In 2001, the State of Rhode Island received national recognition from the Robert Wood Johnson Foundation for encouraging school-based health care, under the auspices of the foundation’s national Making the Grade program. Making the Grade creates collaboration among community partners, with the goal of creating comprehensive, school-based health centers. In 2000-01, the program gave more than $500,000 to Rhode Island to expand the number of health centers in the state’s elementary and secondary schools.  

It was supposed to be seed money. The foundation intended for the program to continue with backing from other sources, particularly state government. In 2002, Rhode Island gave each center $70,000, meeting those intentions. But no more. In both 2003 and 2004, by the time Rhode Island had paid its share of Medicaid, there was nothing left over for Making the Grade.

“We don’t fund it anymore,” says Jonathan Seamans ‘96 M.P.A. Until recently, he was a budget analyst in Rhode Island’s health department -- specifically its family health division; he is now assistant administrator for community and planning services. “There are just so many dollars and it’s a toss-up what to keep funding.”

Rhode Island -- like virtually every other state, county, and municipality in America -- faces tough choices with its budget. A few big-ticket obligations -- including federally mandated obligations such as Medicaid -- siphon money away from discretionary spending. The federal government, by most accounts, has decreased its subsidization of such programs, or at least failed to keep pace with increasing demands. As a result, administrators in state and local settings find themselves deciding between doing what has to be done and what ought to be done to improve the quality of life in the nation’s communities.

Too often, O’Neill says, the federal government mandates a program, but pushes the funding challenges onto the states and localities. (Programs for students with special needs, for example, are financed with local dollars, he says.) Then, in turn, Washington dictates or bars methods of financing mandated programs. Electronic commerce is a current battleground. “The clearest example is sales tax on the Internet,” O’Neill says. The federal government allows interstate Internet commerce to go untaxed, even though, to state and local managers, “it’s a major revenue source.”

Medicaid is a mandated federal and state health insurance program designed to provide access to health services for people whose incomes fall below a certain level. It provides health care to women and children who qualify for Aid to Families with Dependent Children and to the impoverished elderly. Medicaid is now the greatest budgetary obligation facing state governments, according to the National Association of State Budget Officers, recently eclipsing elementary and secondary education.

Medicaid eligibility and enrollment have expanded nationwide; enrollment rose from 33.2 million in 1996 to 42.7 million in 2003. The Congressional Budget Office (CBO) indicates there will be more than 50 million enrolled by the end of next year. State and county governments, responsible for a cost share, are cutting other services or raising taxes to compensate. In 2003, some New York counties were so hard hit they hiked property taxes 20 percent or more to pay for Medicaid.  

Education spending, on the other hand, is not federally mandated; mandates exist at the state level. States and communities have made local decisions about how much and in what ways to support education. Unfortunately, though, education has been one of the budget lines that get cut when federally mandated programs (such as Medicaid) strain the fiscal limits of state and local governments.

By most measures, cuts in state and local education budgets have contributed to diminished classroom performance. As administrators have struggled to make ends meet, indices of students’ success have dropped. The Bush Administration’s No Child Left Behind program is meant to reverse that trend. It sets new federal guidelines for teacher and school accountability and for poorly performing schools.

When program needs for education and Medicaid are on the rise, but funding sources such as federal subsidy fail to meet the needs, how do state and local governments expect to cope?

He says prosperous times in the 1990s helped delay the reckoning that state and local governments now face, as they scramble to come up with matches for medical and other entitlement programs, and to cover educational costs. They didn’t feel the crisis looming in a period of economic prosperity.

But even in the new day, Wasylenko said there is a lack of political will to make meaningful change, particularly in Medicaid. “We have to get our arms around the health care sector,” he said. “If we don’t want to contain costs, we’re going to have to raise taxes.”         

No Child Left Behind asks states -- in exchange for significant federal resources -- to develop standards to ensure every child achieves at grade level and every classroom has a highly qualified teacher. Education organizations are largely in favor of the goals of No Child Left Behind, but there is contention regarding how those goals should be reached and measured. The program’s reliance on strict performance and test requirements is pedagogically controversial. But so too is the fiscal investment required to meet the goals. Groups such as the National Association of State Boards of Education and the Rural School and Community Trust say the federal dollars fall short. The ideals are right-minded, but the goals are lofty and, in some cases, set up a system to assure failure. The cost of meeting the standards, they argue, exceeds what the federal government is willing to invest.

William Duncombe, professor of public administration and associate director of EFAP, agrees. “The bottom line is this is going to be expensive,” says Duncombe, who is the co-author of “Developing a Financial Condition Indicator System for New York School Districts,” a publication of the Education Finance Research Consortium. “You can’t simply put pressure on large-city school districts to make meaningful change and expect that it will improve [students’] ability to do subjects and learn materials,” he says. “If we knew how to do this, we would have done it. . . . Pressure isn’t going to solve it.”

