Using billions of emergency pandemic bill dollars to plug gaping holes in their budgets, local governments across Wisconsin and the country are setting themselves up to ask for tax increases or slash services as basic as police and fire protection when the federal funding runs out.
Just how steep this fiscal cliff will be is only beginning to be realized. Early research indicates that at least half of the more than $350 billion in State and Local Fiscal Recovery Funds (SLFRF) allocated in the American Rescue Plan Act is eligible to be used to provide government services, award salary increases or even pay down employee pension debt.
A review of the few progress reports available through the U.S. Department of the Treasury shows that six of the seven Wisconsin cities and counties reporting, including Milwaukee, made SLFRF money available for use in propping up their budgets, more than $700 million of it.
Milwaukee expects to use $245 million of its $394 million SLFRF grant to close gaps in the 2022-24 budgets. After that, without help from the state, city Budget and Management Director Nik Kovac told the Badger Institute, the city will have little choice but to lay off perhaps hundreds of employees “across all departments.”
“This fiscal cliff, precipice, whatever you want to call it, we want to put it front and center,” Kovac said in an interview. “Using ARPA funds for this purpose is not a best practice, but the alternative is worse.”
In an issue paper released in April, Beverly Bunch, a public management and policy professor at the University of Illinois-Springfield, said poor documentation of the ground-level spending was obscuring what could be a significant problem for local governments.
“The fiscal cliff is real,” Bunch told the Badger Institute. “State officials need to be concerned about it.”
Local governments are coming to this pass, as is often the case with big government programs, because of the good intentions of the benefactors. As the Badger Institute reported more than a year ago, communities that had never seen sums like those from the $1.9 trillion Rescue Plan Act were having a difficult time trying to spend the money within the federal guidelines. Many were forced to spend valuable ARPA funding just to administer their ARPA funding.
Since Congress passed ARPA on March 11, 2021, Wisconsin governments of all sizes have managed to spend just $813 million, or 32%, of the $2.53 billion allocated to them, according to a document provided to the Badger Institute by the state Department of Administration. The state is due to receive another $2.5 billion, which must be spent by the end of 2026.
Just months into the allocation of this federal windfall, the U.S. Treasury Department quietly changed the spending rules for states, counties and cities. Governments could appeal to ARPA officials for revenue replacement, or an estimate of revenue lost because of the pandemic.
The wrinkle in revenue replacement was that counties and cities did not have to document their revenue loss. The Treasury Department’s new and relaxed formula for claiming lost revenue allowed governments large and small to divert huge portions of their SLFRF allocations away from the programs prescribed in ARPA guidelines and into the day-to-day operation of their governments.
The SLFRF guidelines already allowed for spending that was tied tenuously at best to emergency COVID relief. Gov. Tony Evers’ administration, for example, committed $100 million to a statewide broadband expansion program that will end up costing $3,225 for each of the roughly 31,000 residential and business locations to be served.
Revenue replacement now allows huge sums of SLFRF money to be tucked into local budgets, an accountability and transparency problem that concerns Bunch.
“Allowing ARPA money to be added to general funds concerns me because it’s harder to find and it loses its character as a federal emergency measure,” she said.
Of the more than 1,900 government entities in Wisconsin that received at least some ARPA money, the Treasury Department has just seven progress reports on its website.
They include a state performance report dated July 31 and reports for the first part of 2022 for the cities of Milwaukee and Madison and for Milwaukee, Dane, Brown and Waukesha counties.
A review of those reports offers a glimpse into how local governments are now relying on revenue replacement to augment their budgets.
The City of Milwaukee, for example, added $20.8 million to the Fire Department’s Emergency Response program and another $6.7 million for emergency medical services training in 2022. The city hired 20 new sanitation workers as part of a $2.3 million Clean City program.
In its report, Milwaukee County says it committed $115.7 million in revenue replacement funds in 2022 to provide government services. There is no outline of what those services are or will be in the report.
Dane County committed $21.2 million to maintain government services. Its seven-page report does not mention what the county intends to do in 2023 and beyond. The phrase “revenue replacement” does not appear in the report.
Of the $47.2 million in SLFRF funding allocated to Madison, the city chose to use $24.4 million “on wages for emergency workers, as well as to balance the general fund budget and avoid the use of fund balance in 2022,” according to its report.
