inflation, so that the payouts for insurance also rise with inflation (they pay roughly half the lost wages), but the taxes employers paid were calculated on a fixed estimate of wages rather than one that was growing with inflation. The result over time has been structural imbalance and deficits. Program advocates, supported by a Government Accountability Office study,9 argue for indexing the base to ensure that their trust funds are built up sufficiently during the good years. Of the sixteen states that had a policy of raising the base on which the tax was calculated by pegging it to inflation, more than two-thirds maintained solvent funds and averted the need to borrow with its associated costs.10

In the case of the unemployment insurance trust funds, time was a key element in the narrative; failure to tax sufficiently during the boom years resulted in deficits during the bust years. As a result, pressure to raise taxes on businesses occurred during the Great Recession, when businesses and the state economy could least afford the increase. The business community pressured elected officials instead to cut services to the unemployed. Program opponents attacked the character of the long-term unemployed while advocates for the program pointed out that cutting the benefits reduces aggregate demand during a recession—people cannot afford to buy the goods businesses sell, making recessions deeper and longer than they otherwise would be. Program supporters have linked unemployment benefits to a highly valued goal for the collectivity, but this strategy has not been overwhelmingly successful. Only two states have adopted legislation that would more adequately fund their Unemployment Trust Funds, while many more have reduced benefits to workers.

Special-Purpose Governments.

States have limited the amounts some local governments may borrow. These constraints have often been expressed as a percentage of the total assessed value of property in the governmental entity. To get around these limits, some governmental functions broke off from general government, establishing a single-purpose government covering the same territory. The debt limits apply to each of the overlapping governmental units, greatly adding to the borrowing power of local governments. Ten special-purpose governments could borrow ten times what a single government could borrow. Special-purpose governments like these typically spend more on the function they provide than general-purpose governments do. For example, a park district that is independent is likely to spend more than a park department that is part of a city and has to fight with the fire and police departments for funding. In a general government, other functions compete for expenditures; in special-purpose governments there is no competition. The disadvantages are that if there are many special-purpose governments, as in Illinois and California, the level of overlapping debt can be very high, and it is impossible to prioritize and make trade-offs between programs.

The Environment

Success in winning the budget battle depends not just on strategy and structure but also on the environment, broadly defined. The examples given earlier in the chapter highlight the importance of the economic environment, including the level of revenues and unemployment. The rise and fall of housing prices and the practices of commercial mortgage lenders helped bring down Fannie and Freddie. Changing demographics are also important, such as the implications of an aging population for medical insurance programs like Medicare.

The environment affects expenditures in other ways as well: The level of illegal immigration impacts border control costs. Wars affect defense spending, the weather affects snow removal costs, and efforts to recover from emergencies like major hurricanes or earthquakes may increase spending for years. A war in the Middle East may increase gasoline prices, pushing up the costs for public works and police, which rely heavily on vehicles. Medical price inflation affects government spending for Medicare and Medicaid. When governments are required to limit their total spending to the growth in the economy or are mandated to maintain a level of spending on education that is proportional to growth of the economy in the state, the environment directly impacts the budget.

Many programs are demand driven. The costs of the fire department depend to some extent on the number and severity of fires; the costs of workers’ compensation programs depend on the number and severity of job-related accidents and illnesses; the costs of a women’s shelter depend on the number of battered women who show up needing assistance; the costs of a homeless shelter depend to some extent on the severity of the winters as well as the availability of single-room occupancy rental units. When a spring delivers temperatures that go up and down across the freezing mark, producing large numbers of frost heaves in the roads, the costs of road repairs soar. The spending is not optional; the local governments are responsible for fixing the roads. The automatic nature of these responses to the problems confronted by the collectivity reprioritizes expenditures.

The list of environmental influences would not be complete without considering politics and political realignments, that is, shifts not only in the majority party but in the policies backed by each party. A strategy of privatization and increase in contracting is likely to have more success when Republicans are in power, while a strategy of publicly provided programs, such as student loan programs, is more likely to be successful when Democrats dominate the political setting. This element of the environment was much in evidence in the student loan minicase.

