The “Unfunded Mandate” Gig. What Would Real Government Reform in NY Look Like?

by John W Rodat on June 7, 2012

As they do from time-to-time, all over New York, county officials are screaming about “unfunded mandates.” Candidates for the State Legislature are touting reforming “unfunded mandates” as an essential part of their platform.

Even aside from the funded unmandates (read that carefully) of county nursing homes that so many still wish to maintain and some wish to rebuild, the issue just ain’t what it seems. Most who talk about it simply don’t know what they’re talking about. And some who do may want to reconsider the long term implications. And as you read this, think about the relationship to reforming the State Budget.

Beware, this post is a really long one. Scan it and come back to it if that’s what it takes; it’s that important. It’s also essentially a first draft with all that that means.

“Unfunded mandates.” Let’s think this out …

There are two types of mandates. Let’s call them operational and programmatic.

Operational mandates govern how counties operate. They include such state statutory requirements as including employees in the State’s Employee Retirement System, adherence to Civil Service processes and criteria, purchasing rules, accounting standards, investment restrictions, and so on. Though some of the requirements are unduly restrictive, there’s history and rationale behind most, if not all of it.

  • Should we allow local governments to operate their own pension funds? Let’s call that what it is: a really bad idea. Experience in other states which allow it is bad and getting worse. Besides, it’s not like local governments don’t have some discretion on how many people they hire and how much they pay. Would local officials rather than their pension obligations be unfunded like the dirty little secret of retiree health benefits? In the latter case, there is no mandate. Indeed, one county does not offer retiree health benefits. But everyone else has a looming unfunded obligation entirely of their own making, i.e., a financial disaster in the making precisely because there is no mandate.
  • Should we allow local governments to invest in complex financial instruments, like derivatives that have gotten financial organizations and municipal governments elsewhere into such big trouble? Another really bad idea.
  • How about dumping Civil Service requirements for local government? I’m sure local pols would love that. Not that I didn’t have some related frustrations as a local government manager and not that Civil Service doesn’t need some significant revamping, but eliminating the basic mandate? Neither likely nor advisable.
  • What about removing purchasing standards and requirements. Here too, some streamlining and more flexibility are in order, but fundamentally changing the process? Nah.

We could go on, but operational mandates are not where the big money is. That’s in program mandates.

Program mandates grow out of New York’s history and they exist because, unlike most other states, key functions are operated by county governments rather than the state itself. If you go back a century or more, many governmental functions in New York were performed by local governments. Take social welfare functions. With the advent of the New Deal, during the Great Depression of the 1930s, Federal funds became available to support such functions. Rather than build an entirely new infrastructure, New York chose to channel that Federal aid, along with State funds to the local governments already performing those functions. But with the new Federal and State money, came some standardization – in the form of rules – mandates. Until the 1950s and 60s, when these functions were consolidated at the county level, many cities and towns were still involved in welfare administration. This was in contrast to what many, if not most states, did which was to centralize administration in state government.

New York’s structure emerged long before modern communications technology did. It developed in an era that even preceded copying machines, much less personal computers. But while those technologies are now pervasive, even if inadequately so, the pre-information age organizational structures still prevail. As a result of this history, the essential operational responsibility is still local – at the county level, but for the key programs, the bulk of the funding comes from the Federal and State governments. There are exceptions, but it’s still predominantly non-county money.

We’ll get to Medicaid, which is the big Kahuna financially, but let’s start with something else, child protective services, which is a really good example, and then go on to Medicaid and some other programs.

  • Child Protective Services. Let’s get right to the heart of the matter. Should New York abandon requirements for reporting and investigations of child abuse and neglect? Doing so would certainly relieve counties of the burdens of a significant mandate. If your answer is yes, I’m surprised you’re reading anything on this site. My answer is, of course not. Protection of children is an essential social/governmental function. Next question, should New York abandon standardized requirements regarding how and how quickly reports of abuse and neglect are investigated and when intervention is warranted, acted upon? Again, of course not. So the function will be performed.

    Despite the mandates that the services be performed, counties have considerable discretion in organizing and staffing how the function is performed. The next question is whether the State and Federal governments should pay counties 100 percent of the costs that counties incur? Of course not. If they have discretion, especially on staffing and payment levels, they need to have some “skin in the game,” enough to make them price sensitive.

    What might be an alternative? To have the State itself take over administration. Hmmmm.

  • Medicaid. In raw dollars, this is the big one. Statewide, county governments contribute about $8 billion to the cost of Medicaid. Here too there is history, but over time, counties have had less and less discretion and less and less direct operational involvement. Moreover, New York, as it should, is clearly moving toward the assumption of all administrative responsibilities for the program. So what about the residual financial obligation that counties do have? However “unfair” it may be that counties have a financial obligation that is vastly disproportional to their discretion, there is no way in which the State can simply fold an $8 billion item into its budget without a new source of revenue. Were New York to raise its current taxes or impose new ones without guaranteeing an equal reduction in locally imposed taxes, by simple arithmetic, this would yield a net increase in total taxes paid by its citizens.

    Fortunately, there’s already a model of how to transition the Medicaid financial obligation from the counties to the State. In 2005, New York started the process of transferring the financial burden of Medicaid to itself by capping the growth in each county’s obligation, ultimately to three percent of the base year of 2005. As a result, local obligations did not experience compound growth and most of the growth in Medicaid costs was and is being absorbed by the State itself. When it instituted the cap on growth, New York offered counties a one-time choice.

