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    Main | Despite Budget Shortfalls, Some Governors Call for Tax Cuts »
    Friday
    Jan272017

    The Week in Public Finance: What We Don't Know About Sanctuary Cities' Funding, New Reasons to Save and More

    A roundup of money (and other) news governments can use.

    BY  JANUARY 27, 2017

    What We Don't Know About Trump's 'Sanctuary City' Order

    On Wednesday, President Donald Trump took his first move to defund cities that refuse to cooperate with federal efforts to deport undocumented immigrants. Trump signed an executive order directing the Secretary of Homeland Security to look at federal grant funding to cities “to figure out how we can defund those streams,” said White House Press Secretary Sean Spicer.

    Many of the nation’s largest cities -- including Chicago, Los Angeles, New York City and San Francisco -- are immigrant sanctuaries and have said they won’t back down from their policy.

    “We are going to fight this, and cities and states around the country are going to fight this,” said New York Mayor Bill de Blasio at a press conference after the executive order.

    Federal funding makes up roughly 5 to 10 percent of most mid- to large-sized city budgets. There is no collective data on this topic, but looking at estimates from a handful of cities, the larger cities tend to get more in federal aid. New York City, for example, says it gets more than $8.5 billion in federal aid, which represents a little more than 10 percent of its total budget.

    There are, however, two big unknowns here: Whether Trump has the constitutional authority to selectively strip funding and how much in funding is at stake.

    The Takeaway: When Trump first issued the threat back in November, constitutional law expert Noah Feldman noted that precedents set in two court cases -- both brought by conservatives -- could preclude Trump from carrying out his plan.

    “The federal government can’t coerce states (or cities) into action with a financial ‘gun to the head,’ according to Supreme Court precedent developed by Chief Justice John Roberts in the 2012 Affordable Care Act case,” noted Feldman. “And federal officials can’t ‘commandeer’ state officials to do their work for them under a 1997 decision that involved gun purchases under the Brady Act.”

    Such arguments to protect states’ rights could also be used to protect cities, argued Feldman.

    Technically, tens of billions of grant dollars are at risk, but it’s unclear which programs would -- or could -- be targeted. In a somewhat comparable situation in the 1980s, the U.S. Supreme Court ruled that Congress could legally take away 5 percent of states' highway money if they didn’t raise the drinking age to 21. Interestingly, Trump’s executive order exempts law enforcement grants, which is the one area where he might have had constitutional grounds for defunding since local police are who he wants to strong-arm into reporting undocumented immigrants.

    Major programs that could be affected include Section 8 housing vouchers, Head Start and domestic violence services -- essentially the most vulnerable population in cities would be made even more vulnerable.

    More Reasons to Save

    Having money for retirement is good for retirees, and it could also be a financial help to states themselves. That’s the finding of a new study that looked at how individual retirement savings impact what states will likely spend in future Medicaid costs.

    The simulated analysis by Segal Consulting showed that if all workers gain access to retirement plans, then states would save big on future Medicaid costs because vulnerable households would be removed from the poverty rolls by the time they retire.

    In the first 10 years after a retirement savings plan is introduced, 15 states would save more than $100 million in Medicaid payments. California and New York alone would save for more than $1.1 billion.

    Most Americans, however, are ill-prepared for retirement. More than 38 million people, or roughly 45 percent of working-age households, have no retirement savings at all, according to data from the National Institute on Retirement Security.

    The Takeaway: Experts have long warned that states will foot the bill for a poor retiree’s social service needs -- Segal’s findings put real dollar values on those costs.

    The findings could be a big financial motivator for states to implement a retirement savings program for private-sector workers. The programs, called Secure Choice, essentially auto-enroll private employees into a 401(k) savings program when their employers don’t offer a retirement plan. A handful of states have plans to phase in such a program, while Oregon and Washington are launching their plans this year.

    Based on the Evidence

    In many state and local government circles, evidence-based policymaking is all the rage. And according to a new study, Connecticut, Minnesota, Oregon, Utah and Washington state are leading the field.

    Evidence-based policymaking is the systematic use of findings from program evaluations and outcome analyses (i.e., the evidence) to guide government policy and funding decisions. While most states have employed this tactic in one way or another, Pew Charitable Trusts reported that only a few are really using it to drive funding decisions. Meanwhile, seven states (Maryland, Michigan, Montana, New Hampshire, North Dakota, South Dakota and West Virginia) are taking very few evidence-based actions.

    Pew looked at six main actions that states take in this area: figuring out what to measure, taking stock of existing programs, comparing program costs and benefits, reporting those outcomes in the budget, targeting funds to evidence-based programs, and institutionalizing evidence-based policymaking by incorporating key actions into legislation. In short, figuring out which programs are working, and directing more money there.

    The Takeaway: Connecticut’s high place in the rankings is an important reminder that not all states in financial duress are broken.

    Despite their decade-long practice of accountability and results-based budgeting, the state has chronic budget woes because the practice of paying for what works in policy can’t be transferred to certain spending obligations like pensions.

    To read this regularly, subscribe to "The Week in Public Finance" newsletter for free.

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