Strategy, Structure, and Environment Combined: The Medicare Example

In any given program, strategy, structure, and environment combine to influence spending levels. The following illustration is meant to show how the themes developed in this chapter have worked out in one program, Medicare. Note that strategies have been employed by supporters and opponents inside and outside of government. The environment in this case includes the impacts of recession and unemployment, inflation of medical costs, and demographic changes. Structurally, Medicare is an entitlement operated as a quasi trust fund, supported by a combination of payroll taxes and insurance premiums and bolstered by general revenue. The fact that Medicare is an entitlement program has made it especially vulnerable to the aging of the population, and its dependence on payroll taxes for revenues has increased its vulnerability to recession.

The federal Medicare program is a political football, loved by some who want to use it as a blueprint for universal health care coverage and hated by others who see it as a symbol of big government and the first step on the slippery slope to socialism. Considered the electrified third rail of politics, because of its popularity with the public—touch it and your political career is over—its financial problems have proved difficult to address. Both supporters and opponents are eager to show and possibly exaggerate its financial problems, the former to stimulate a solution, the latter to cut it back.

Some facts are clear, despite the political and partisan controversy. Medicare is expensive, and the costs have risen over time and are projected to keep on rising. In 2016, Medicare spending was about 15 percent of the federal budget and 3.6 percent of gross domestic product, projected to rise to 5.9 percent in 2081. Basing their judgments in part on these rough projections and in part on history prior to 2010, many academics and politicians have described Medicare spending as unsustainable. They argue that something must be done soon to cut spending, but this simple narrative obscures more than it clarifies.

In reality, the actual rate of growth in Medicare spending has been coming down, not going up, in the last few years. Some of the older projections proved too high. For example, the Congressional Budget Office (CBO) projected the costs of the new drug program portion of Medicare when the program was passed in 2003, but that prediction proved too high, in part because actual enrollment in the program was smaller than expected and in part because of competition between plan sponsors. There has also been a major shift to more use of generic drugs instead of more expensive name brands. Actual expenditures in 2013 were about half what was projected in 2003.11 Further, the CBO estimates for total Medicare spending have come down almost every year after 2006. Both the projections and the reality dropped after the passage and implementation of the Affordable Care Act. The practice of medicine seems to be changing, which suggests that the recent trends are likely to continue, although political attacks on the Affordable Care Act have introduced a note of uncertainty.

Calling the growth of Medicare unsustainable is a political tactic, rhetoric intended to convince decision makers and the public that spending needs to be cut, without detailed policy analysis that would produce a more efficient and effective program. The word unsustainability helps frame the issue for political debate and narrows the solution options to those preferred by some.

One clue that unsustainability is a political, action-forcing term is that it is used to describe only some program increases, not others. Those who want to bring down the size of the deficit and reduce the level of debt describe deficits and debt levels as unsustainable. Unsustainable is the term used to describe antirecession spending by those who oppose it. On the left, it is used to oppose buildups in military spending; those on the right who support military spending do not describe the military budget as unsustainable. Unsustainable has seldom, if ever, been used to describe spending on domestic security, which grew rapidly after the events of September 11 in 2001, despite the helter-skelter way the money was spent. In other words, unsustainable is not a word used to describe all rapidly growing programs; it is used to describe spending increases one opposes.

How Good Are the Numbers?

How good are the numbers is the first question to ask in getting behind the rhetoric. How badly off is the Medicare trust fund, really, and how reliant is it on general taxation, adding to the deficit or squeezing out other higher priority spending?

Seldom mentioned in the public discussion is that the Medicare trust fund has been more or less in balance, with income equaling or exceeding expenditures in most years. The Great Recession has been an exception. According to Medicare’s 2017 annual report, the hospital insurance portion of the fund (Part A) returned to surplus in 2016 and was projected to continue running surpluses through 2022 after which deficits are expected to occur. For Part B, the medical portion of the Medicare funds, the 2017 annual report predicted surpluses in some years through 2026 and deficits in others, but overall the report predicted that there would be considerably higher fund balances in 2026 than in 2015. These figures assume continuing positive impacts of the Affordable Care Act in the short run and assume that after the end of that period an increasingly old population will increase medical costs to the funds. Whether current efforts to undo the ACA will affect these figures remains to be seen.