    At the time the cap was created, counties had the option of taking Medicaid off their books entirely. The base year county obligation was compared to local sales tax revenue during the same period and calculated as a percentage of that tax revenue. In return for permanently diverting that percentage of sales tax revenue from the county to the state, the county Medicaid obligation would vanish. It would no longer even appear on their books. Only one, maybe two counties chose the option because sales tax revenues had been growing faster than Medicaid under the cap, but that only lasted until the Great Recession when sales tax revenues collapsed.

    The cap on growth in county’s Medicaid share was tightened further in the SFY 2012-13 budget. From the Governor’s press release: “In 2013-14, local government Medicaid growth will be reduced to two percent, and then reduced by an additional one percent annually over the subsequent two years so that in 2015-16, counties and New York City will no longer have to contribute toward the growth of Medicaid expenses.”

    To eliminate this entirely, re-open the offer made in 2005. No, don’t do that. Don’t make it an offer. Just do it, gradually maybe but do it. Determine what the residual Medicaid obligation represents as a percentage of local sales tax revenues and transfer both the local Medicaid liability and the percentage share of sales tax revenues from local governments to the State. Perhaps this should be done incrementally and completed at the same time as local Medicaid staff are transferred to State employment, but do it. This might also be combined with reform of the current process of requiring State approval of local sales tax rates changes, even temporary ones. Create a permanent upper limit that’s the same for every county, while incorporating the transfer of the Medicaid liability.

  • Cash Assistance. Here too, with programs like TANF and Safety Net (New York’s general assistance program for clients that do not qualify for Federal aid), the Federal and State expenditures considerably outweigh the counties’. Here also, we find an increasingly standardized, increasingly computerized program that could be well operated directly by New York State, as is the case with most states. Why, for heaven’s sake does Hamilton County, with a population of less than 5,000 need to have its own, separate Department of Social Services?
  • Probation. Unlike the programs above, the State contributes less than half of total costs. There are still program requirements that leave counties with less than full discretion. For example, local probation directors, must be in specific State Civil Service titles are the positions are competitive rather than exempt. So local officials have even less discretion in appointing local probation directors. However, probation is operated in parallel to the State’s parole program. They are used at different times in the criminal justice process, but they are not fundamentally different. Any good reason not to integrate them at the State level?
  • Nursing Homes and Home Care Agencies. Regardless of what happens to county government, get counties out of the business. Period.
  • Mental Health and Substance Abuse Services. This one’s a bit trickier than nursing homes and home care, but one that could be figured out nevertheless. Let me tell you a little story to illustrate why. OASAS, New York’s substance abuse program, “operates” some programs through county agencies, but in a manner which I always found bizarre in its extra complexity and expense. OASAS selects private organizations to provide services of a particular type. They notify the counties in which those services are to be provided and, in effect, order the counties to contract with those agencies. Then they pay the counties 100 percent of the program expense. So counties are merely a conduit. Of course, when acting as the conduit, the counties must incur extra administrative expenses, for which they are not paid. And it takes time, effort, and annoyance. Many, if not most of those contracts even require local legislative approval. Now pray tell me, why? If OASAS is going to bear the full program costs and if they’ve already chosen the providers, why don’t they just go ahead and contract directly? All this Rube Goldberg mechanism does is add administrative overhead to the system as a whole. And it adds no value at all to the process or service.
  • Jail, Local Courts, Sheriffs, District Attorneys, Indigent Legal Services, and Other Criminal Justice Functions. Without seeming to be too flippant about it, many of these functions can also be integrated with State or the functions of other local governments. Why, for example, should there be overlapping jurisdictions for Sheriffs and local police? Why should every county have their own model of indigent legal services (some have several)? Why not have regional jails, funded by the State? And on and on …

Now you might ask about public health, a function that’s increasingly important, but under-acknowledged and underfunded. However, it’s not a legally mandated service. Counties are not required by State Law to operate public health departments. When they don’t the State Health Department performs the key functions.

You can see where this is going, can’t you? We can go down the entire list of county functions, but you’ve been patient or tenacious enough to get this far. So let’s wrap it up.

Very quickly, we find that the real solution to “unfunded mandates” is eliminating county governments which is essentially what Massachusetts did in the late 1990s. It abolished all but a handful of county governments and, with some exceptions, it assumed direct responsibility itself.

Eliminating county governments would remove a huge, expensive layer of overhead from New York’s governmental functions. This alone probably costs us in excess of $2 billion. Of equal importance, because they are so intertwined, organizationally and financially, we cannot fully grapple with New York State government’s budget and operations without also dealing with and solving county governments.

The only reason for an alternative path, would be to regionalize what are city and town functions now. Of course, that would make county governments look quite different from what they look like now. The same results might also be accomplished by merging cities and towns.

What the “unfunded mandates” debate should really be about is whether we should maintain a pre-information age organizational structure for governmental services that are elsewhere administered directly by state governments. We don’t need three layers of government (or four if you consider villages as part of towns). We need two. State and local. Rather than continuing in an industrial – or even agricultural – age organizational mode, it is time for New York to seriously consider redistributing county responsibilities.

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