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Nicole Kaeding

State budgets face numerous long-term pressures, including overpromised and underfunded pensions. Another challenge is Medicaid, the health insurance program for low-income individuals, which is growing rapidly in cost and enrollment.

Medicaid is the single largest component of state budgets representing 25 percent of total state expenditures. Since 2003, state spending on Medicaid has increased 75 percent, growing faster than the federal budget. State spending decreased in 2010, but not because of any reforms. The federal stimulus bill temporarily increased the federal government’s share of Medicaid spending, so expenditures were simply shifted to the federal budget. But the stimulus has now expired so state spending is rising once again.

The below chart shows the growth in state Medicaid spending over the last ten years:

The higher levels of Medicaid spending are crowding out spending in other state budget areas, such as transportation and education, while also creating pressure to increase taxes.

In the newest edition of the “Fiscal Policy Report Card on America’s Governors: 2014,” Chris Edwards and I discuss how the president’s health care law is poised to make this situation even worse for state budgets:

Medicaid has grown rapidly for years, and the Affordable Care Act of 2010 (ACA) expanded it even more. Individual states can decide whether or not to implement the ACA’s expanded Medicaid coverage, but Congress created strong incentives to do so. The federal government is paying 100 percent of the costs of expansion through 2016, and then a declining share after that, reaching 90 percent by 2020. The Congressional Budget Office (CBO) estimates that Medicaid expansion under the ACA will cost the federal government $792 billion and state governments $46 billion over the next 10 years.

Even with the federal government paying most of the initial costs, the ACA will put a large strain on state budgets down the road. State policymakers are concerned that Congress will reduce the federal cost share in coming years because federal deficits will create pressure to cut spending. Without reforms, CBO estimates that federal Medicaid spending will almost double from $299 billion in 2014 to $576 billion by 2024. The growth is projected to be so rapid that even President Obama has suggested that Congress decrease the federal cost share.

The expansion of Medicaid under the ACA is bad policy for numerous reasons, and many governors are refusing to go along. Currently, at least 21 states have decided not to go along with the expansion. Those states may lose “free” federal money in the short-run, but leaders in those states may be saving their states from huge fiscal burdens later on.

Refusing to expand Medicaid under the ACA is a good first-step in controlling the growth in state and federal expenditures. But it is not enough. State and federal leaders should pass major structural reforms to Medicaid to halt the growth in this large entitlement program.  

Ilya Shapiro

In the feudal era, rulers funded their households by taking a share of the crops farmers in their territory produced. The lords called this tribute and the peasants would’ve called it extortion.

We like to think that we’ve come quite a ways since then. After all, taxes are now paid withmoney—or even a digital abstraction of money—and forms, not cartloads of grain. We can even feel good (well, sanguine) about paying taxes, because we know that we’re funding the government of our own choosing—a democratically elected leadership restrained by the Constitution—not just feeding the avarice of a local warlord.

Except if you’re a raisin farmer in California, a state responsible for 40% of the world’s and 99% of America’s raisins. If you’re a California serf raisin farmer, you’re required by federal law to hand over up to 47% of each year’s crop to the U.S. government so the government can control the supply and price of raisins under a New Deal-era regulatory scheme.

The Fifth Amendment says that “private property [shall not] be taken for public use, without just compensation,” however, so it’s hard to see how it would be constitutional for the government to take nearly half a farmer’s harvest without any payment—let alone “just compensation.” (To be clear, if you grow grapes for use in wine or juice, you’re fine. It’s only if you dry out those grapes that you have to watch your property rights evaporate.)

Yet the U.S. Court of Appeals for the Ninth Circuit has done just that, repeatedly. In 2012, the en banc court held that nobody could challenge this taking in federal court. The Supreme Court unanimously disagreed. (For more background and to read Cato’s merits brief in that case go here.)

Failing to take the hint, the Ninth Circuit has now held that the Fifth Amendment’s protection against state expropriation simply doesn’t apply to personal property (as opposed to real estate). To put it bluntly, that’s an arbitrary, unprecedented, and ahistorical distinction, so raisin farmers are once again forced to ask the Supreme Court to correct lower court’s failure to protect their rights.

