Pew Charitable Trusts

As sales tax collections slow and the nation becomes a service-based economy, many states are considering expanding the universe of goods and, especially, services that are subject to the sales tax.

For some states, expanding the sales tax is a straightforward way to get more revenue amid a budget crunch. For others, it’s a way to replace revenue lost in a political and philosophical decision to reduce personal income and corporate business taxes in an attempt to free capital to create more jobs.

Further down the line, some states are looking at taxing new or different endeavors in the face of a changing economy.

In states from Arizona to Oklahoma and West Virginia, lawmakers are considering bills that would impose the sales tax on services ranging from beauty salons to funeral homes; from telephone land lines to cellphones. In Pennsylvania, the governor’s budget calls for an expansion of the state’s sales tax — to include movie tickets, cable service and digital downloads — that he expects to raise about $415 million.

The sales tax has long been a staple of state and local finances. Sales taxes accounted for 34 percent of state and local revenue in 2010, according to the Tax Foundation, a nonprofit group that analyzes state taxes. Revenue from personal income taxes, meanwhile, accounted for 20 percent and corporate taxes accounted for 3 percent. Other taxes and fees made up the balance.

But revenue from the sales tax is slowing. According to the Rockefeller Institute’s “State Revenue Report” issued in November, sales tax collections in the second quarter of last year grew 3.2 percent from the same period in 2014 — significantly weaker growth than reported in the previous four quarters and “low by historical standards.”

The erosion is expected to continue. Shoppers now do more business online, where collecting sales taxes is less reliable. And many people are simply paying for services rather than buying the taxable goods to do the work themselves — think of hiring a lawn service as opposed to buying a mower.

And it’s coming at a time that many states have sought to reduce their reliance on personal and business income taxes because they have become overly dependent on them; revenue from them is more volatile and harder to forecast; or because they think income taxes stifle job creation.

“Over the past four or five years, there has been increasing interest in sales tax base expansion,” together with the rise in Republican state legislators, said Joseph Crosby, a principal at MultiState Associates and a former executive with the Council on State Taxation. “There is a natural, strong instinct to reduce income taxes in favor of consumption.”

There are downsides to that, however. Sales taxes tend to be regressive in that they dent the pocketbooks of lower-income families more than upper-income families with more disposable income (though taxes on services like landscaping and health clubs may hit more affluent folks). And unless the sales tax is extended to all goods and services, it plays favorites on whom and what gets taxed.

If legislators exempt some services — such as health care and educational services — from the tax, as they tend to do, Crosby said, then the tax base is undermined. And, he said, a question of fairness arises.

Oklahoma’s Hole

Some states, such as Oklahoma, are considering sales tax expansion out of dire necessity.

To help close a projected $1.3 billion budget deficit in fiscal 2017, largely resulting from tumbling oil prices and exacerbated by a cut in personal income taxes that took effect this year, Republican Gov. Mary Fallin proposed a $200 million expansion of the state sales and use tax. She hasn’t enumerated specific services to be taxed, but has left no doubt that taxing services will need to be evaluated.

“If you never looked at any of your sales tax exemptions, particularly in a service economy, it makes sense to look at that,” Fallin said, adding that there are probably some “antiquated exemptions put on 50 or 60 years ago.”

Ultimately, Fallin said, she’d like to lower Oklahoma’s sales tax rate of 4.5 percent if its base can be expanded enough. But she doesn’t underestimate the political difficulty in expanding it to cover currently untaxed goods or services. “It’s hard to move the old dinosaurs.”

Other states also are driven to look at expanding the sales tax by dire finances.

In Louisiana, faced with a budget deficit of at least $870 million this year and projected at $2.2 billion in fiscal 2017, Democratic Gov. John Bel Edwards has proposed a 1 cent hike in the 4 percent sales tax rate. He would also extend the sales tax to Internet sales; lodging booked through online travel companies; and personal home rental services such as Airbnb.

Democratic Gov. Gov. Tom Wolf’s proposal to expand Pennsylvania’s 6 percent sales tax comes as he and the Legislature try to come to grips with a deficit that is expected to surpass $500 million this fiscal year and to balloon to $2 billion the next.

Trade-offs

Lawmakers in other states are eyeing a sales tax expansion as a way to pay for cuts in income taxes.

A bill in the Arizona House, for instance, would lower personal income tax rates and make up the lost revenue by broadening the sales tax base to a laundry list of services: beauty salon services, funeral homes, dry cleaners, shoe repair, carpet cleaning, pet grooming and boarding, parking, and cleaning and repair services.

North Carolina has made the trade-off already, and Republican Gov. Pat McCrory said it has been an economic success.

In 2013, he signed a bill that cut North Carolina’s personal income tax rate from 6 to 5.8 percent and cut business taxes from 6.9 to 6 percent. In 2015, while the state built on that plan and cut other taxes, it added insulation repair and maintenance to the list of services subject to the sales tax.

According to the Tax Foundation, tax revenue in North Carolina exceeded projections by $400 million in 2015. Unemployment dropped, although a direct correlation is often hard to track and can be attributed to the improving economy nationally.

McCrory, however, has no doubt about the results: “Our income tax revenue has increased by 5 percent this year, and our job creation has been the best in the nation. There’s a direct correlation. You could keep doing the same thing and get the same result, or you could try something new.”

California Conundrum

California’s budget situation could not be more different from Oklahoma’s. Gov. Jerry Brown’s proposed budget estimates more than $10 billion in reserves by the end of fiscal 2017, and the debate is mostly over whether to spend or save the extra cash.

But a leading member of the Legislature says now may be a good time to look at restructuring the state’s tax system, including shifting the sales tax structure, precisely because the state is not cash-strapped and can evaluate proposals without the deficit sword hanging over its head.

Democratic state Sen. Robert Hertzberg, a former speaker of the California Assembly, is preparing legislation that would add services to the sales tax base as part of a larger tax restructuring package. Although he is still working out the details, his plan is similar to legislation that he introduced last year and did not pass. That bill called for extending the sales tax to services, without specifying which ones.