The reports, however, also show cities like Madison and Milwaukee using SLFRF funds outside of revenue replacement for the creation of new programs and the hiring of employees to staff them — positions that will either have to be supported with local tax money or ended when the federal funding is exhausted.
Far from one-time expenses, Madison in the past year committed $3.5 million in SLFRF funds for unsheltered homeless support, $2 million in seed money for a homeless services project and $2 million for a youth housing project.
David Schmiedicke, Madison’s finance director, acknowledged that the city council will have decisions to make in 2025 and 2026. “All of the ARPA funding was recognized as one-time,” Schmiedicke told the Badger Institute. “Continuation of any ARPA-funded programs will be considered on a case-by-case basis in future budgets.”
As welcome as the ARPA funding has been, the depth of the coming fiscal cliff will bring into sharp relief longstanding fiscal troubles, particularly for the more populous cities and counties in the state, Schmiedicke said.
“Since 2012, the city has faced structural deficits in funding for current service levels compared with anticipated revenues under strict state limits on allowable growth in property taxes, declining state aid, and state limits on general revenue options for Wisconsin cities,” he said.
ARPA has temporarily changed the arc of local government debt, which already reached a record $11 billion at the end of 2020, when Wisconsin was fully engaged in combating COVID-19.
Local government debt in that year nearly doubled over the previous year, according to a report released at the end of November by the Wisconsin Policy Forum. Of that debt, $1.13 billion is Milwaukee’s alone, and more than a quarter of the debt is shared by the state’s five biggest cities, the report says.
But the fastest growth in debt, according to the report, occurred in the state’s smaller communities, in whose budgets SLFRF funding has had an outsized impact. As the Badger Institute reported over the summer, despite being flush with ARPA money, some cities are asking their voters to approve property tax increases.
Kovac isn’t waiting for Milwaukee to reach the cliff. In a memo to the city’s Finance and Personnel Committee in late October, he warned that SLFRF funding would be gone by the end of 2024, leaving shortfalls of at least $100 million in the 2025 and 2026 budget projections.
The city poured $68 million in revenue replacement money into its general fund freeing up $40 million to add to its pension reserve fund in 2022, Kovac said.
“Unless new revenue at that scale is acquired, significant budget cuts — forcing hundreds of layoffs across all departments — will be inevitable,” Kovac said in the memo.
Kovac’s warning was directed at state officials. No local government in the state has been as buffeted over the last decade by state aid cuts and curbs on property tax increases as Milwaukee, he says.
While the State of Wisconsin took advantage of Treasury’s revenue replacement plan to the tune of nearly $1.5 billion, the fiscal outlook for the state has never been better.
A Wisconsin Policy Forum report released this week called a projected revenue surplus of $6.8 billion over the July 2023 to June 2025 budget cycle “astounding.”
Kovac said he’s optimistic the Legislature will see fit to channel some of that surplus to Milwaukee for three reasons: Mayor Cavalier Johnson has established better relationships with Republican state legislators than his predecessor, Tom Barrett; the Republican majority in the Assembly and Senate would not want to see government services cut in 2024 when the city is hosting the Republican National Convention; and no state government body would countenance deep cuts in police and fire protection for the state’s biggest city.
“We’ve been very honest about it from Day One,” Kovac said. “We don’t want to do it, but what other choice will we have?”
South Dakota has some of the nation’s least burdensome occupational licensing requirements, a new report suggests.
The Institute of Justice recently released its third edition of License to Work: A National Study of Burdens from Occupational Licensing, providing an updated look at the effects of occupational licensing requirements and changes in America since 2017.
The report, which analyzes the impact occupational licensing has on workers in more than 100 low-income professions – ranked South Dakota as the 3rd “least widely and onerously licensed state” in the U.S.
Wyoming and Vermont were the only two states to rank higher than South Dakota in the study that evaluated all 50 states and the District of Columbia based on the burden they place on workers to get licensed.
These burdens include the cost it takes to obtain or maintain a certification or license, the average amount of “days lost” to education and experience, and the percentage of occupations that require a license.
South Dakota’s burden on workers is well below all of the major national average licensing metrics measured by the IOJ, the study finds.
Of the 102 surveyed occupations, South Dakota requires licensure for only 32 of the professions, equaling an estimated 31% of the studied fields. Nationally, the average was about 53%, which means that on average, other states are requiring licensure for 19 more professions than South Dakota.