Joined by the five other organizations, Cato has filed a brief urging the Court to take this case, thus insuring that the farmers’ constitutional rights aren’t left to wither on the vine. We argue that the Ninth Circuit’s distinction between real and personal property has no basis in the text and history of the Constitution, Supreme Court precedent, or a reasonable understanding of the English language.

The Fifth Amendment embodies the notion that property rights are central to a free people and a just government. It could not be more clear that property can’t be taken without “due process,” and that when it is taken, the government must pay “just compensation.” These guarantees reflect the many values inherent in private property, such as individual achievement, privacy, and autonomy from government intrusion.

By devaluing property rights of all sorts, the Ninth Circuit weakens the values of autonomy and reliance that undergird the Takings Clause and conflicts with the very foundations of our constitutional order.

Raisin farming ain’t easy; five pounds of grapes yield only one pound of raisins. Raisin farmers shouldn’t have to hand over half of that pound to the federal government.

The Supreme Court will decide whether to take Horne v. U.S. Dept. of Agriculture later this fall.

Cato legal associate Gabriel Latner co-authored this blogpost.

Neal McCluskey

National Review Online is in the midst of its “education week” – including offerings by yours truly and Jason Bedrick – and today brings us a piece by AEI’s Andrew Kelly on how to fix our higher ed system. Unfortunately, while he largely nails the problems, he stumbles on the solution.

Kelly is absolutely right when he criticizes the Obama administration for demonizing for-profit colleges – see my piece for the evidence that for-profits are not the problem – while simultaneously observing how odd it is for conservatives to decry as some great violation of free-market ideals attacks on institutions that get the vast majority of their funds through Washington. He is also right that the entire ivory tower is awash in waste and failure, and all institutions – for-profit or putatively not-for-profit – are self-interested money-grubbers. Finally, he correctly notes that it is a big problem that by far the largest student lender is the Bank of Uncle Sam, who basically gives to anyone who can breathe.

Where Kelly starts to get into trouble is in suggesting that a lot of these troubles could be meaningfully mitigated if we just had the right data readily available to consumers. He writes, “Basic pieces of information needed to make a sound investment — out-of-pocket costs, the proportion of students who graduate on time, the share who earn enough to pay back their loans after graduation — are either incomplete or nonexistent.”

As I’ve written before, there is actually a huge amount of information available on jobs and schools, and many students appear to simply ignore it. For instance, according to federal data, bachelor’s degrees awarded in journalism ballooned from 59,000 in 2000-01 to 88,752 in 2011-12, despite the very well publicized busting of the industry. Indeed, the BLS reports that as of 2012 there were only 57,600 Americans employed as “reporters, correspondents, and broadcast news analysts,” and 115,300 as editors. And it’s not like those with these job are striking it rich: the median annual pay for reporters in 2012 was $37,090, and for editors, $53,880. And yes, those jobs are expected to contract in the next ten years.

How about psychology majors? This is a regular resident on worst-employment lists put out by major news outlets, but it continues to draw big enrollment. In 2000-01 there were 73,645 psychology bachelor’s degrees awarded, and by 2011-12 there were almost 109,000. Meanwhile, according to the BLS, there were only 160,200 people employed as psychologists in 2012, and to be a practicing psychologist one typically needs a doctorate.

But we couldn’t possibly find out if a school has a poor six-year graduation rate, right? Wrong. If you’re willing to pay the $30 fee to access it – a microscopic investment compared to the overall price of college – you can get all sorts of useful data for schools from the hated U.S. News and World Report “Best Colleges” site. For instance, you can see that Lycoming College – a fairly middling school – has a four-year graduation rate of 54 percent, a 59 percent six-year grad rate for Pell Grant recipients, and a 64 percent grad rate for students receiving neither Pell nor Stafford Loans. You can also find financial aid information and cohort loan default rates for the school.

How about Cleveland State University? You can see that it has a puny four-year graduation rate of 8 percent, a six-year grad rate for Pell recipients of only 28 percent, and a six-year grad rate for non-Pell or Stafford students of just 34 percent. You can also discover that it nonetheless had enrollment of over 12,000 undergrads.