Hertzberg wants to cover services because they comprise an increasing share of the economy. He acknowledges sales taxes can be regressive, but said they can be less so by exempting rent, utilities, education, child care and health care.

“You have to make the rate low enough so it doesn’t have that much effect on poor people,” he said.

Brown, a Democrat, who has not taken a position on Hertzberg’s reform efforts, has called for putting more money into California’s rainy day fund to guard against revenue volatility and the likelihood of another recession.

Exemptions

Six states — Delaware, Hawaii, New Mexico, South Dakota, Washington and West Virginia — tax services broadly. And some, such as South Dakota, have for many years. But even in those states, there are routine calls for exemptions.

Republican Gov. Dennis Daugaard, who is seeking a half-cent increase in South Dakota’s 4-cents-on-the-dollar sales tax to pay for teachers’ salaries this year, recently wrote an op-edcolumn opposing lobbyists who each year “argue for a tax exemption on their particular goods or services.”

Daugaard vetoed an effort last year to exempt hay for livestock bedding. And he vowed to oppose efforts this year to exempt rodeo admissions and used truck tires.

Elsewhere in the country, advocates lay out many reasons they want exemptions.

For example, legislatures in four states — California, Michigan, Virginia and Wisconsin — are considering bills to lift the sales tax on all feminine hygiene products, including tampons. Backers say the goods are “essential” by any definition and should not be taxed by states that have exempted other essentials such as groceries. (A similar bill has already failed in Utah. Five states — Maryland, Massachusetts, Minnesota, New Jersey and Pennsylvania — exempt tampons from tax.)

Other states are dealing with other proposed exemptions: The Idaho House has approved a bill taking sales taxes off Girl Scout Cookies, Boy Scout popcorn and other food products sold by the scouts. And Georgia is considering removing its sales tax from Super Bowl tickets as an incentive to bring the NFL’s big game to Atlanta in 2019 or 2020. The NFL will choose the sites in May from among Atlanta, Miami, New Orleans and Tampa.

Read original article – February 26, 2016
As Nation Moves to a Service Economy, States Look to Tax It More

In Roseau, Minnesota, there are good-paying jobs at the Polaris snowmobile factory. But a dearth of moderately priced housing means there are few places for the company’s managers and engineers to live.

Without more affordable housing, Polaris will have trouble growing in this northern Minnesota city of 2,600. The company won’t disappear, said Todd Peterson, a community development coordinator in Roseau, but it cannot add new jobs without more housing, and is likely to expand elsewhere.

“We’re competing as a community to say we’re a viable place for Polaris to do business, but we can’t provide housing for the people they need to work,” he said. “That’s a hard sell.”

As affordable housing vanishes for low- and middle-income Americans, lawmakers in Minnesota and other states are being forced to look for ways to encourage new construction and ease a housing crunch that increasingly eats up more of people’s income.

Last week, Virginia Democratic Gov. Terry McAuliffe allocated $6.9 million in grants and loans to nonprofit developers to build affordable apartments. Earlier in month, Maryland Republican Gov. Larry Hogan committed nearly $700 million to address blight in Baltimore, and said some of the money would go toward rental assistance.

Legislation in California would impose a fee on real estate transactions that could generate between $300 million and $500 million annually to support the state’s affordable housing, redevelopment and homeownership programs. And in Minnesota, lawmakers are being urged to authorize state income tax credits that could be used by developers in places like Roseau.

The country’s lowest earners are increasingly at risk because the private sector cannot meet their need for housing without government aid, said Chris Herbert, director for Harvard’s Joint Center for Housing Studies.

On top of that, he said, a housing shortage for people with moderate salaries threatens to drive the middle class from cities and dampen local economies.

“Where can any private developer build, own and operate and charge only $500 in rent and be able to make a go of it?” Herbert said. “We have to think of ways that public subsidies can close the gaps.”

Cause of the Crisis

Stagnant federal funding for low-income housing programs; the lingering effects of the Great Recession, when millions lost their homes to foreclosure; and growing income disparity have left many states and cities with an influx of people in search of affordable homes.

Rents rose by as much as 7 percent between 2001 and 2014, according to the Harvard Center’s study on rental housing. In that time, wages also fell by as much as 9 percent, squeezing Americans’ budgets.

This has affected the three-quarters of low-income people who qualify for — but do not receive — most types of federal housing assistance, as well as middle-class Americans.

Herbert’s team found that more than 80 percent of renters who earn $15,000 or less spend over 30 percent of their income on housing and are considered “cost burdened.” More than two-thirds of renters in that income range spend more than half.

“What are they not spending money on? They’re not spending their money on food,” he said. “They’re not spending their money on health care.”

Housing costs are growing quickly for middle-class households, too. From 2003 to 2013, the share of renters earning between $30,000 and $45,000 who were considered cost-burdened increased from 38 to 45 percent. Among those earning between $45,000 and $75,000, it increased 6 points, to 20 percent, according to the Harvard Center.

New Ways to Pay

Sixteen states give tax credits to developers who build affordable housing; most have some sort of housing trust fund for low-income housing supported by real estate taxes.

But housing advocates say states and cities need to do more to ease the housing crunch, such as finding new ways to finance construction or demanding that developers price some of their new apartment units below market value.

Some have been responding in novel ways. In Portland, Oregon, where the mayor declared a housing state of emergency in the fall, the city has gone to a source of the housing scarcity to help finance new housing: the sharing economy.

Kurt Creager, director of the city’s housing bureau, estimates between 800 and 1,000 units of affordable housing have been taken out of the Portland rental market because owners are using homes and apartments for short-term, hotel-style rentals through websites like Airbnb.

So the city established a transient lodging tax that charges 11.5 percent per Airbnb reservation and funnels that money into a housing trust fund that can be used for land acquisition and other capital costs. The tax has raised $1.2 million for housing projects since 2014, he said.

In October, the city also increased the share of certain property taxes that goes to affordable housing programs. The move is expected to generate $68 million.