The current projection for the hospital insurance portion of Medicare is that it will run out of money by 2029, but this prediction is highly sensitive to factors that change from year to year. First, because revenue for the hospitalization portion of Medicare is based on an earmarked payroll tax (FICA), a recession in which many people are unemployed or take lower paying jobs depresses revenue; economic recovery improves the revenue picture. Trust fund administrators can only guess at the rate and level of economic recovery after a long and deep recession. Second, based on a comparison of CBO’s August 2010 and April 2014 baselines, Medicare spending in 2014 will be about $1,000 lower per person than was expected in 2010.12

The Medicare annual reports assume the cost increases will be unsustainable and simultaneously assume that they will be sustained, which is illogical: If Medicare costs are unsustainable, they will be curtailed in some manner. This process is already well under way, with movements within the medical industry to reduce unnecessary testing and surgical procedures, reduce hospital readmissions, and require evidence of the effectiveness of drugs and other medical interventions. Medicare began and expanded a process of competitive bidding, which helps keep expenditures down, though this program was put on pause while it is reviewed by the Trump administration and medical device suppliers continue to actively oppose it.

Moreover, the projections of unsustainability depend heavily on demographic projections. These studies assume that as the baby boomer generation (the large cohort of babies born in the years immediately following World War II) ages, they will need more medical care and, with increased life spans, will need that expensive care for longer periods of time. But since these projections go out until 2080, one needs to consider that after the baby boom is a baby bust, a smaller cohort, fewer children born and less demand on the health care system. Also, improvements in life expectancy may be accompanied by better health and improved quality of life rather than more illness and prolonged expensive care. Predictions of Medicare spending skyrocketing as a proportion of gross domestic product assume a slow-growing economy and more rapidly increasing medical costs, but we really don’t know about either one, let alone both. The degree of change from year to year in the projections suggests the degree of uncertainty of the long-term projections. The size of the problem is not as clear and concrete as the rhetoric suggests.

How Much Should We Be Spending on Health?

As budgeters and policy analysts, the second question one ought to ask is whether the nation is in fact spending too much on health care. Sometimes spending increases rapidly as priorities change in response to current problems, such as a change in demography (an aging population), a war (or two wars), or threat to health or life. Increased spending is not itself an indication of budget failure or a mandate to cut back that cost increase. It might just be evidence of the adaptability of budgets.

The political message has been to cut back Medicare, because it is growing, rather than to examine budget priorities and trade-offs more generally. This framing is to some extent a function of spending through a trust fund, which isolates a program from the rest of the budget, setting it up so it should raise its own revenue and should balance over time. But since much of Medicare’s funding also comes from general taxation and this trend is likely to continue (despite a law passed in 2003 that requires the president to propose solutions if the proportion of Medicare funding from general taxation goes above 45 percent), the question becomes what priority health care spending should have in comparison to other programs and what the optimum level of spending should be on health care. Are we spending the right amount, too much or too little, or are we spending too much money on the wrong things? Are we getting too little health for the money we are spending because of the way the program is structured, the incentives, and the administrative costs?

One approach to answering the question of how much is the right amount is to compare U.S. spending on health care to health care spending in other developed countries. Although these studies do not focus solely on Medicare, the results are suggestive. Studies of total health care spending in developed countries, including public and private spending, show the United States as an outlier. Not only do we spend way more than other developed countries when compared to the average health spending of Organization for Economic Cooperation and Development (OECD) countries, but the United States spends substantially more than predicted by income alone. Generally, spending on health care and income are closely correlated, but not in the United States—we spend a higher proportion of our wealth on health care than other countries do.

What also stands out from these cross-national studies is that the United States is far more dependent on privately provided health care than any other OECD country. Our public spending on health care is comparable to many other OECD countries, but our private spending is much higher. If this additional spending were getting us much better health outcomes, one could argue that it just reflects our values as a nation. On two aggregate measures of outcomes, longevity (average age at death) and infant mortality, we do worse than average. We do somewhat better than average on cancer treatment and in-hospital surgery but less well on prevention and treatment of chronic health problems, such as asthma.

There is only a weak relationship between the amount of money spent and health outcomes. So, for us, the issue is not so much how much we spend, but on what we spend it that matters. What we spend it on is a function of how programs are structured. The high use of private sector health care provision and the complicated insurance and payment systems we use raise the cost of administration, without providing any improvement in health care; we spend more on outpatient care, including same-day surgeries, than other countries, an increase that resulted in part from efforts to control Medicare payments to hospitals by relating payments to diagnosis. Hospitals then relocated less expensive surgeries to separate facilities engaging in same-day surgery.