The average cost and the amount of learning time required to get licensed in South Dakota are lower than that seen nationally, too. Despite having seen fee increases since 2017 for most licensed professions, South Dakotans can expect to pay an average of $244 in fees to get licensed, whereas the national average is $40 more at $284.
Additionally, The average amount of days spent on learning skills to obtain licensure in the Mount Rushmore State is 69 days fewer than the national average. According to IOJ, South Dakotans spend an average of 281 days on education and experience. The national average of “days lost” for educational purposes is 350.
South Dakota’s positive scoring was largely attributed to its net reductions in education and experience burdens since 2017, the study states. Four professions saw a decrease in the amount of time it takes to get certified, including barbers, cosmetologists, midwives and shampooers. Only three professions saw an increase in educational time requirements, including high school head sports coaches, pharmacy technicians and school bus drivers.
Trends for South Dakota’s licensing processes – with overall fees rising and education requirements shrinking since 2017 – are fairly on point with national trends.
“Across all the licenses present in both the second and third editions of License to Work, average fees rose 3.5% from 2017 to 2022, but average days lost fell by nearly 6%, by far the largest change across our five burden categories,” the study states. “Occupational licensing burdens remain widespread and burdensome, albeit a little less so than a few years ago.”
Twenty states recorded annual shortfalls in fiscal year 2020, when the coronavirus pandemic triggered a public health crisis, a two-month recession, and substantial volatility in states’ balance sheets. States can withstand periodic deficits, but long-running imbalances—such as those carried by nine states—can create an unsustainable fiscal situation by pushing off some past costs for operating government and providing services onto future taxpayers.
States are expected to balance their budgets every year. But that’s only part of the picture of how well revenue—composed predominantly of tax dollars and federal funds—matches spending across all state activities. A look beyond states’ budgets at their own financial reports provides a more comprehensive view of how public dollars are managed. In fiscal 2020, a historic plunge in tax revenue collections and a spike in spending demands were met with an initial influx of federal aid to combat the pandemic. The typical state’s total expenses and revenues grew faster than at any time since at least fiscal 2002, largely thanks to the unprecedented federal aid. But spending growth outpaced revenue growth in all but five states (Idaho, Maryland, Missouri, South Dakota, and Virginia). And 20 states recorded annual shortfalls—the most since 2010 and four times more than in fiscal 2019.
Despite the sudden increase in annual deficits, most states collected more than enough aggregate revenue to cover aggregate expenses over the long-term. But the nine states that had a 15-year deficit (New Jersey, Illinois, Connecticut, Hawaii, Massachusetts, Maryland, Kentucky, New York, and Delaware) —or a negative fiscal balance—carried forward deferred costs of past services, including debt and unfunded public employee retirement liabilities. Between 2006 and 2020, New Jersey accumulated the largest gap between its revenue and annual bills, taking in enough to cover just 91.9% of its expenses—the smallest percentage of any state. Meanwhile, Alaska collected 130.5%, yielding the largest surplus. The typical state’s revenue totaled 102.7% of its annual bills over the past 15 years.
Zooming out from a narrow focus on annual or biennial budgets—which may mask deficits as they allow for shifting the timing of when states receive cash or pay off bills to reach a balance—offers a big-picture look at whether state governments have lived within their means, or whether higher revenue or lower expenses may be necessary to bring a state into fiscal balance.
States’ performance is analyzed from two perspectives: First, the 15-year lump sum of revenue relative to expenses, to uncover states’ ability to bring in sufficient funds to cover costs over the long term; and second, the year-by-year record for each state, to identify how often it experienced shortfalls.
Comparing states’ revenue—comprising much more than tax dollars—and expenses, in aggregate and year-by-year totals from fiscal 2006 to 2020, shows:
After New Jersey, Illinois had the largest deficit with aggregate revenue able to cover only 93.9% of aggregate expenses. They were the only two states with total shortfalls exceeding 5% of total expenses, and the only ones with annual deficits in each of the 15 years.
Additional states with symptoms of structural deficits were Connecticut (95.5%), Hawaii (96.4%), Massachusetts (96.5%), Maryland (98.7%), Kentucky (98.8%), New York (99.3%), and Delaware (99.7%). All but Delaware experienced deficits in at least 10 of the 15 years.
Alaska accumulated the largest 15-year surplus (130.5%). Although Alaska’s balance is high, revenue has been lower and the state has pulled back on spending compared with earlier in the decade.