Now, is the data so exhaustive that any question anyone might have is answered? No, but while calling for federal data collection and publication, Kelly acknowledges that inherently “college is hard to evaluate until it is actually experienced.” So federal data collection and publication is also likely to leave a lot of unanswered questions. Of course, that doesn’t matter if the information is going to be ignored anyway, as present experience indicates it almost certainly would be.

In addition to getting out more info, Kelly calls for making colleges have “skin in the game” by holding them responsible for paying a part of their students’ defaulted loans. This certainly makes some sense: The big winners in American higher ed are the colleges that get paid no matter what, and the politicians who come off as caring when they furnish taxpayer-funded aid to almost anyone who wants it.

Still, it is uber-optimistic thinking to believe that skin-in-the-game efforts would be applied equally – or meaningfully – to most schools. For-profits would no doubt get hammered, state-subsidized public schools would have a huge advantage over tuition-dependent private institutions, and loveable but woefully ineffectual community colleges would almost certainly be protected. Indeed, Kelly reports that already:

Democratic senators Jack Reed, Dick Durbin, and Elizabeth Warren have introduced legislation that would force colleges with high default rates to pay back a share of defaulted loans. But here again, Democrats would rather play favorites than hold all colleges to account. The bill includes exemptions for historically black colleges and universities and for community colleges, schools that have default rates higher than the national average. And the proposal would cover only campuses where more than 25 percent of students take out loans. In other words, Democrats believe that only a subset of colleges should have skin in the game.

More important, perhaps, is that while many institutions are happy to take money from students who exhibit little if any evidence they can handle the programs for which they are signing up, it is Washington that gives those students much of the money in the first place. And if we should have learned anything from the housing-induced Great Recession, it is that were schools to start turning woefully prepared low-income people away, the Feds would employ both carrot and stick to get them to enroll those students.

Unfortunately, Kelly dismisses the only solution that would do more than skim the edges of the monstrous waste in higher education: phasing out federal student aid, which as Kelly notes, is now at about $170 billion. Quite simply, it is largely aid that encourages people to sign up for programs that huge numbers will not complete. It is aid that enables individuals to enroll in studies that even if they complete them, will not result in a job requiring their credential. It is aid that has fueled credential inflation such that even many of those jobs requiring degrees don’t really require degrees. And on top of it all, it is aid that has fueled huge price inflation and growing student debt.

Calls for phasing out massive aid, Kelly says, has “ceded…ground to Democrats,” and would perpetuate “the under-provision problem we started with: Many low-income students who would benefit from post-high-school education could not afford it.”

Alas, Kelly offers no evidence for this latter proposition, and logic suggests he is largely wrong. While there is huge waste in higher education, it is still true that an average person with a degree – especially in an in-demand field – stands to make big profits from going to college. That means a low-income student would likely be able to find private-sector aid, both charitable and from professional lenders, were they to meaningfully demonstrate the ability and desire to handle college-level work in a needed field. Both lender and borrower would stand to profit. And yes, there would often be little or no collateral for the loan, but lenders always consider risk, and the benefits would almost certainly outweigh it in most cases.

It’s also important to put the claim of an “under-provision” problem under the microscope. Need-based federal aid started in earnest in the 1960s. How many people went to college back then? In 1960, only 7.7 percent of Americans 25 years and older had a bachelor’s degree. In other words, relatively few people – low, middle, or upper-income – had degrees, making it hard to say we had a big problem of under-provision to low-income students when major federal aid started. And, as has been pretty firmly established, the educational challenges facing low-income people have much more to do with factors outside of the education system – especially the higher education system – than the system itself. If any generalization should apply, it is that low-income students are underrepresented because they are, for numerous reasons, too often underprepared.

Folks like Kelly who advocate for more data, skin in the game, etc., are trying to make any improvements they can. But reasons to believe their proposals will do much good are few, while the root problem is clear: Aid fuels massive price inflation and incredible waste. It has to go.

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