Some cities and states, such as New Jersey and Massachusetts, require developers to price some new units below market rates through inclusionary zoning policies.

But others, such as Oregon and Texas, prohibit the practice, although lawmakers in Oregon plan to introduce legislation this year to reverse that state’s law.

In Tennessee, state lawmakers similarly want to block officials in Nashville and other cities from passing inclusionary zoning measures. One of them, Republican Rep. Glen Casada, said that if there is a need for affordable housing, it will naturally be met as a result of market forces.

“I have found that any time the government mandates anything, it drives up the price and makes that resource more scarce,” he said.

Instead, he said, local governments should lower taxes, fees and requirements on homebuilders to ensure affordable housing stays on the market, he said.

But officials in Montgomery County, Maryland, say inclusionary zoning programs work. The county has the country’s oldest inclusionary zoning law, which was established in 1974 and requires that 12.5 percent of new housing developments be affordable.

The county, home to about a million people just outside Washington, D.C., has established 12,500 affordable housing units since the program was created. Most of the units are no longer covered by the zoning law, but about 5,000 are still required to be priced affordably, said Stephanie Killian, who manages the program.

“It prevents concentrations of poverty,” she said. “It allows access to housing for people who work here and live here.”

Some cities, such as Seattle, have sought rent controls that prevent landlords from raising rents in exorbitant fashion. But those efforts ran up against opposition at the state level and have gone nowhere.

City council members in Alameda, California, recently extended a moratorium on rent increases but haven’t moved on a proposed rent control ordinance.

Rural Housing

Housing hardship is commonly found in big cities with high costs of living. But rural Minnesota has experienced a crisis in towns like Roseau, with big manufacturers in place and little investment in housing.

The towns have grown with businesses, hospitals and schools, but the rental housing markets have not responded with homes for people making enough money to afford middle-priced units, said Chip Halbach, director of the Minnesota Housing Project, an advocacy group.

Developers are unwilling to commit to these towns, Halbach said. “They’re saying this is just too risky, even though the company can show these people wanting to move in.”

Housing advocates worry these small towns will suffer economically because companies will eventually want to relocate to bigger markets where workers can secure housing, he said.

Last year, the Minnesota Legislature created a workforce housing grant program to pay for housing for workers in rural areas. To make sure the homes serve moderate-income earners, the lawmakers stipulated that the money could not be put toward projects required to have low-cost units.

There’s also a push for the Legislature to create a state tax credit to support building more housing for workers in towns like Roseau.

The proposal, spearheaded by the nonprofit Greater Minnesota Partnership, would authorize state income tax credits that could be used by developers who build housing in those towns. The idea, Halbach said, is that companies will buy into housing projects to guarantee homes for their employees and get the tax credits.

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States, Cities Tackle Housing Crisis for Low, Moderate Income Families

Once it’s done, the 52-mile Northern Beltline in central Alabama will allow interstate travelers to avoid Birmingham traffic. But the $5.3-billion project has been controversial since planning began in the late 1980s.

Supporters say the project is essential to the state’s economy, while opponents decry its environmental impact. But Beltline boosters and critics agree on one thing: The project is taking a long, long time.

A road like the Beltline typically would take 15-20 years to build, according to Ronnie Baldwin, the recently retired chief engineer for the Alabama Department of Transportation. But the Federal Highway Administration recently predicted it won’t be finished until 2054 — six years later than was projected two years ago, and 65 years after funds were earmarked for a project feasibility study in 1989. So far, work has begun on less than 2 miles of the highway.

Baldwin realizes he’s not likely to live to see the project completed. “I’m 63 right now,” he said. “There are a lot of things that will happen when I’m up in heaven.”

The Alabama road is an extreme example of a common problem: Transportation projects often are completed years or even decades late. The reasons range from environmental lawsuits and bureaucratic wrangling to recalcitrant property owners and combative utility companies.

Some states, recognizing the economic and environmental costs of such delays, are starting to use financial incentives, heightened public scrutiny and “design-build” strategies to increase the likelihood that projects will come in on time and on budget.

Moving Targets

Each year, the Federal Highway Administration updates Congress on transportation projects that cost more than $500 million. Most, but not all, use federal funding. There are 101 active projects on the latest list. Of the 57 projects with completion dates that were set before 2013, 25 are behind schedule by a year or more.

Generally speaking, the longer a project drags on, the bigger the price tag. More money is spent on contracting costs, machinery, staff time, rent and fuel. Inflation takes a toll, as does the need to pay for temporary repairs to existing routes.

There are costs to the local economy, when ongoing construction makes it more difficult for commuters to get to work and prevents businesses from delivering goods and services. The environmental impact is also significant: When construction makes traffic worse, it adds to air pollution. Stopping and starting burns fuel at a higher rate than driving on the open highway, boosting emissions.

A delay is “bad for the environment. It’s bad for the economy. It’s bad for jobs. It’s bad for global competitiveness. There’s nothing good about it,” said Philip Howard, founder and chairman of Common Good, a nonpartisan group focused on good government.

Moreover, with a delayed project, “you delay the benefit the project was supposed to deliver,” said Bill Reinhardt, editor of a monthly newsletter called Public Works Financing. “If the project was supposed to be delivered in 2012 and it isn’t delivered until 2022, then you delay all that economic benefit, the lifestyle benefit and the employment benefit. If you don’t deliver the public good, the public suffers.”

Holding Contractors Accountable

Some states are pursuing various strategies to avoid such pitfalls. One is simply to require that transportation officials provide regular — and public — progress reports.

The Florida Transportation Commission produces quarterly reviews of Transportation Department spending and annual progress reports on ongoing projects. The commission has been overseeing the transportation agency since the late 1980s, but advances in information technology have allowed it to sharpen its focus. In the late 1990s, Florida transportation projects took on average 34 percent longer than expected to complete. By 2015, the average delay was down to 7 percent.

