RALEIGH – With North Carolina facing a $2.7 billion projected gap in its General Fund for the coming fiscal year, it’s not surprising to learn that there are all sorts of possible ways – championed by all sorts of interested parties – that the state legislature might reduce the gap.
But just because a maneuver would help bring the General Fund into technical balance does not mean that it is a sound fiscal policy likely to advance the interests of North Carolina taxpayers. In particular, proposals that merely substitute one tax dollar for another, without reducing total expenditures, are not sufficiently responsive to the grave fiscal situation we face.
As daunting as the state budget challenge is, the federal budget challenge is bigger. In all but five fiscal years since 1967, presidents and members of Congress of both parties have approved federal budgets with large operating deficits. In some years the deficits were fairly small, within 1 to 3 percent of the gross domestic product. In many years, however, the deficits have been large – in the 3 percent to 5 percent range. Over the past two years, the deficits have been ruinous – nearly 10 percent of GDP.
Simply put, that is fiscal insanity. America isn’t fighting World War II. There is no justification for such irresponsibility, particularly as America is about to enter several decades of rapidly increasing price tags for Social Security, Medicare, Medicaid, and other entitlements.
There is not a single North Carolinian paying taxes into the state who is not also a resident or taxpayer in a county. Nor is there a single North Carolinian who is not also an American paying taxes into the federal treasury. So initiatives that merely shift funding responsibility from the state’s General Fund to localities, or from the General Fund to Washington, don’t save taxpayers anything.
As state policymakers close the state budget gap, they should do nothing to worsen their country’s larger fiscal problems. In particular, they should avoid the temptation to try to shift Medicaid costs onto the “federal government,” as some North Carolina hospitals are proposing.
Under their plan, the state would levy a new fee to artificially jack up the price of hospitalizations by $216 million. The state would keep $43 million of the money for its General Fund and return the rest to the hospitals. They, in turn, would use their higher billings to draw down $350 million more in Medicaid reimbursements from Washington.
North Carolina is not an outside recipient of federal largesse. Virtually all money that North Carolina “receives” from the Feds was first collected in North Carolina. Unfortunately, the shipping and handling charges are substantial. Furthermore, because Washington can borrow money for operating expenses and North Carolina can’t, shifting state programs to federal funding is a circumvention of the state constitution’s prohibition of deficit financing.
To put it another way, the problem with North Carolina’s Medicaid program is not that Washington pays too little of the bill. In reality, “Washington” pays none of the bill. North Carolina’s Medicaid program is paid for by current North Carolina tax payments plus borrowed money that will be repaid by future North Carolina tax payments. Whether these funding responsibilities are categorized as “state” or “federal” is in this context, beside the point.
The real problem with North Carolina’s Medicaid program, as with the Medicaid programs of nearly every other state, is that it covers too many people and services. It isn’t just a safety net program aimed at the truly destitute who would otherwise have no access to emergency care or long-term care. It covers large swaths of the population, including families with incomes well above the poverty line and seniors with middle-class incomes, assets, and family members who are gaming the system to force others to finance their nursing home bills.
You can’t fix North Carolina’s real Medicaid problem through accounting gimmicks – by dancing around and waving a cape in an attempt to hide what is really going on. You have to take the bull by the horns.
By John Hood
February 11, 2011
