Report: States Getting Stuck with $30 Billion Federal Tab

The federal government will force states to pick up an extra $30 billion in expenses in fiscal 2006, mostly for education programs that Congress passed without providing enough resources to pay for them, the National Conference of State Legislatures predicted in a report released today (March 8).

NCSL complained that the problem of unfunded mandates -- programs dictated by Washington but not fully funded -- is a long-term burden only made worse by President Bush's recently proposed budget.

Its latest estimates are that federal programs shifted $25.7 billion in costs to states in fiscal 2004 and $25.9 billion in fiscal 2005, comprising 5 percent of states' general revenues in each of those years. Bush's latest budget proposal would raise the burden of federal mandates even higher, NCSL predicted.

Over the coming decade, states would have to pick up at least $300 billion in costs for federal programs, including $45 billion if Congress approves Bush's proposal to cut federal contributions to Medicaid, the state-federal health care program for 53 million poor and disabled Americans, according to the report.

Nearly two-thirds of the additional costs to states would be in the area of K-12 education, which accounted for the largest single share of states' spending until being eclipsed by Medicaid in 2004.

More than $18 billion would be from funding gaps in two federal education programs -- Bush's signature No Child Left Behind Act (NCLB) and the Individuals with Disabilities Education Act (IDEA), a special education law that Congress reauthorized last year. NCSL says Bush's proposed budget leaves each program about $9 billion short of authorized funding levels.

States' share of prescription drug costs for "dual eligibles" -- the 7 million elderly people who are on the rolls of both Medicare and Medicaid -- account for another chunk of the cost shift. NCSL estimates states will spend $6.6 billion to help cover Medicare drug costs in 2006 alone.

The report's release coincided with the first of a series of hearings on Capitol Hill examining the 1995 Unfunded Mandate Reform Act, which aimed to curb unfunded mandates on state and local governments. NCSL President Maryland Del. John Hurson (D) urged lawmakers at the March 8 hearing to revise the unfunded mandate law so that it more accurately reflects costs that have passed on to states.

"All together, (unfunded mandates) cause enormous impacts for the states," Hurson said.

NCSL defines unfunded mandates much more broadly than Congress.

Other new unfunded mandates NCSL says states could face include:

  • a proposed $1.6 billion reduction in 2006 in grants for community and economic development programs that would result from the consolidation of 18 existing grant programs.
  • about $1.2 billion in costs in 2006 that states could have to absorb to meet requirements to promote safe schools and education technology as well as for other school-reform efforts. States have been using federal funds slated for those purposes to help pay the costs of No Child Left Behind.
  • a proposed $420 million reduction in anti-terrorism formula grants to states in 2006. Those funds would be redirected to urban areas that federal officials deem face a high risk of a terrorist attack.
  • as much as $120 million annually in 2006 and 2007 because Congress last year extended a ban on taxes of Internet access and some Internet purchases.
  • $60 million in missed revenue in 2006 because Congress in the 2003 Medicare reform act pre-empted state taxes on prescription drug premiums, the reports state.
  • more than $60 million in one of the next five years to meet a new federal requirement that states develop standards for driver's licenses, birth certificates and other identification cards.

NCSL relied on some figures from the Congressional Budget Office , which provides lawmakers with nonpartisan economic analysis.