Virginia also has been aggressive about tracking projects and making the progress reports public. The state began doing so in 2000, after it became clear it would cost more — much more — than was projected in 1994 ($350 million) to widen lanes and add new bridges and ramps to a heavily traveled interchange in Fairfax County, about 15 miles from Washington, D.C. The state increased the project budget to about $676 million in 2003, and it was completed on budget in 2007.

In the second quarter of 2004, 29 percent of Virginia transportation projects were on time and 70 percent were on budget. In the fourth quarter of 2015, 84 percent were on time and 89 percent were on budget.

Many states now reward or penalize contractors depending on whether they complete a project within a set number of days. California, for example, has used incentives and penalties to accelerate the completion of projects and minimize traffic delays.

“I may pay a slight premium and that’s transparent in the contract. The time component translates to a dollar amount and that determines the working days. If they go over, there’s a penalty,” said Malcolm Dougherty, the state’s transportation chief.

A.J. de Moya, vice president of the Florida-based de Moya Group, a highway and bridge design and construction firm, has worked on many state jobs that included incentives or penalties. He says they are effective — as long as they are substantial. “The bonus has to be large enough to make it worthwhile.”

John Porcari of WSP Parsons Brinckerhoff, one of the world’s largest design, engineering and construction companies, said states are using incentives more frequently, particularly in congested urban areas.

Porcari was deputy secretary of transportation during President Barack Obama’s first term and headed Maryland’s transportation agency under two governors. He said incentives are attractive to both transportation officials and contractors.

Construction creates “huge disruptions to the traveling public, and every day you can avoid that closure means less impact on people,” he said. For contractors, “if there is a significant incentive for delivering early, they’ll do all kinds of things to get that incentive payment.”

Other states are withholding any payments until the project is close to completion.

The Port Authority of New York and New Jersey will not start paying NYNJ Link Developer LLC until its $1.5 billion Goethals Bridge reconstruction project is 70 percent complete, so the firm has a clear financial interest in keeping the work on schedule. Project completion is scheduled for late 2018, and the payout to the firm will continue for the next 35 years, during which time the private company will also take care of capital maintenance.

Design-Build

Many states are beginning to contract with a single entity to handle both the design and construction of a project. “There’s an overlap and that’s one way to compress the schedule,” Porcari said, adding that many contractors like the strategy, which increases their risk but also their profits.

Some state officials like design-build because it eliminates strife between contractors. “Instead of everyone shooting at each other, they’re all sitting around a table,” said Dougherty of California.

In 2005, the Missouri Legislature approved design-build contracting for a road reconstruction project on 12 miles of Interstate 64 near St. Louis. Without a design-build approach, it was once estimated that the project could take up to 16 years and $675 million to complete, according to the state Department of Transportation.

A flexible and innovative design-build contract contributed to the success of the project, according to King Gee, a director at the American Association of State Highway and Transportation Officials.

In 2006, a contractor signed on to design and build the road in four years. Its fee was $420 million of the final $535 million cost of the project. The construction phase took three and a half years and it was completed for $11 million less than was budgeted.

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States Strive to Eliminate Costly Construction Delays

Louisiana this month became the first state in the Deep South to make the politically charged decision to expand Medicaid health insurance to low-income adults under the Affordable Care Act.

At least one other state — South Dakota — is expected to extend Medicaid coverage this year. But in the lead up to the November presidential election, supporters of the ACA aren’t holding out much hope that more states will join in extending Medicaid coverage to more people — although the governors of Alabama, Virginia and Wyoming say they want to, as do key legislators in Maine and Nebraska.

Meanwhile, newly elected Republican Gov. Matt Bevin in Kentucky and Republican lawmakers in Arkansas are threatening to roll back or modify their states’ existing expansion programs.

After a new president is elected, the situation could change and more states could join in expanding coverage, predicted Joan Alker, executive director of Georgetown University’s Center for Children and Families, which advocates for greater health care coverage for the poor.

Ever since the Supreme Court’s 2012 decision making Medicaid expansion a state option, the issue has been more political than practical. Many Republican governors and lawmakers have rejected the deal, fearing they would lose their jobs if they were seen cooperating with President Barack Obama on a law most conservatives abhor.

With Obama out of office, that could change. “The ideological opposition to the president will have to start fading when he’s out of office,” Alker said. “At that point, the facts and the evidence will start to matter more.”

Matt Salo, executive director of the National Association of Medicaid Directors, agrees. If a Democrat is elected president, the new administration could be expected to continue the Obama administration’s approach of approving proposals from Republican-governed states to shape expanded Medicaid programs to fit their individual state needs and politics.

Even greater flexibility could come if a Republican is elected president, Salo said. In that case, the GOP-led states that have so far shunned expansion would likely seek authority to revamp their programs more radically than the Obama administration has allowed. Until then, Salo said, “Governors are probably thinking, ‘Maybe I’ll just keep my powder dry.’ ”

Congress voted 60 times on repealing the ACA before successfully passing legislation earlier this month to undermine the law and phase out Medicaid expansion. Obama vetoed it. Would a newly elected Republican president instead sign it and eliminate health coverage now extended to millions more poor people? Most analysts doubt it and predict expansion will endure, even if other parts of the ACA are changed.

Hard to Take Back

So far, 31 states and the District of Columbia have taken the federal government up on its offer to fund all but a fraction of the cost of providing health care to about 8 million low-income adults not previously eligible for the federal-state program. Of them, 10 states were run by Republican governors at the time of expansion.

Defunding or eliminating Medicaid expansion would mean taking away billions of federal dollars from the states and their ability to provide health care for their residents. It also would mean cancelling health coverage for millions of people, many of whom could be sick and in need of immediate care. That’s not something any administration is likely to do, Salo said.

For similar reasons, it will be difficult for Arkansas and Kentucky to roll back their Medicaid coverage. Kentucky’s Bevin promised during his fall campaign to dismantle the state’s Medicaid expansion, which is among the nation’s most successful at reducing the uninsured rate and cutting state health care costs.

But in December, Bevin changed his mind and announced he would not eliminate the expansion, but instead transform the way Medicaid is delivered. Without providing details, Bevin said a new system would be in place by the beginning of 2017.

