DEALING WITH THE STATE BUDGET 2010-2011:
Suspend Unfunded Federal Mandates

California has anywhere from a $19 to $24 billion shortfall for FY 2010/11.
State lawmakers are wrestling with making cuts that will devastate the state
but it appears that one of the easiest ways to achieve a balanced budget is
suspending unfunded federal mandates for the year. 

So why isn't this being pursued? Maybe its because the dynamics of this action 
have far reaching impacts on states and local governments.

The Unfunded Mandates Reform Act, which took effect in 1996, requires that the
federal government consider the financial impact on state and local governments
or the private sector of any "enforceable duty" that accompanied federal laws.
For example, local officials in California point to the Clean Air Act, the Clean
Water Act, the Homeland Security Act, the Individuals with Disabilities Act and
the No Child Left Behind Act as federal laws that California and its counties and
cities have wound up paying for.

                                      

However, today, the State of California spends over $12 billion dollars a year
to comply with unfunded federal mandates alone.  The Clean Air Act, the Clean Water
Act, the Homeland Security Act, the Individuals with Disabilities Act and the No Child
Left Behind Act contain just a few of the tens of thousands of regulations imposed
on our state and local governments by our representatives in Washington DC. More
than 12% of California’s state budget goes toward paying for compliance with
unfunded or underfunded mandates.

The concern has been made by Governor Schwarzenegger to the California congressional
delegation as it pertains to unfunded mandates specifically as it pertains to Medicaid costs.

For example, the governor has identified that Congress pays California a lower rate
for its share of the federal Medicaid program than it pays most other states under
the Federal Medical Assistance Percentage (FMAP) formula. The federal government
covers half the cost in California, while it pays 75 percent in Mississippi, 65 percent
in Arizona and 71 percent in New Mexico, Utah and Arkansas. In fact, 38 states receive
a higher reimbursement rate for Medicaid than California does – which means California
taxpayers are subsidizing the Medicaid program of 38 states. If Congress simply treated
states equally, more than $1.8 billion in California tax dollars could be spent here at
home to balance our budget just in changes from this action.

In 1997, the Supreme Court held that, “The federal government may neither issue
directives requiring the states to address particular problems, nor command the
states’ officers, or those of their political subdivisions, to administer or enforce
a federal regulatory program.” Yet, more than a decade later, the federal government
continues to tighten its leash on states like California.

And no state pays a bigger price than California for unfunded federal mandates. It only
seems logical that the California Congressional delegation would lead the way on
reform. So why are California lawmakers still funding these mandates?  Apparently
they are afraid of the wrath of the administration for postponing them and the
potential loss of receiving other federal funds. 

It is strange that state lawmakers have not explored this further, specifically given
that California is in a fiscal crisis and that the temporary suspense of unfunded
mandates could play a significant role in helping the state get over its current fiscal
crisis.  

So why isn't this being pursued?  Who knows, except the old adage, 'Be careful what
you wish for, it may come true' might be applicable.



Tim Johnson
tjohnson@CaliforniaBusinessMinute.com