Photographer: Ron Antonelli/Bloomberg

When the Government's Policy Is to Pass the Buck

Lawmakers love mandates, especially if someone else has to pay for them. Enter the "Buffalo Bribe."

An interesting little tiff has erupted over the Republican health-care bill wending its way through the House. Most of the politicking over this bill has involved pushing and pulling from various national interest groups. But one debate lighting up my home state is an old-fashioned brawl between levels of government. The tiff is all the more interesting because it shows how policy will be made as America struggles with a needy, aging population.

At issue is the unusual way New York State finances Medicaid. When Medicaid was passed in the 1960s, New York thought it sounded like a splendid idea, and wanted to extend the boon of Medicaid to as many people as possible. The law ultimately signed by Governor Nelson Rockefeller set income eligibility at $6,000 per year for a family of four -- just slightly below the U.S. median family income in that era. This would, of course, be quite expensive, so the law also required that local governments pick up roughly half the tab.

Eventually, New York’s generous eligibility requirements were scaled back. But the local financing requirements remained. New York has some of the highest per-capita Medicaid expenditures in the country, and a large share of that burden falls upon its local governments.

That’s a winning formula for New York State legislators, who get to give away lots of money to key interest groups at minimal cost to the state budget. But thanks to New York State’s somewhat odd geography, it is catastrophic for a lot of smaller towns.

Politically and economically, you can think of New York as actually two states, maybe three, lashed together. Downstate is rich, funded by high-skilled and high-productivity industries like finance and advertising. It's also liberal. Western and northern New York are poor, either rural or deindustrializing, and conservative.

In theory, this should be a good deal for New Yorkers outside the downstate area; they should enjoy high levels of government spending funded by richer people downstate. Instead, in some ways it’s proven a disaster. Decades of population decline mean that Democrats control the state assembly and drive policies -- like the Medicaid financing system -- that work well enough downstate, but prove disastrous in the rest of the state.

The heavy regulatory and tax burden on those poorer counties makes their problems worse. As population has declined, jobs and young skilled workers have fled, while the old and needy remained. Anyone thinking of moving back (and lots of exiles want to), faces not only the burden of finding a job, but also of paying the taxes that downstate politics require.

When the problem gets too bad, the state legislature tosses some money at those declining counties. But the fundamental problem doesn’t go away, and they continue to slowly strangle under a government burden designed for the politics and economics of a richer place.

Now the federal government is getting into the game. Republicans in Congress are going after those upstate legislators by tacking a provision onto the bill that would end matching federal funds for local government spending -- meaning that if New York wants to use the Medicaid program as a way to funnel federal money into the state (and oh, boy, it does), it would have to foot more of the bill for Medicaid itself.

As a policy matter, this makes sense. I believe strongly in pushing down to the lowest level of government possible, "letting a thousand flowers bloom,” as conservatives like to say. But this works only if that government gets to decide how much it spends, and how to spend it. Setting policy at a higher level, and then passing the bill down to the locals, is a formula for … well, pretty much what New York State’s got. Moreover, if you do view the government as a vehicle for redistribution, then it should redistribute -- not issue expensive mandates telling poorer places to pull themselves up by their bootstraps.

But the policy argument is almost incidental. What’s interesting is that this local dispute has ended up critical to the passage of a national bill. Republicans complained a lot about these sort of deals when Obamacare was passing, especially the notorious “Cornhusker Kickback.” Now they’re doing exactly the same thing, though aimed at a different constituency.

We can expect to see more of this in the future. As the population ages, and the income disparities between areas become sharper, fiscal decisions made decades ago are going to pit levels of government against each other. Consider Detroit’s bankruptcy, or the problems that California’s Citrus Pest Control District No. 2 had with CalPers. Local governments are going to be tempted to bypass recalcitrant state officials by getting their representatives to help them out. And as we can see, sometimes those representatives will be tempted to step in.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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    Megan McArdle at

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