Other states with the largest accumulated surpluses since fiscal 2006 were North Dakota (123.4%), Wyoming (122.1%), Utah (110.5%), and Montana (108.9%). Resource-rich states tend to acquire large surpluses in boom years that can help cushion shortfalls when oil or mining revenue decline.
Aside from Montana, which was the only state to end each year with a surplus, 10 recorded just one deficit over the 15 years examined: Idaho, Iowa, North Carolina, North Dakota, South Carolina, South Dakota, Tennessee, Texas, Utah, and Virginia.
Changes in the economy can move a state’s annual revenue and expenses out of balance, as can policy decisions such as tax or spending changes.
Looking at states’ balances year by year, shortfalls mainly occurred during and immediately after the Great Recession, suggesting that most states’ challenges were temporary. As the nation’s economic recovery took hold, a majority of states balanced their books and have kept them in the black. Still, 15 states in fiscal 2016 and 2017 failed to amass enough revenue to cover their annual expenses, as many slogged through the weakest two years of tax revenue growth—outside of a recession—in at least 30 years. (See the “State trends” tab.)
Only five states recorded annual shortfalls in fiscal 2019, the last full year before the COVID-19 recession, following seven states with deficits in fiscal 2018. In both years, nearly every state experienced tax revenue gains that drove widespread budget surpluses. However, it is unclear whether more states’ books achieved balance strictly because of stronger fiscal performance; accounting rules effective in 2018 changed how states estimated their unfunded retiree health care costs, lowering expenses for some, at least on paper. So fiscal 2018 and 2019 results are not directly comparable with those for previous years.
This fuller picture of states’ financial activities—capturing all but those for legally separate auxiliary organizations, such as economic development authorities or some universities—is drawn from their audited annual comprehensive financial reports. These reports attribute revenue to the year it is earned, regardless of when it is received, and expenses to the year incurred, even if some bills are deferred or left partially unpaid. This system of “accrual accounting” offers a different perspective of state finances than budgets, which generally track cash as it is received and paid out. Accrual accounting captures deficits that can be papered over in the state budget process, even when balance requirements are met, such as by accelerating certain tax collections or postponing payments to balance the books.
Accounting for funds as the financial reports do is like a family reconciling whether it earned enough income over 12 months not just to cover costs paid with cash but also to pay off credit card bills and stay current on car or home loan repayments, rather than pushing some charges off to the future.
A state whose annual income falls short generally turns to a mix of reserves, debt, and deferred payments on its obligations to get by.Conversely,when a state’s annual income surpasses expenses, the surplus can be directed toward nonrecurring purposes, including paying down obligations or bolstering reserves—or new or expanded services that create recurring bills.
Like families, states can withstand periodic deficits without endangering their fiscal health over the long run. In fact, all but one state (Montana) had one or more years in the red. But chronic shortfalls—as with New Jersey and Illinois each year since at least fiscal 2002—are one indication of a more serious structural deficit in which revenue will continue to fall short of spending absent policy changes. Without offsetting surpluses, long-running imbalances can create an unsustainable fiscal situation.
Annual Comprehensive Financial Reports broaden the scope of financial reporting beyond state budgets to capture all funds under control of the state government, including revenue and spending from related units, such as utilities and state lotteries. This produces a more comparable set of state-to-state data. All primary government operations were included in this analysis. “Component units,” such as economic development authorities or public universities, were excluded when states classified them separately.
Although all states file audited and nationally standardized financial reports, they are mostly used by credit rating agencies and other public finance analysts, while most state finance discussions center on budgets.
Examining aggregate revenue as a share of aggregate expenses—that is, all revenue and all expenses from fiscal 2006 to 2020, each adjusted for inflation—provides a long-term perspective that transcends temporary ups and downs. This approach allows surplus funds collected in flush years to balance out shortfalls in others.
Importantly, just because a state raised enough revenue over time to cover total expenses does not necessarily mean that it paid each bill. For example, a state might have brought in surpluses nearly every year while falling behind on annual contributions to its pension system and electing to use the money for other purposes. So this measure gauges states’ wherewithal but does not reconcile whether revenue was used to cover specific expenses. Collecting more revenue than expenses over the long term is a necessary but insufficient condition of fiscal balance. Further insights can be gleaned from examining states’ debt and long-term obligations.