When compared to countries that also have a combination of public and private systems—Switzerland, Germany, Japan, France, and Canada—we spend more per capita on program administration and somewhat more on hospitalization but much more on outpatient care, doctor visits (both generalists and specialists), dentists, and same-day surgery. One would imagine that same-day surgery would cut the costs of hospitalization and nursing home care, but those costs are still considerably above the average.

The costs for hospital services are generally higher in the United States than in other countries, as are the costs for medicines, accounting for some of the differences from other countries; in addition, the United States has more diagnostic equipment, which is used more frequently, and perhaps as a result, we perform more discretionary surgery, some of which is probably unnecessary.13

A recent study by the Commonwealth Fund compared the U.S. health care system to ten other countries, Australia, Canada, France, Germany, the Netherlands, New Zealand, Norway, Sweden, Switzerland, and the United Kingdom. The United States ranked last on performance, and last or near last on the access, administrative efficiency, equity, and health care outcomes. In 2014, the United States spent 16.6 percent of GDP on health care; the next highest is Switzerland, at 11.4 percent. Australia spent only 9 percent of GDP on health. Despite the highest level of spending, the United States ranked lowest on health care outcomes. The study concludes, “The U.S. has the highest rate of mortality amenable to health care and has experienced the smallest reduction in that measure during the past decade.”14

So, we spend much more than other countries on health care and get only a moderate amount of improvement as a result. (See Figure 5.2 for a comparison of U.S. health care costs and our average life spans compared to that of other developed nations.) We may be overtesting, and doctors may be practicing defensive medicine to prevent lawsuits, which suggests the need for reforming the system of lawsuits against doctors for malpractice. The United States has the highest obesity rates among the OECD countries reporting. Factors such as diet and exercise may have more influence on longevity and health than spending on emergency room care, implying that building bike paths and making bicycling safer may result in better health outcomes than more spending on traditional health care. Improving accessibility to primary care for chronic illnesses may also reduce expensive hospitalizations.

Figure 5.2 Relationship Between U.S. Health Care Spending and Life Expectancy in OECD Countries

Source: OECD Health Data 2012, October 2012, http://www.oecd.org/els/healthpoliciesanddata/oecdhealthdata2012-frequentlyrequesteddata.htm.

Note: Data are for 2010 or the most recent available year. Data for Belgium excludes investments. Data for the Netherlands is current expenditure.

PPP = purchasing power parity.

From the perspective of budgeting, the walls around Medicare, intended to protect its revenue from being taken by other programs, have worked against solutions that involve more spending in other programs. The problem has been framed as Medicare spending, which must be reduced or cut back, without due consideration for what spending elsewhere would increase prevention and create better health outcomes less expensively. Stricter enforcement of clean water and clean air acts may reduce the incidence of cancer, asthma, and chronic obstructive pulmonary disease (COPD) and help improve longevity. More testing of medicines once in use may reduce medicine-induced illnesses, a major cause of hospital admissions in the United States. And greater coverage by public insurance—Medicare and Medicaid—is likely to result in reduced costs for administration. Spending more in the right places is likely to reduce costs and improve health outcomes.

The problems of Medicare are not inevitable results of an aging population. They can be solved, but only if one gets past the rhetorical framing that takes most solutions off the table. The problems are not likely to be solved by simple cuts in payment to providers, which just seems to produce more spending in other areas and overprovision of testing and surgery. Rather, good budgeting would start with a goal, the quality of outcomes to be achieved, such as a reduction in child mortality of a given amount. With a goal in place, it would then call for designing a program that will be effective in gaining that outcome in a cost-effective manner. Locating the source of increased costs and the reasons and incentives for those higher costs and working out new solutions may be necessary to bring spending into line. To control costs and ensure cost-effectiveness of entitlement programs, budgeting is going to have to marry policy analysis. (Budgeters marrying policy analysts may not do the trick, but it might help.)

Summary and Conclusions

Actual spending on programs depends on strategy, structure, and environment. The level of competition for spending, the level of flexibility and discretion, and the point of control all vary with the structure. The trend at the national and state level, and to some extent at the local level, has been to decrease flexibility, to put spending on automatic pilot, but such programs are vulnerable to the environment and may run into financial trouble. Budgeting successfully for these programs requires a different set of skills, with much more policy analysis, because the point of control is in the program design, not the annual spending numbers. For the strongly walled programs, whether set up as privately owned corporations, self-funding public enterprises, or special districts, solutions may lie outside their narrow program funding decisions.

