Lamar Alexander is Making Sense. Let’s Listen to Him

 Charlie Arlinghaus

May 23, 2012

As originally published in the New Hampshire Union Leader

Last week, Lamar Alexander proposed a budgeting swap that New Hampshire should support. Instead of the federal government dividing responsibility, funding and accountability for programs, they should make one entity responsible for one program. Alexander proposed starting with education and Medicaid but the principle could work at all levels of government.

Lamar Alexander, senator from Tennessee, was known by supporters and opponents alike as a thoughtful former governor when he ran for presidents. And also for plaid shirts. Yet, despite his sartorial gimmickry, his policies were generally sound and thoughtful. Continuing that tradition, his latest budget proposal is simple but revolutionary.

As a governor in the 1980s, he had approached President Ronald Reagan and suggested a swap: instead of divided loyalties, accountabilities and funding, why didn’t the federal take care of Medicaid by itself and leave education to the states? Reagan liked the idea but it never came close to becoming law.

Last week, Sen. Alexander proposed the idea again and it makes more sense than ever.

Too many programs are divided between federal and state government (or between local and state government) and it leads to bad incentives. Each side blames the shortcomings of any program on the other. One the financial side, the managers of the program always complain that the other side isn’t paying enough in, sets up too many rules and then doesn’t provide the funding, or shortchanges us in some other way. The administrator of the program can’t set the rules by itself, can’t make the changes needed for our particular circumstances, or can’t be expected to do everything we’re told to do without the money.

In Medicaid, for example, it becomes easy for the federal government to propose new mandates, limit flexibility, or require greater paperwork. They feel free to impose the rules because they are providing some funding. Yet because they aren’t providing all of the funding, they feel free to not worry about the cost of the rules they impose.

This particular swap makes sense for the states. Medicaid is a growing program. It costs the federal government $149 billion each year for the half or a little more that the feds pay of the costs. However, the rules are primarily set in Washington with some modest degree of flexibility chiefly regarding rates.

Federal education spending costs about 40% of what Medicaid does – about $57 billion a year. In addition, while the federal share of Medicaid is the majority and gives them enormous authority to set rules, federal education payments are only a small part total state education spending. In New Hampshire, federal revenues are only about 7% of the total $2.7 billion we spend on education at the local level.

In terms of the state budget, total federal funds going to the department of education (often as a pass through to towns) will be $221 million in FY2013. In exchange for eliminating that spending, we’d turn over Medicaid on which we spend more than $600 million or about three times as much.

Divided management is never more efficient management. Too often it is an excuse to allow the more powerful entity to have budget certainty while delegating the hard decisions to the weaker partner.

This would be a bad deal if education were something that ought to be done federally but the opposite is true. Does anyone think any decision made in a non-descript building in Southwest D.C. can possibly have taken into account the probably different needs of the enormous Chicago school district and the somewhat smaller district in Henniker?

Washington rules don’t help. We certainly don’t need some sort of standardized federal curriculum. These are decision that can, should, and will be made at the local level.

By the way, this would increase federal spending a little bit. It may be they need to come up with something else to even out the swap. On the other hand it’s better than aid programs of the past. Eliminating a responsibility is a better support than a little extra money and increased responsibility.

This is something we can pursue at the state level as well. The current budget transfers $1.1 billion from the state to cities and towns in sixteen different programs many of which are jointly managed. There are additional joint programs at the county level. Instead of more programs and mixed management, let’s make one level of government responsible for each program.

Lamar Alexander is making sense. Let’s listen to him. The federal government doesn’t need to stick its fingers in every pie. Let’s divide the tasks and make one entity responsible for one project.