A negative fiscal balance can be one indication of a structural deficit in a state, but there is no consensus on how to measure a circumstance in which revenue will continue to fall short of spending absent policy changes. Some states, for example, diagnose the existence of a structural deficit by comparing cash-based recurring general fund revenue to recurring expenditures under normal economic conditions. However, such data are not available on a 50-state basis.
Delmarva Power’s proposed rate increase will not sail through Public Service Commission proceedings if the Office of Public Advocate has its say.The office represents customers in Public Service Commission rate cases.
“As customers are struggling to pay bills, Delmarva Power is seeking one of the largest electric distribution rate increases we have ever seen,” said Delaware Public Advocate Andrew Slater. “Simply put, reliability is extremely important but so, too, is affordability. No customer should have to choose between paying for their utility service or paying for other essential needs. It’s long past time costs are reined in just as many of their customers are trying to do.”
In past rate cases, regulators have been skeptical about further upgrades, citing costs that lead to only a minimal increase in reliability. A less favorable regulatory environment was a factor in Delmarva’s parent company PEPCO merging with the nation’s largest utility Exelon.
Delmarva has argued that upgrades are necessary since the need for more reliable service has grown for businesses and residential customers. Also, underground and above-ground utilities that were installed decades ago during previous building booms in the state are beginning to need more maintenance and upgrades. Also a factor is the growth of solar power, which is fed into the grid when customer use declines.
Under state law, the increase will become effective on a temporary basis on July 15, 2023, subject to refund, pending a final decision by the Delaware Public Service Commission.
Delmarva Power’s request for an increase in electric distribution rates comes after a $16.7 million increase approved by the Public Service Commission on August 5, 2021.
If approved as requested, Delmarva Power residential and residential electric space heating customers will experience an additional increase of 8.35 percent and 13.2 percent, respectively, in their electric distribution charges. A typical residential non-space heating customer using 844 kWh per month would see an additional increase of $10.41 per month to their total bill, and a residential space heating customer would see an additional increase of more than $11 per month to their total bill.
“As customers are struggling to pay bills, Delmarva Power is seeking one of the largest electric distribution rate increases we have ever seen,” said Delaware Public Advocate Andrew Slater. “Simply put, reliability is extremely important but so, too, is affordability. No customer should have to choose between paying for their utility service or paying for other essential needs. Its long past time costs are reined in just as many of their customers are trying to do.”
This requested distribution rate increase of roughly 25 percent follows a nearly 60 percent increase in natural gas supply rates over the past two years.
Delmarva Power’s reliability is in the top tier among utilities. Even so, Delmarva Power intends to spend $430 million on plant over the next three years. This represents an increase of 155% over Delmarva’s 2019 plant spending.
The Public Service Commission will hold a public comment session once a procedural schedule is established. Written comments may be sent by mail to Delaware Public Service Commission, Docket No. 22-0897, 861 Silver Lake Boulevard, Suite 100, Dover, DE 19904, or by e-mail to firstname.lastname@example.org, Attn: Docket No. 22-0897.
Introduction Alaska is one of 35 states still subject to health care certificate of need (CON) laws. These regulations require that certain proposed health care facilities or expansions receive permission from the Alaska Department of Health to begin operating. However, contrary to normal licensing procedures, approval is based not on the qualifications of the facility or its workers, but on the judgment of the government that the new or expanded facility is needed in the proposed area.
To make this decision, the Department of Health relies on input from existing local health care entities — the new or expanding organization’s competitors — rather than potential patients’ desire for another option.
Unsurprisingly, many health care facilities, such as hospitals, in Alaska are shuttered before they can even begin caring for patients. Just as Alaskans’ might doubt the prospects for a new Carl’s Jr. if the company required the approval of a nearby Burger King, new health care facilities struggle to convince existing facilities that they are needed.
The first legislators to enact CON laws in the country did so with the intent to save patients money and provide greater access to health care, but the policy failed by these metrics almost as soon as it was implemented. Subsequent enactment in most other states, including Alaska, was then compelled by the federal government. States that are now subject to CON laws suffer an average of five percent higher spending for physician care. Alaska, itself, holds the dubious distinction of having the highest health care spending in the country. Which is no wonder, as its health care costs are about double the national average
Alaska ranks 33rd on the list of states for hospital beds per capita, with 2.17 beds per 1,000 residents (see Figure 1). In contrast, South Dakota, which does not have CON laws, is at the top of the list, with 4.82 beds per 1,000 residents.