In Arkansas, Republican Gov. Asa Hutchinson, who was elected in 2014, has supported the state’s expansion, but said he was willing to make changes to the program to satisfy critics in the GOP-dominated Legislature. Because of Arkansas unique requirement that at least 75 percent of lawmakers must approve any appropriation and its conservative legislative majority, the future of the state’s Medicaid expansion has been shaky from the start.

Greater Flexibility

Under the Medicaid expansion, the federal government pays the full price of covering newly eligible adults with incomes up to 138 percent of the federal poverty level ($16,242) through 2016 and then gradually lowers its share to 90 percent in 2020 and beyond.

Opponents of expansion in the states say they fear the 10 percent share states will have to pay will burden their budgets over the long run and force them to neglect other priorities. They also argue the federal government can’t afford higher Medicaid costs and could eventually renege on its promise to pay 90 percent of the bill.

To entice more states to expand, President Obama asked Congress in his 2017budget proposal this month to allow states to get a full three years of 100 percent federal funding if they take up the option this year or next. The Republican-controlled Congress is not expected to approve the proposal.

In general, the Obama administration has been lenient in approving state requests to modify traditional Medicaid rules. Six states — Arkansas, Iowa, Indiana, Michigan, Montana and New Hampshire — have expanded their Medicaid programs under so-called waivers to federal rules.

The states have sought approval for a combination of changes that would allow Medicaid enrollees to purchase private policies on a state exchange, while requiring them to pay small copayments and premiums, engage in healthy behavior, seek employment and, in Indiana’s case, contribute to a health savings account. The federal government has approved most requests, but has drawn a line at allowing states to cancel a Medicaid enrollee’s policy for failure to meet any of the requirements.

Some Republican-led states want to go further. Salo predicted that Texas, for example, might ask a Republican president’s administration for permission to operate an expanded Medicaid program much like a block grant, in which the federal government provides the money and the state sets most of the rules.

The Issue Won’t Go Away

Whether to expand coverage has been a contentious point between not only Democratic governors and Republican-led legislatures, but between GOP governors and Republican legislatures. And some governors have sidestepped legislators to do it.

After replacing Republican Bobby Jindal this month as governor of Louisiana, Democrat John Bel Edwards signed an executive order extending Medicaid to nearly 300,000 poor residents effective July 1. So far, the Republican-led Legislature has not pushed back.

Governors in four other states — Alaska, Kentucky, Ohio and West Virginia — have approved Medicaid expansion without legislative consent. In Ohio it was Republican Gov. John Kasich, a presidential candidate.

In South Dakota, second-term Republican Gov. Dennis Daugaard is asking the GOP Legislature to approve extending Medicaid to as many as 55,000 poor residents, including Native Americans. His proposal, which is contingent on federal approval, would for the first time allow Medicaid coverage for Indian health services both on and off the reservation.

In Virginia, Democratic Gov. Terry McAuliffe is seeking expansion. So is RepublicanGov. Matt Mead in Wyoming. But their Republican legislatures have rejected it before and are likely to again. Alabama Republican Gov. Robert Bentley has declared support for expansion but is not expected to push the GOP-dominated Legislature to approve it this year.

Republican Govs. Gary Herbert of Utah and Bill Haslam of Tennessee pushed for it last year but ran into opposition from their Republican legislatures — an obstacle that remains this year.

In some states, the opposition shoe is on the other foot. In Nebraska, a bipartisan bill was introduced last week that would expand Medicaid using the so-called “private option” pioneered by Arkansas, in which newly eligible beneficiaries would receive private insurance on the exchange rather than under the existing Medicaid plan. So far, Republican Gov. Pete Ricketts has opposed expansion.

In Maine, two Republican senators — Roger Katz and Tom Saviello — have sponsored a bill to extend Medicaid. But Republican Gov. Paul LePage, who already has already vetoed five attempts to enact Medicaid expansion, vowed to do it again.

Facts and Evidence

Research shows that major fiscal and health benefits have accrued to states that have expanded Medicaid, and contrary to claims from opponents, job losses have not occurred. Hospitals also reported fewer unreimbursed expenses.

A study published in the journal Health Affairs this month concluded that more patients got care for chronic illnesses and fewer residents said they skipped medications or had problems paying medical bills in states that expanded, compared to nearby non-expansion states.

More than 6 million more people would become eligible to receive coverage under the health law’s Medicaid expansion if all remaining states opt in to the program, according to an analysis by Families USA, which advocates for expansion. But states like Florida and Texas, with the highest uninsured rates and the most to gain, continue to reject federal funding.

Historically, health care has been a bipartisan issue, George Mason University professor of health economics Len Nichols said. And it could be again.

“Once Obama is gone, it’s not ‘Obamacare’ anymore,” Nichols said. “It’s American law.” At that point, he said, it will be hard for any state to reject a deal that is “good for their budget, good for their economy and good for the health of their residents.”

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Is Medicaid Expansion Near a Tipping Point?

Texas prison psychiatrist Pradan Nathan recalls an unsettling face-to-face session with a dissatisfied patient about a dozen years ago at a maximum security prison in East Texas. The large man, a member of a notorious prison gang, insisted Nathan prescribe him a particular medication. Nathan said he didn’t need it.

“I’m going to stab you to death the next time you come in here,” the prisoner growled.

Nathan feels a lot safer these days. He sees up to 16 patients a day from a suburban Houston office here, using an audio console, a camera and a monitor to treat inmates at two state prisons — including one with a death row — at least 30 miles from where he sits. He’s still threatened occasionally, but now it’s from a comforting distance. Needless to say, he’s a big fan of telemedicine.

He’s not the only one. Most states have turned to telemedicine to some extent for treating prisoners — often in remote areas, where many prisons are located — because it allows doctors to examine them from a safe distance. It enables corrections officers keep potentially dangerous inmates behind bars for treatment rather than bearing the cost and security risk of transporting them to hospitals. And because more doctors are willing to participate, it makes health care more available for inmates.

