Lecture 17 POLS 207 Outline of Last Lecture Education Funding National v State Local I Property wealth inequality and unequal school funding A SCOTUS and 14th Amendment B State courts and state constitutions Judicial Federalism II Fiscal and policy capacity of the states A One source of modern centralization B Public sector outpacing economic growth C National debt v balanced state budgets Outline of Current Lecture Government Revenue and Expenditures I Two types of expenditures A Purchases aka building things B Transfers aka entitlements II Tax revenue III Federal grants in aid A Degree of state dependency on federal aid Current Lecture Biggest change over past 35 years rises of healthcare esp Medicaid in state local budgets Remember that Reagan offered for national budget to take over Medicaid and states refused that was a stupid move on the part of the states because now Medicaid competes with education funding We can think of government expenditures as a composition of national vs state domestic expenditures Purchases building things o E g infrastructure type programs highways airports public buildings utilities etc including the labor force necessary to carry out these activities e g teachers police firefighters utility workers etc o National 20 State local 80 Transfers entitlements o Payments to and for individual beneficiaries NOT in exchange for a service provided it is usually possible to identify these individual beneficiaries o Not thought of as consuming resources thought of as transferring resources o National 80 State local 20 e g OASDHI UI and WC food stamps TANF One of Conservatives arguments against entitlements So many people are direct beneficiaries that it becomes hard to get a handle on expenditures Entitlements as percent of federal aid Driving force behind change health care costs esp Medicaid Medicaid Fiscal Year 10 389 billion total w 263 billion through federal aid system 44 of all federal aid Towards the end of the first decade of the 20th century better than 2 3 of the Federal aid system was devoted to entitlements The driving force behind this is healthcare Medicaid consumes almost of federal aid to state local government State local government tax revenue sources See D M 14 471 76 Nearly half of state local government revenue comes from sales tax State local revenue sources changes since 1950s As percent of total tax revenue State local governments revenue from property taxes is going down property tax is not decreasing just decreasing as a proportion of revenue Especially since 1970s there have been barriers in place to raising local property taxes e g special exemptions voter approval for rate valuation increases See also D M 14 472 76 478 80 and 2 55 57 on Prop 13 in CA that initiated in 78 the nation s modern tax revolt Sales user taxes are going UP State Income based taxes are UP In 09 there were 7 states without an individual income tax including AK FL NV SD TX WA and WY See table 14 1 Another kind of state and local revenue federal grants in aid See D M 3 84 87 91 and Halter Chapter 10 209 10 and Figure 10 7 Also see D M Tables 3 2 pg 93 and 3 3 pg 96 and 3 4 pg 88 and RANKINGS pg 90 Keep in mind that federal aid is only a portion of state local government s revenue Most of what state and local governments take in is money generated from within their own borders Degree to which state local governments are dependent upon federal aid varies enormously not only by state but also by policy area State variation Some very dependent states Approx 40 of budgets come from federal aid Mississippi Louisiana Montana South Dakota New Mexico Some less dependent states Colorado NJ Connecticut Nebraska About 20 of Texas budget comes from Federal aid The single biggest federal grant in aid program is Medicaid It is an income tested program Policy area variation Education Fed Government only funds about 10 of education expenditures Healthcare About 75 of all publically funded healthcare is funded by the federal government There are infinitely many more policy areas that could be discussed but education and healthcare are good examples