Alaska ranks number one among all 50 states in health care expenditures and 12th for the number of CON regulations. Alaska’s CON code book is 28 pages long. Although many factors contribute to the health care price dilemma, implementing CONs has only made the problem worse. The goal of increasing access to health care in Alaska has not been achieved, and health care prices have not decreased.
Many initial supporters have realized that CON laws have not produced the intended outcomes. Numerous medical professionals and government policymakers across the political spectrum have sought to reverse them, but these opponents have thus far had little success in Alaska. The Alaska Department of Health continues to insist that its oversight is necessary to ensure health care facilities are “planned properly.”
This report examines the initial justification given for CON laws and explores the inherent flaws in the logic behind them. It also provides some of the statistics and stories reinforcing the conclusion that the laws have, indeed, proven counterproductive. CON laws have neither decreased health care prices nor increased access to care. The report explains some reasons CON laws have not yet been repealed in Alaska despite the great toll they have taken. Finally, the text provides a path toward the reversal of what the American Medical Association (AMA) calls “a failed public policy.”
History and Initial Reasoning In 1964, officials in the state of New York expressed concern about rising hospital costs, and they postulated that the increase was caused by the over-proliferation of hospitals themselves. Their rationale was that, if not enough patients needed health care services to fill the beds, the facilities would distribute the high cost of overhead with inflated prices for each patient. These hefty charges would, in turn, price some patients out of access to health care. To combat the problem of health care costs and control access to hospitals, New York officials passed the Metcalf-McCloskey Act, which required anyone desiring to build a new hospital in the state to receive government permission.
As a New York Times article explained at the time of the act’s passage, “Anyone who could raise or borrow enough money was entitled to construct new hospital facilities without having to justify the public need for them. To correct and control this situation the Metcalf-McCloskey Act provided for review of proposed new hospital facilities by a state council and its affiliated regional agencies.”
A decade later, the Timesreported that New York City’s health care budget had actually increased by three and a half times since the passage of the law. That same year, the U.S. Congress inexplicably strong-armed all other states into adopting similar laws. The sweeping National Health Planning and Resources Development Act (NHPRD) of 1974 mandated states to implement their own CON laws as a condition of receiving federal Medicaid or Medicare funds. As in most other states (excluding Louisiana), the desire for federal funding compelled Alaska to implement its own CON legislation. And along with the rest of the country, Alaska saw its health care expenditures grow even more quickly (see Figure 2).
A Glaring Error The most glaring attribute of the CON “solution” to the problem of excess costs and decreased supply is its overt rejection of the principle of supply and demand. Standard economics observes that when the supply of a product or service increases, the cost decreases and vice versa.
Ideally, with numerous comparable options, customers needing non-emergency care choose the least-expensive option that meets their needs. This inevitability forces businesses — such as hospitals or doctors’ offices — to lower prices to competitive levels. So, if Hospital A charges significantly more than Hospital B, Hospital A must either lower its costs or go out of business.
If the latter occurs, Hospital B becomes a monopoly, leading to higher costs and lower access for everyone. As the Mercatus Center at George Mason University notes, “Economic theory holds that if supply shrinks and demand remains steady, prices will increase.” This equation renders the local health care industry more lucrative, with customers exceeding the capacity of providers, which attracts competitors to fill the needs of the most underserved areas, which competition, in turn, drives prices back down.
But prices only decrease — and access only increases — if competitors are allowed to operate. Unfortunately, in Alaska, due in part because of CON laws, citizens do not have numerous comparable care options and care facilities have few incentives to lower their prices.
The Original CON Flaw Despite the obvious faults in the logic, proponents of CON laws justify government interference by insisting that health care was too important to entrust to basic economic principles. “The vital need for healthcare services requires that such services always be available to the community, and not be subject to the typical ebb and flow of a free market,” insists one trio of advocates. However, the architects of CON laws have never explained why hospital proprietors would, uniquely among enterprises, mis-invest, why consumers would inexplicably pay higher prices if they did, or why competitors would fail to seize the opportunity and fill the void in a sparse (and lucrative) marketplace.
Perhaps the lack of explanation indicates that none of these outcomes is likely. Although CON laws themselves are relatively obscure, an even lesser-known fact exists hidden in their history, and it shows errant logic right from the beginning: The reasoning behind CON laws was based not on the principles of a free market, but on the imperative for a market controlled by the government.