Though some prisons used telemedicine as early as the 1980s, its use has dramatically increased with the arrival of vastly improved technology, electronic medical records, and pressure to control ever rising medical costs.

“Telemedicine is perfectly designed for prisons,” said Marc Stern, a former assistant secretary for health services for the Washington State Department of Corrections who now consults with corrections systems on telemedicine.

How much telemedicine saves states is hard to tell because it’s difficult to calculate the costs of transportation and extra security if prisoners have to be sent outside prison walls for medical care.

But Owen Murray, vice president of correctional managed care for the University of Texas Medical Branch (UTMB), which handles health care for approximately 80 percent of the state’s prison population, is convinced telemedicine contributes to Texas’s relatively low per-capita spending on prisoner health.

Texas has the nation’s largest prison population, with about 153,000 inmates, and, according to a Pew Charitable Trusts report, spent $3,805 per prisoner on medical care in 2011, compared to a national average $6,047. (Pew also funds Stateline.)

And few states use telemedicine as much as Texas. UTMB’s prisoner health operation conducts 127,000 telemedicine visits a year with inmates in the 83 Texas correctional facilities it tends to. About three-quarters of the visits are for mental health or primary care. (All behavioral health care is handled via telemedicine, as is about 20 percent of primary care appointments, and between 5 and 10 percent of specialist visits.)

Texas lawmakers support telemedicine in prisons, Murray said, even though the financial savings are hard to pinpoint. In addition to adding to public safety, he said, telemedicine speeds inmates’ care, which in turn helps improve their health. It also helps apply the same standard of care over a wide geographic expanse.

Despite its growth, telemedicine faces the same hurdle to widespread use in prisons as it does in the general population: All states still require that doctors treating a patient in a particular state be licensed in that state, including those practicing digitally from elsewhere.

Advocates for prisoners have mixed views of the use of telemedicine in corrections. Bradley Brockman, director of the nonprofit Center for Prisoner Health and Human Rights, called it “a godsend and a real gift because prisoners are getting care from providers or specialists that they would have far less chance of getting otherwise.”

But David Fathi, director of the American Civil Liberties Union’s National Prison Project, said that while telemedicine can improve health access, too often it is used to cover over inadequate medical staffing in prisons. “Because telemedicine is less expensive, there is a tendency to use it excessively and inappropriately,” Fathi said. “It is used not as a supplement for on-site staff but as a substitute for on-site staff.”

Telemedicine in Texas Prisons

Florida was the first to experiment with telemedicine in prison, introducing it in state prisons in the late 1980s. But the technology was primitive.

When Texas started using it in prisons in the early 1990s, for example, the audiovisual equipment and slow frame speeds produced poor visuals that doctors found insufficient for diagnosis and treatment. Ear, nose and throat doctors would say, “I can’t see anything; just send the patient to the hospital,” Murray recalled.

Young doctors in the correctional system, however, saw its potential, Murray said. And since then, the equipment has improved dramatically and its price has come down.

A standard telemedicine unit — including a small audio console, a camera that can zoom in and out, and a monitor — costs less than $2,000, Murray said. The UTMB prison health operation has about 200 units, about three-quarters of which have a stethoscope and an otoscope for looking inside ears, and can transmit images and readings. That capability adds about $8,000 to a unit’s price.

During telemedicine exams, a nurse or aide is often on hand at the prisoner’s end. Sometimes there is a primary care doctor who can confer with sub-specialists and other doctors working from Galveston, site of a regional prison hospital.

Because Texas prisons have electronic medical records, doctors are able to see a patient’s record on one side of the screen and the patient on the other.

A few doors down from Murray’s UTMB office in Conroe, which is about 30 miles north of Houston, is Michelle Munch, a pharmacist. She confers with as many as 30 patients a day in prisons across the state about their medication. If they are suffering any side effects, she can modify their prescriptions.

“I can see a patient in Huntsville and then in a matter of minutes, another patient in San Antonio,” she said. Those cities are nearly a four-hour drive apart.

Nathan, the psychiatrist, is downstairs from Munch. In his sessions with patients, he routinely has to determine how inmates are handling their psychiatric medications, including antipsychotic drugs. He watches a patient’s expression, and looks for signs of involuntary motor movement or evidence that the patient is responding to stimuli that aren’t there. In the early days of Texas’s telemedicine experiment, he said, the equipment provided blurry, herky-jerky images, which were useless for his purposes.

Not anymore. The imaging is now perfect, Nathan said — better, in fact, than being in the same room because of the cameras’ zoom capability. “Plus, I don’t feel threatened at all.” He seldom sees patients face-to-face these days.

About 30 miles up Interstate 45 from Conroe is the Estelle Unit, home to about 2,600 prisoners. There, Dave Khurana works as a nephrologist, specializing in kidney care. He sees dialysis patients or those who soon will need dialysis. He has face-to-face sessions with patients at Estelle and meets remotely with inmates at distant prisons.

Sometimes Khurana uses telemedicine to see patients from his home, or when he has to be in Conroe for meetings, or even from his car. Last year, he did medical rounds while in Australia with his wife to attend a wedding.

A few months ago, Khurana said, he was in Conroe when a nurse back at Estelle spotted something suspicious on the arm of a patient about to have his dialysis treatment. From 30 miles away, Khurana was able to zoom in a camera on the patient’s bicep and identify a dime-sized ulcer. Proceeding with the dialysis, Khurana realized, could have ruptured a blood vessel.

“We could have had a bloodbath right there,” Khurana said. Instead, he ordered the patient transferred to a hospital, where an infection was discovered beneath the ulcer. He needed surgery before he could safely undergo another round of dialysis. “We avoided possible death, stroke or heart attack.”

Overcoming Distance

Without telemedicine, inmates might have to travel long distances to see doctors. Many doctors — particularly specialists and sub-specialists — often do not want to live in isolated areas; many have little interest in venturing to faraway prisons. That’s why in Texas and other states, correctional health officials often locate telemedicine facilities in or near cities, where doctors prefer to live.

