Select Page

New York “Donor State” Sham

New York Governor Cuomo continues his crusade for a state bailout by claiming that New York is a “donor state” and therefore entitled to more federal funds. By this, he means that New York gives more in tax revenue to Washington than it gets back. However, the “donor state” mantra and his calculations making that claim are incorrect.  

A recent article in the Wall Street Journal, “New York is No ‘Donor’ State,” did a thorough breakdown on how to calculate and account for federal funds in order to better understand the ebb and flow of dollars in and out of states. In this, it showed that New York really isn’t a donor state at all. It seems that various “donor state” claims tend to cling to a Rockefeller Institute report published in 2017 that erroneously calculated what states receive. For instance, it counted both food stamps and servicemen’s paychecks as federal subsidies when that’s clearly not the case. Likewise, it omitted the federal subsidization of municipal debt issuance and also didn’t account for the implicit socialization of their unfunded pensions and postemployment benefits. Thus, in reality, New York is one of several high-tax blue states that “are net ‘receivers’ of federal funds.” The aforementioned article is a definitely worthwhile read.

But even if the donor state claim were true to some degree, it’s still a weak argument for a bailout. Any notable imbalances occur for several reasons that Cuomo refuses to even consider. For instance, the federal tax code is very progressive and New Yorkers have high incomes. Likewise, New York receives relatively less money in the form of federal contracts and federal employee wages. This is logically caused by the fact that New York has made itself such a terrible place to do business (including sky-high costs and ridiculously burdensome regulation and taxes) that it can’t compete for these projects. Furthermore, the flow of New York taxpayer money to Washington and back has virtually nothing to do with why the New York government can’t balance its budget due to overspending. The government is not the taxpayer. The states send no money to Washington – their earners do. 

In other words, it’s not that the government is being shortchanged. The state government isn’t hurt by this at all.  The taxpayers of New York are the ones hurt by perennial fiscal mismanagement and it is a sham to request a bailout under the guise of being a donor state.

Veronique de Rugy on State Bailouts

Veronique de Rugy (one of my all time favorite people)  and Tad DeHaven of the of the Mercatus Center have written a wonderful article about why there should not be state bailouts (pandemically-induced or otherwise) It is a great read here:

A key thing to note is about Veronique’s observation of why New York’s perennial claim that it sends more money to Washington than it gets back. The situation occurs because 1) the federal tax code is very progressive (thanks to NY and the other liberal states that insist on it) and New Yorkers have high incomes, and 2) NY receives relatively less money in the form of federal contracts and federal employee wages: (my note: this is logically caused by the fact that New York has made itself such a terrible place to do business -including sky-high costs and ridiculously burdensome regulation and taxes- that it can’t compete for these projects. Furthermore, the fact that New York taxpayers send more to Washington than they get back has nothing to do with why the government can’t balance its budget. The government is not the taxpayer. The states send no money to Washington – their earners do. 

The states often argue that if corporations can get bailed out, states should as well. But note, that before there is ever a consideration of a corporate bailout, the corporation has taken dramatic steps to stem the problem, chopping costs, revising operations, and demonstrating that with the bailout funds the entity will again be viable. There is also a promise to repay the amounts with a significant return to the government. 

But what about the states? There has been virtually no movement to reduce their budgets – in fact, NY continues to show that it is not only refusing to lay off personnel whose jobs are no longer viable, but they intend to go ahead with scheduled increases even to employees who are not working. No company would dream of requesting a bailout in those circumstances. And without serious and immediate cutbacks, how would the states ever have the capability to repay any bailout funds?

Many states have failed their fiduciary responsibilities to their citizens. If these lawmakers requesting bailouts are so concerned about their states, they should aim to reduce the size and scope of their governments, and the wildly out-of-control spending that created revenue shortfalls prior to the pandemic, instead of expecting others to subsidize their irresponsibility.

New York’s Indefensible Bailout

New York’s state budget director, Robert F. Mujica, Jr., wrote an anemic, laughable Letter to the Editor (printed in the Wall Street Journal) trying to defend New York’s fiscal record in an effort to get a federal bailout. Those of us who live in New York couldn’t help but notice it was full of half-truths. For instance, Mr. Mujica boasted lowering income-tax rates, but neglected to include the fact that Florida doesn’t even have an income tax yet still manages to operate on a budget of $93 million vs NY’s $177 million — in a state with 2 million more people!

Furthermore, he talks about a 20% increase of private-sector jobs, but leaves out the fact that “private job growth in Florida has been about 60% higher than in New York from Jan 2010 to Jan 2020.”

Likewise, he claims that New Yorkers send $29 billion more in taxes to the federal government than it gets back, but fails to mention that the reason for this is New York’s tax code punishes high income earners by adding extra taxes, so much that some earners pay nearly 50% of their earnings in taxes! Nor does he mention that many wealthy New Yorkers have wised up to being fleeced over the last decade, making New York one of the top ten out-migration states in order for earners to try to keep their own income — some going to Florida, no less. This loss undoubtedly contributes to the $6 billion budget shortfall that existed before Coronavirus even hit, something that was also conveniently left out of his defense.