Because hospitals were built and funded largely with tax dollars, the health care administrators responsible for allocating that money predictably spent more freely than they would have were they business owners risking their own resources. With a virtual blank check and no personal stake in the business, they had no incentive to spend wisely.
The NHPRD of 1974 even states, “The massive infusion of Federal funds into the existing health care system has contributed to inflationary increases in the cost of health care and failed to produce an adequate supply or distribution of health resources, and consequently has not made possible equal access for everyone to such resources.”
As former Federal Trade Commissioner (FTC) Maureen K. Ohlhausen put it, “Proponents viewed state intervention as a necessary check on a perceived market failure created by the existing reimbursement structure.”
In other words, the impetus for CON laws derived from a problematic situation that government caused, and the legislators’ solution was more government involvement. Again, the distance between their actions and any personal risk allowed the laws’ drafters to base the policy on concepts that economist Dr. Matthew Mitchell stated, “wouldn’t pass muster in Econ 101 class.”
Repeal By 1982, less than a decade after enacting the NHPRD, the federal government was already concerned that it had made a mistake. Legislators from all sides agreed it should be repealed, and in 1986, a bipartisan majority of Congress decided to abolish the CON mandate. Rep. Roy Roland (D-Ga.), himself a physician, recommended that Congress go further, saying, “It’s now time to abolish it throughout the nation.”
The AMA, an early proponent of the law, also withdrew its support, and a 2004 joint study by the FTC and Department of Justice (DOJ) likewise found that “such programs are not successful in containing health care costs, and they pose serious anticompetitive risks that usually outweigh their purported economic benefits.” The National Conference for State Legislators (NCSL) created a comprehensive summary of CON laws’ history and concluded that “highly concentrated hospitals and other health care facilities may charge more for health services, leading to an overall increase in health care spending.”
Despite the complete reversal of both experts and the federal government itself, the legislatures of 35 states — including Alaska — have thus far declined to take their advice, as shown in the number of states with CON laws in Figure 3.
Statistics Although the rationale behind CON laws was enough for analysts to doubt their effectiveness, their actual results leave little doubt that they have had a negative effect. Consider just a few relevant numbers comparing the remaining 35 CON states to the 15 that have permanently withdrawn them:
Even after controlling for other factors, states with any CON laws have almost 100 fewer hospital beds per 100,000 residents.
States with CON laws that specifically target hospital bed numbers fare even worse, with 131 fewer hospital beds per 100,000 residents.
CON states have approximately half of the number of magnetic resonance imaging (MRI) machines per resident.
CON areas have an average of 14% fewer total ambulatory surgical centers.
Cost per service is higher in CON states, with any lower overall cost per capita attributable to lower access to care and the resulting reluctance of the population to seek medical help.
CON laws increase overall health care spending by 3.1% and Medicare spending by 6.9%.
When states repeal CON laws, they see a 4% drop in health expenditures over five years.
Of the 10 states with the lowest life expectancies, all but one have CON laws, and many have some of the most restrictive ones in the country.
Of the 15 states that have repealed their CON regulations, all have seen a reduction in health care costs and hospital readmissions, with no decrease in charitable care.
Real Consequences A deeper look at the situation reveals the human toll behind the numbers:
A premature infant died at a hospital in Salem, Virginia, after the hospital was prevented from adding a neonatal intensive care unit (NICU) due to competition objections from another neonatal hospital. (This tragedy did not result in any change.)
CON laws in Michigan limited cancer patients’ access to lifesaving chimeric antigen receptor (CAR) T-cell therapy, based on resistance from an existing health company that did not want the competition.
In Kentucky, new home health agencies are allowed in only six of the state’s 120 counties because of the lobbying efforts of $2 billion Baptist Health, which has its own home health agency.
Med Center in Kentucky, which has a monopoly on emergency medical services (EMS), has prevented any new ambulance companies from opening, despite a life-threatening shortage.
In Nebraska, aides who can take patients to the grocery store for food cannot legally take them to the pharmacy within the very same store because of ambulatory CON laws.
CON laws prevented Jay Singleton, a North Carolina ophthalmologist, from opening a reasonably priced outpatient surgery facility, forcing him to perform surgeries at the drastically inflated hospital cost.
Hope Women’s Cancer Center in North Carolina was forbidden from purchasing its own MRI scanner because it was deemed unnecessary.