Overcoming distance was Wyoming’s primary motivation for adopting telemedicine in the late 2000s, particularly for mental health. “We started because we couldn’t find psychiatrists to fill our part-time jobs,” said Laura McKinnon, the Wyoming mental health director for Corizon, a private contractor that handles correctional health for the state. A lone psychiatrist often had to travel from one prison to another as far as five hours apart. During winter that often was along treacherous roads.

Today, Wyoming officials say, the state conducts about 440 telemedicine appointments with prisoners a year, with about half of them for behavioral health issues. All five state prisons are equipped with telemedicine equipment.

Louisiana officials say they conduct about 3,500 telemedicine visits a year in 9 state facilities and 14 local jails. Raman Singh, medical and mental health director of the state’s Department of Corrections, credits telemedicine with opening the pipeline to specialists once out of reach for prisons. “Telemedicine opens a whole world to you because it helps recruit specialists who don’t want to travel, let alone walk into a prison,” Singh said.

Many prisoners also appreciate telemedicine, said Liz Mestas, support services manager for clinical services in the Colorado Department of Corrections, which uses telemedicine at nine of its prisons.

“We used to have a lot of refusals because they didn’t want to lose their cells or get a different cellmate if they had to go out of the facility,” she said. “And they didn’t want to miss visits or parole appointments or work.”

Prisoners also appreciate not waiting for medical appointments, she said. The department said it doesn’t quantify the number of telemedicine appointments.

But Brockman, of the Center for Prisoner Health and Human Rights, said telemedicine doesn’t solve what he says are frequent problems in prisons of not responding to inmates’ requests for medical attention in the first place or providing adequate follow-up care. “The hope and prayer is that the savings realized from telemedicine will be spent for better diagnostic care, better access to medication, better therapeutic services,” Brockman said.

Fathi, of the ACLU, said too often, doctors practicing telemedicine on inmates don’t have their full medical histories. That was a federal court’s finding in a recent lawsuitconcerning prison health care in Arizona penitentiaries. One provision of the court-approved settlement in the case requires that mental health providers practicing telemedicine on prisoners be provided with their recent medical records, including laboratory results.

“Telemedicine does offer some positives but it is never going to be as good as having an on-site physician who can perform hands-on diagnosis and treatment,” Fathi said.

Stern, of Washington state, said it is important that doctors who use telemedicine make occasional visits to prisons — if for no other reason than to develop an appreciation for the unique world occupied by their patients.

“You have to get a flavor for how a prison operates, what is the food like, what is the noise level, how attentive is the staff, how high or low are the bunks,” Stern said. “Occasionally, you have to walk through in order to understand that peculiar environment.”

Read original article – January 21, 2016
State Prisons Turn to Telemedicine to Improve Health and Save Money

Students who applied early to the University of New Hampshire will know by the end of the month if they were accepted. Then many would-be Wildcats will start biting their nails, waiting for their financial aid letter. Four years’ tuition and fees at UNH can put families back over $67,000 — roughly what the typical New Hampshire household earns in a year.

The university’s high prices are an extreme example of rising college costs that have affected students in every state. Paying for college has become a financial strain on middle-class families across the country, and a source of anxiety for recent graduates saddled with student debt.

This election year, Democrats, in particular, want to rally voters behind their plans to make college more affordable. UNH — a flagship university in a state that votes early in the presidential primaries — has become a key stop on the campaign trail. “No student should have to borrow to pay tuition at a public college or university,” Hillary Clinton said at an event there in the fall.

But while the presidential candidates debate major new investments in public higher education, states will spend 2016 pursuing a more modest agenda. States only have limited funds to work with, even as many lawmakers say they want college to be more affordable and states aim to increase the share of residents who hold a postsecondary degree or certificate.

“The pressure on higher ed budgets is going to continue. So the question is, how do states navigate that?” said Andrew Kelly, director of the Center on Higher Education Reform at the American Enterprise Institute (AEI), a right-leaning think tank in Washington, D.C.

Rather than blockbuster new investments, expect 2016 to bring tuition freezes, tweaks to scholarship programs, and policies that push institutions to do more with existing funding. Even ambitious-sounding changes, such as eliminating tuition for community college students, likely will be targeted to limit state spending.

Boost State Spending

One way for states to bring down tuition is simply to spend more money on colleges and universities.

Public colleges are still a bargain compared to private alternatives, thanks to state subsidies. In-state tuition and fees at four-year publics averaged $9,139 in 2014, according to the nonprofit College Board. Combined tuition, fees, room and board charges were less than half the price of the average private nonprofit college. And students who receive federal, state or institution grants pay less.

But since the 1980s, states have steadily cut per-student higher education funding and institutions have steadily raised tuition to compensate. New Hampshire’s cuts have been particularly severe. In 2015, state funding comprised 9 percent of the university system’s budget, down from 16 percent in 2003, according to UNH data.

Now, few students nationwide can afford college without help from grants and loans. Eighty-three percent of full-time students at public four-year colleges received financial aid in 2012, according to the most recent data from the National Center for Education Statistics.

Washington state proved last year that tuition can go down if states spend enough money. The state increased higher education funding so much that tuition at public institutions dropped by 5 percent. As Stateline has reported, Washington’s public universities will reduce tuition even more this year.

But few other states have the money — or the inclination — to make that kind of investment.

Some members of New Hampshire’s conservative, fairly rural legislature don’t look kindly on funding higher education, said state Rep. Wayne Burton, a Democrat whose district includes UNH’s main campus. Some lawmakers see UNH as a little elitist and not very useful, he said.

“My guess is that with other compelling needs, it’s going to be hard to make the case for higher education to get more money” in 2016, Burton said, just as it was during the 2015 session.

Neighboring Massachusetts also faces a tight budget. There, Democratic state Sen. Michael Moore would like to increase higher education and scholarship funding by $137 million over five years. But, he said, “It’s going to be very difficult.” Massachusetts officials expect state tax revenue to grow by about 4 percent in the next fiscal year and Moore’s proposal will have to compete with rising health care and labor costs, he said.

