Report Urges Medicaid, Infrastructure Funding Changes

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In a paper released Friday, the Brookings Institution’s Bill Galston and Korin Davis offer a series of recommendations -- from changes to Medicaid to the creation of a national infrastructure bank -- to alter the role of the federal government in the 21st century. The proposals involve trillions of dollars and would drastically change the relationship between the federal government and the states.

After asserting that the federal government’s ability to “monitor and assess intergovernmental trends has been dismantled” since the 1994 “Republican Revolution,” the pair first recommends creating “one center of analysis and monitoring within the executive branch and one in the Congress.”

They suggest that the executive branch’s Office of Management and Budget should restore and rebuild its previously shunned intergovernmental relations office. On the congressional side, Galston endorses strengthening the Congressional Budget Office and Government Accountability Office to better analyze the relationship between states and the federal government.

The report’s recommendations, however, go beyond providing the federal government with better accounting tools. The authors point out that the Great Recession “quickly drained” states’ rainy day funds, which led to cuts that “inflicted significant damage on vital state functions.” To add a level of protection beyond just expanding those funds, they recommend allowing state governments to obtain loans from the federal government (but only when unemployment hits a certain level or when economic output declines).

Of course, several states are constitutionally prohibited from taking on debt, and others have balanced budget requirements that would complicate the loan process. Galston told reporters that “it’s not optimal, but it’s a lot better than what we have now, which is nothing.”

After noting the extreme growth in Medicaid spending over the last 30 years -- which, as of 2011, amounted to $275 billion in federal expenditures and $157 billion in state spending -- the report suggests restructuring it, with two new programs created to fund “most long-term care expenses” currently covered by Medicaid.

The first program would be a social insurance entity “with contributions set at the level needed to assure actuarial soundness over time.” The second is “a catastrophic insurance program that would pay nursing or home care expenses after three years of social insurance funding.” (Galston said that a German model for such a social insurance program would be appropriate to follow.)

“In effect, contributors would be buying a standardized long-term care package whose coverage would last for three years,” the report explains.

The final recommendation is to “rethink federal and state roles in the 21st century,” and the report primarily focuses on education and infrastructure.

The authors, who endorse the reauthorization of No Child Left Behind, suggest that “the federal government should continue to require annual reporting, broken out by groups. On the other hand, it should eliminate binding timetables, prescriptive definitions of adequate progress, and mandatory enforcement mechanisms, all of which exceed Washington’s administrative and political capacities.” Instead, states should function as enforcers of such standards.

Likewise, with infrastructure, the report supports the creation of a national infrastructure bank that differentiates between local and national priorities. The idea is to have more federal involvement with projects of national significance, while pulling resources away from “more localized projects.”

The report concludes that, if anything, there should be a “robust dialogue between state and federal officials. When all is said and done, that dialogue is at the heart of a healthy system of federalism.”

Galston told reporters Friday that the paper and its recommendations were largely driven by “fiscal and political realities.”

“Each one of these building blocks is intended to pass the test of political viability and fiscal viability in this environment,” he concluded. “Which is not to say any of these will happen, but … any one of them could happen.” 

Adam O'Neal is a political reporter for RealClearPolitics. He can be reached at aoneal@realclearpolitics.com. Follow him on Twitter @RealClearAdam.

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