Finally, Mr. Mujica tries to suggest that the $29 billion New Yorkers send to the federal government somehow subsidizes Florida’s budget because Florida receives $30 billion more from the federal government than Floridians send. But he leaves out the fact that New York’s budget contains 35.9% of federal money compared to Florida’s 32.8%. With a budget of $177 billion, that’s $63 billion of spending from federal dollars compared to $30 billion in Florida. Who is more fiscally irresponsible?

If states like New York are not willing to take any of the economic risk going forward, they should not get any money. They have willfully chosen to engage in a prolonged economic lockdown in hopes that someone else pays for it. Florida was one of the last states to shut down and has begun opening up once again, understanding the need for economic recovery. If New York wants to continue to take the economic risk of staying closed while other localities choose to reopen, they should be the ones to pay for it.

WSJ: NYC Business Proposals Are Unreasonable

Charles Passy’s article in the WSJ was a veiled plea to save the culinary scene of New York City. With two specific outrageous proposals, Passy’s economic bias here is unbearable. 

First, he describes how “bar and restaurant owners throughout the city say such claims are being denied at the present time because of policy exclusions, despite the businesses having paid thousands of dollars for their property and casualty insurance over the years.” As a result, Passy argues that insurance companies should be forced to cover things they never intended to cover (nor could it ever have been an insurable event).

Second, Passy endorses a “measure to prevent landlords of commercial properties from enforcing provisions that hold tenants, such as bar and restaurant owners, personally liable for rent should they be unable to pay because of the pandemic.” In other words, Passy wants to allow tenants to not be personally responsible for paying rents though they specifically agreed to it.

New York doesn’t have the right to pass such laws, giving money out and interfering in contractual relationships in which they are not a party. Not only is it illegal and immoral, but unconscionable. It is astounding that the WSJ would allow such an outrageous article.

HHS Attempting to Frame Obamacare Losses to Insurers as a Government Obligation

A must read from the Washington Examiner today on the subject of Obamacare, insurance companies, and bailouts. I republished the article in full.

The Department of Health and Human Services attempted to reassure private insurers on Thursday that they’ll be able to recover losses from participating in Obamacare by claiming it was an “obligation” of the U.S. government to bail them out.

At issue is a provision within the law known as the risk corridors program. Under the program, which runs from 2014 through 2016, the federal government is to collect money from health insurers doing better than expected and use those funds to provide a federal backstop to other insurers who incur larger than expected losses from rising medical claims. The idea was to provide training wheels to insurers in the first years of Obamacare’s implementation, and to take away any incentive for insurers to cherry pick only the healthiest customers.

Republicans, fearing that this could turn into an open-ended government bailout in the event of industry-wide losses, included a provision in last year’s spending bill that limited the program, requiring HHS to pay out only from the pool of money collected, rather than supplementing it with other sources of government funding. President Obama signed that bill.

Now that insurers have been able to look at medical claims, what they’ve found is that enrollees in Obamacare are disproportionately sicker, and losses are piling up. For the 2014 benefit year, insurers losing more than expected asked for $2.87 billion in government payments through the risk corridors program, but HHS only collected $362 million from insurers performing better than expected. Thus, the funds available to the federal government only amounts to 12.6 percent of what insurers argue that they’re owed.

So insurers are not happy. And now the industry lobbying group America’s Health Insurance Plans — which happens to be helmed by Marilyn Tavenner, who previously oversaw the implementation of Obamacare as head of the Centers for Medicare and Medicaid Services — is aggressively fighting for more money.

In a statement issued Thursday, the same day that the nation’s largest insurer, UnitedHealth announced it may exit Obamacare due to mounting losses, Tavenner said, “We’ve been very clear with the administration about the serious challenges facing consumers and health plans in this Exchange market. Most recently, nearly 800,000 Americans have faced coverage disruptions as a result of the significant and unexpected shortfall with the risk corridors program. When health plans cannot rely on the government to meet its obligations, individuals and families are harmed as a result. The administration must act to ensure this program works as intended and consumers are protected.”

In an effort to reassure the industry, CMS, the HHS agency Tavenner previously led, issued guidance reiterating that HHS would use money collected from insurers in 2015 and possibly 2016 to make up the $2.5 billion shortfall that exists in 2014.

But what happens if there still isn’t enough money, and after 2016, the program is taking in less than the money sought by insurers?

HHS said it, would “explore other sources of funding for risk corridors payments, subject to the availability of appropriations. This includes working with Congress on the necessary funding for outstanding risk corridors payments.”

The agency further added: “HHS recognizes that the Affordable Care Act requires the Secretary to make full payments to issuers, and HHS is recording those amounts that remain unpaid following our 12.6 percent payment this winter as fiscal year 2015 obligation of the United States government for which full payment is required.”

In reality, this doesn’t mean much at all. Risk corridor payments for 2016 won’t be due until mid-2017, and by that point, it will be an issue for a future Congress and future president. Nothing that a previous administration’s HHS said in 2015 will really matter.

That said, this is another demonstration that for all of Obama’s sanctimonious rhetoric about taking on insurance companies. In reality, his signature legislative achievement was to put government in bed with private insurers. And now that his pet project backfired, he wants taxpayers to take care of those very insurance companies he spent years railing against.