A research report they published in July shows  what happens if statistically weighted pupil counts are used  to determine funding, rather than the ad hoc counts used in existing state aid programs. According to that report, urban school districts with a high concentration of disadvantaged students would receive far more aid and rich suburban districts substantially less.

Yinger thinks programs that ignore the higher costs of disadvantaged students are unfair. “It’s like running a race, a 100-yard dash, in which some runners carry extra weight,” he says. “Sometimes, you don’t just judge at the finish line.”

As it stands, if a school receiving federal Title I funding (for schools serving a high percentage of low-income families) fails to meet the adequate yearly progress targets for two consecutive years or more, the school is designated in need of improvement and faces consequences including certain corrective actions and school restructuring.

“The incentive and focus is to bring kids to where you would get the biggest gains,” says Rubenstein, whose “Equality of Public School Funding in the U.S.: A National Status Report,” appeared in Public Administration Review in 2002.

Jerry Miner, professor emeritus of economics and, like Yinger and Duncombe, a research associate in the Center for Policy Research, says some states will be tempted to make the ultimate tough choice: rejecting federal education aid because they don’t want to deal with the cost of the mandates and regulations that flow from them.

Miner, who has studied education finance since the 1960s, says that’s one of the reasons the foundation of No Child Left Behind is flawed. He says it fails in terms of funding and its effort to impose accountability. It confuses educational concerns and legislative issues. “It’s an enormously difficult problem,” Miner says.             

Medicaid was adopted in 1965 as part of Title XIX of the Social Security Act. Medicaid grew out of and replaced two earlier federal grant programs to states that provided medical care to welfare recipients and the aged. Each state designs and administers its own Medicaid program under broad federal rules.

Over the past three years, the scope of Medicaid services has expanded to cover not only the poor, the elderly, and children, but also working adults whose incomes don’t provide for private health insurance.  It subsidizes health care for one out of every five children and pays almost 50 percent of nursing home care.

Douglas Holtz-Eakin, director of the CBO and Trustee Professor of Economics at the Maxwell School, says health care costs are particularly troublesome from a budgetary vantage because as the population lives longer, thanks to advances in medicine, there will be an even greater financial demand with hard choices to make.

In fiscal 2003, the federal contribution to Medicaid was $161 billion; states contributed another $121 billion. Medicaid, on average, is the largest source of federal grant support for the states, representing 21 percent of the average state budget. The CBO projects that the Medicaid budget will grow 9-10 percent per year during the next decade.

Alan Sager ‘63 M.P.A. has spent a career dealing with such circumstances. He was chief budget officer for more than 20 years for Erie County, New York, before retiring in 1997; Erie County includes the city of Buffalo. Sager is still active in county government, working part-time helping to draft legislation. He has watched the county try to come to grips with its Medicaid spending, and seen budget surpluses exhausted. Erie County may face a tax increase of as much as 11 percent this year. For a county that budgeted frugally and was able to avoid tax levy increases for many years, it’s a big bite to take, Sager says.

It would not be the first county in New York to raise its sales tax to more than 9 percent. In October, Oneida County, just east of Syracuse, went to 9.25 percent in search of revenue for mandates.

Advocacy groups, Bowman says, have been aggressive in getting lawmakers to provide more Medicaid services and increase eligibility guidelines. “It’s been demand-driven,” Bowman says. “It’s squeezed discretionary spending out of the budget. Most states have cut higher education money. The reason for that is colleges have alternative revenue sources; they can always raise tuition. Lawmakers would rather protect Medicaid.”

These are some of the CBO’s ideas to help correct Medicaid funding: convert some or all of the funding to block grants, effectively capping them; reduce mandatory benefits and restrict coverage groups; stop granting waivers which states frequently use to extend coverage; raise deductibles or co-payments; and encourage the use of lower-cost services. 

One way or another, Holtz-Eakin suggests, changes have to be made regarding tax and spending policies if the demands of the federal government on the states and localities regarding all mandated programs, not just Medicaid and No Child Left Behind, are to be controlled.

The challenge is in the choices. If taxation is restricted to recent levels, there is little room for the growth of entitlement spending. Economic growth, coupled with limits on non-mandated programs, isn’t enough to bring the nation’s long-term fiscal position into balance. Constraints on spending for Social Security, Medicare, and other programs, as well as modifying the tax structure, or doing both, could minimize harmful economic effects, but such notions are politically volatile.

“I can’t overstate the importance of a genuine national coming-to-grips with the choices we’re going to have to make,” Holtz-Eakin says.   

Louise Hoffman Broach is a 1984 graduate of SU’s Newhouse School of Public Communications (newspaper journalism) and College of Arts and Sciences (nonviolent conflict and change). She is a reporter and editor with The Citizen, Auburn, New York.  Research assistance was provided by Elizabeth Hacken, a 2004 Newhouse/Arts and Sciences graduate (newspaper/policy studies) who also writes for The Citizen.

This article appeared in the Fall 2004 print edition of Maxwell Perspective; © 2004 Maxwell School of Syracuse University. To request a copy, e-mail dlcooke@maxwell.syr.edu.