More spending in one area may lower costs in another area. Making buses, fire houses, and school buildings “greener” may lower operating costs; increasing pollution controls may lower health costs; increasing spending for education and training may lower costs for unemployment insurance, welfare, courts, and prisons. The revision of the Government Performance and Results Act emphasizes the need to consider crosscutting goals and performance, measuring the contribution of all those programs that work toward the same goal. If well implemented, those crosscutting evaluations may help budgeters think outside the walls of walled programs.

Useful Websites

Many states have begun transparency programs that include websites with detailed financial information. For a listing of state transparency sites and what they include and do well, see Following the Money 2012: How the 50 States Rate in Providing Online Access to Government Spending Data, published by the CALPIRG Education Fund (www.calpirg.org/sites/pirg/files/reports/Following%20the%20Money%20vCA%20web.pdf). Among the most highly rated are Texas’s Transparency website (www.texastransparency.org) as well as Kentucky’s Transparency Portal (http://opendoor.ky.gov/Pages/default.aspx).

The federal transparency site is at USAspending.gov (https://www.usaspending.gov/Pages/Default.aspx). It has downloadable data you can analyze yourself. The data include grants, loans, and contracts as well as payments to individuals such as Medicare and Food Stamps. The site has a keyword search. You can search years from 2008 to 2017. Possible topics include the degree to which contracts were competitive and what happened to food stamp outlays during and after the deep recession that began in 2008. The site also has some handy interactive graphics and a list of contractors and the amount of their contracts.

Some cities have transparency sites as well, such as the City of Chicago, Illinois (www.cityofchicago.org/city/en/progs/transparency.html) and Albuquerque, New Mexico (www.cabq.gov/abq-view/).

For the federal level, the president’s budget proposals are online (www.whitehouse.gov/omb). Agency presentations to congressional appropriations subcommittees, which contain their budget strategies, often can be found on the agencies’ websites but may also be found at the Government Publishing Office (www.gpo.gov). The digital versions of Senate appropriations hearings (www.gpo.gov/fdsys/browse/committee.action?chamber=senate&committee=appropriations&minus=test&treeid=treemenu4&openuls=0&ycord=0) and House appropriations hearings (www.gpo.gov/fdsys/browse/committee.action?chamber=house&committee=appropriations&collection=CHRG&plus=CHRG) are available from 1998 on (older hearings are available in hard copy at depository libraries).

Also available are webcasts (some audio only) and selected testimony transcripts of recent Senate hearings (www.appropriations.senate.gov/hearings); also, for recent events, the House maintains an archive of hearings and committee markups (http://appropriations.house.gov/calendararchive/), some in video, some in audio only, and selected transcripts of testimony. The House’s archive is searchable by appropriation subcommittee, such as Agriculture, Defense, or Housing and Transportation. The House Budget Committee posts video and audio of its hearings from 2011 to the present. The Budget Committee oversight hearings on CBO are available online at https://budget.house.gov/hearings/.

C-SPAN, the public affairs network, covers many hearings live on the web (www.c-span.org). The schedule of hearings that they cover is listed on their website.

Tracking appropriation bills as they pass Congress is relatively easy on the Library of Congress website (www.congress.gov). The site has a separate section on appropriation bills each year, including continuing resolutions (https://www.congress.gov/resources/display/content/Appropriations+and+Budget).

For a description of Proposition 98 in California that dedicates a portion of state money for education, see the Proposition 98 Primer, from the California Legislative Analyst’s Office (www.lao.ca.gov/2005/prop_98_primer/prop_98_primer_020805.htm).

For information on the joint federal state unemployment insurance and the timing and outstanding amounts of state borrowing from the federal government trust fund, see the National Conference of State Legislatures (NCSL) website (www.ncsl.org/issues-research/labor/state-unemployment-trust-fund-loans.aspx). As of May 2016, two states plus the Virgin Islands still had outstanding loans from borrowing that began in 2009.

Estimates for cost savings for the initial year of Medicare competitive bidding for equipment and projections for savings over time can be found in an electronic publication via the Centers for Medicare and Medicaid Services site (www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/DMEPOSCompetitiveBid/Downloads/Competitive-Bidding-Update-One-Year-Implementation.pdf).

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