States have been reinvesting in higher education since the recession ended. But states still spent less per student in 2014 than they did in 2008, according to the most recent data from the State Higher Education Executive Officers Association. That’s partly because enrollment shot up during the recession, when many people struggled to find work.

Many states committed to spending additional money in the current fiscal year, said Tom Harnisch of the American Association of State Colleges and Universities. Often, he said, the money was conditional on colleges freezing tuition or limiting tuition growth.

Wisconsin was a notable exception. There, Republican Gov. Scott Walker signed a budget that froze in-state tuition at the University of Wisconsin even as the state cut funding.

In Idaho, Republican Gov. C.L. “Butch” Otter has proposed a variation on the tuition freeze: A guarantee that students at four-year colleges and universities would pay a fixed tuition rate each year for four years. Otter has indicated that students would have to study full-time; additional qualifying criteria may emerge as lawmakers discuss the idea this session, according to Jon Hanian, Otter’s press secretary.

Focus Scholarships on Need

States also can make college more affordable by targeting their spending at students, rather than institutions. States are likely to focus on need-based scholarships in 2016, said Kristin Conklin of HCM Strategists, a consulting firm that works with states on higher education issues.

By investing more in scholarships and tweaking them so they reach different kinds of students, states can further their workforce goals, Conklin said.

Take Arkansas. Last fall, Republican Gov. Asa Hutchinson announced that he wants 60 percent of state residents to hold a postsecondary credential by 2020. Officials say jobs in the state will increasingly require advanced technical training. Arkansas is one of 33 states that have partnered with Complete College America, a high-profile nonprofit that’s working with states to raise college completion rates.

To reach Hutchinson’s goal, Arkansas will have to educate more people from demographics that currently don’t enroll and finish college at high rates: working adults, low-income students, and African-American and Hispanic students. The state’s plan includes shifting scholarship money away from merit-based aid (which typically rewards middle-class students) and toward financial need.

Tennessee, which has set a similar workforce goal, has created scholarships that make community college tuition-free for recent high school grads and some adults who want to go to technical college. Both programs pay tuition not covered by other federal and state grants (some students who receive federal Pell grants can already go to community college for free).

The “free community college” idea doesn’t just encourage more people to go to college; it also helps alleviate middle-class anxiety about college costs by offering students a less expensive path to a bachelor’s degree. The cost of a bachelor’s degree can be halved if students get their first two years of credits at a community college, for free.

Oregon followed Tennessee’s lead and established a free community college scholarship for recent high school grads last year. There, Democratic state Sen. Mark Hass said he pitched the program as a way for the state to save money over the long run, because education can help young people find good jobs and escape poverty.

“I think there’s probably a dozen, at least, states that are looking at some sort of legislation to do exactly what Oregon and Tennessee are doing,” Hass said. He should know: he sits on a national advisory board President Barack Obama established last fall to spread the free community college idea.

But as existing programs show, states aren’t likely to make community college free for everybody. Both Oregon and Tennessee limited their costs by targeting certain students. Oregon’s legislators budgeted $10 million for the program’s first year and $20 million for its second, Hass said. But the funding may not be enough to meetdemand.

Moore said it would cost Massachusetts $127 million to make community college free for all students, citing a report from the nonprofit Massachusetts Budget and Policy Center.

“For us to even think about doing this, we would definitely need federal support,” Moore said. President Obama proposed creating a federally funded free community college program last January, and promoted the idea again during his 2016 State of the Union address, but the proposal hasn’t gotten much traction in Congress.

Consider Systemic Change

The third — and most difficult — way states can make college more affordable is by bringing down the cost of educating students.

AEI’s Kelly said he worries that upping state spending just shifts the cost of college from families to the government, without forcing institutions to become more efficient.

Tuition freezes, after all, don’t hold tuition down over the long term. They only tend to last for a year or two, and they don’t address the forces that push up the cost of running a university — from inflation to administration costs to labor costs to students’ demand for expensive amenities.

The California Legislative Analyst’s Office argued against a tuition freeze that Democratic Gov. Jerry Brown proposed in his 2013-14 budget by explaining that extended tuition freezes at the state’s colleges and universities have been followed by periods of steep tuition increases.

“The proposal also would have the limited near-term effect of reducing the incentive students and their families have to hold higher education institutions accountable for keeping costs low and maintaining quality,” the report said. (The University of California and California State University systems froze tuition in 2013-14, but in 2014 UC announced a plan to raise tuition).

To hold down costs and further their workforce goals, a growing number of states are changing the way they distribute higher education funding. Twenty-six states now at least partly fund colleges and universities based on performance measures, such as whether students graduated on time, and 10 more states are developing such funding formulas, according to an HCM Strategists report.

Massachusetts, Oregon and Tennessee have embraced outcomes-based funding, and Arkansas plans to implement the approach.

“I think we’re going to see more and more states define affordability as a time issue,” Conklin said. When students graduate on time, they don’t waste money.

Wisconsin’s Gov. Walker said in his State of the State address this month that he plans to talk to the University of Wisconsin system about creating three-year bachelor’s degrees, and expanding an online university degree option that lets students proceed at their own pace. He also wants to increase grant money for technical college students, and provide students with more information about the loans they’re accruing.

New Hampshire’s Burton said he hopes workforce concerns and demographic change will persuade his colleagues in the General Court to focus on the high cost of higher education.

New Hampshire announced a partnership with Complete College America last month. A business group, the New Hampshire Coalition of Business and Education, is pushing for the state to set a college completion goal. And the University of Maine has begun competing with other New England institutions on price, by announcing that it will charge area students the same tuition and fees they’d pay in their home states, rather than the higher rate usually charged to out-of-state students.

All these factors — plus the election-year spotlight — should create space for a debate about college affordability, Burton said, even in New Hampshire’s tough budget environment. “It’s going to be a much more serious discussion.”

Read original article
The High Cost of Higher Education