Alaska’s Unique Need One justification for Alaska’s CON laws focuses on the need for better health care access and prices in rural and disadvantaged communities, which is particularly relevant in this unique state. However, for the reasons discussed above, the legislation has rendered care even less available to and more expensive for these very communities.
Writing about health care for The Atlantic, Vann Newkirk notes that Alaskans are “more likely to live in remote areas and more likely to be people of color than those in the continental United States. … Alaska is a unique state, and its combination of naturally high costs, rurality, and remoteness is not replicated anywhere in the continental United States.”
Alaska is geographically more than twice the size of Texas, yet Texas has 83 times more people per square mile. Even under ideal circumstances, Alaskans are naturally going to suffer unusual burdens to reach health care facilities. When those challenges are compounded with the fact that they have fewer than half the number of hospital beds per capita than some other states, the deficit and the danger increase dramatically.
Alaska also has a far higher cost of living than most other states, meaning that each dollar earned must stretch more. Per-person health care expenditures in the state are already more than $2,000 above the national average. The need to lower prices and harness market forces is therefore even more desperate.
A Note About COVID Many states with CON laws have been rethinking their position since the COVID-19 pandemic. Not only did CON states already have fewer resources at the start of the emergency, but increased red tape prevented them from opening and stocking facilities quickly enough to adjust to the patient influx. Dr. Anne Zink, Alaska’s chief medical officer, admitted, “Our hospitals have been and continue to be incredibly stressed. There is not capacity in the hospitals to care for both COVID and non-COVID patients on a regular basis.”
In a clear admission of the root of the problem, 24 CON states — including Alaska — temporarilylifted some of these mandates during the height of the pandemic. One study estimates that states with high hospital bed utilization saved 100 lives per 100,000 residents, for all causes of death, just by lifting CON regulations.
The provisional move gave rise to some hope that Alaska would finally move to a full repeal, but despite the apparent shift during the COVID-19 pandemic, Alaska’s official law has not changed. COVID-19 provided a stark lesson in the deadliness of these rules, and Alaska policymakers would be remiss if they swept this experience under the rug and returned to business as usual.
The Potential Effect of CON Repeal in Alaska What would happen if Alaska abolished its entire CON code? The Mercatus Center has calculated some of the likely effects:
The average Alaskan would save $294 per year on overall health care spending.
MRI services would increase by 2,137, from 5,880 to 8,017.
The need to travel lengthy distances for MRIs would decrease by 5.5%.
Computerized tomography (CT) scans would increase by 4,201, from 6,160 to 10,361.
The need to travel lengthy distances for CT scans would decrease by 3.6%.
Post-surgery complications would decrease by 5.2%.
The number of hospitals could increase from 25 to 35.
The number of rural hospitals could increase from 17 to 24.
Why the Resistance Continues Despite the noticeably increased pressure of the past several years, incumbent health care companies continue to resist the idea of abolishing CON laws. Owners and administrators of existing companies reap the financial benefits of these laws without facing the chaos they cause. The people profiting most by admitting as many patients as possible are rarely the floor workers rushing to save those patients’ lives.
Just as health care planners working for hospitals initially applauded the introduction of CON laws, those in the industry are zealous to keep them in place. A brief look at the opponents of Alaska’s 2019 SB 1, which would have repealed Alaska’s CON statutes, reveals the prevention of competition to be a blatant motivation:
Alaska Radiology Associates worried that it would not recoup a $10 million technology investment if new imaging centers were allowed to open.
The Alaska Nurses’ Association feared that new facilities would “siphon off the revenue-generating services.”
Imaging Associates complained that the removal of CON laws would force the organization to compete with facilities it considered inferior.
Providence Health and Services lamented that “boutique facilities will work to increase their customer base” — in other words, that they would lure away Providence’s customers.
Even more shocking is that a CON, itself, is so valuable. Businesses sometimes sell them off as assets during such processes as bankruptcy. A successfully acquired CON is money in the pocket of the bearer.
A Word of Caution Although hostility to CON laws seems to be increasing as more people become aware of their existence, opponents should exercise prudence when deciding on a different path forward. Policymakers must remember that a government program began the cost problem and a government program seeking to solve the first problem made it worse.
Health care as an issue elicits strong emotions, and with health care prices skyrocketing, the understandable impulse is often to do something. Human beings tend to feel that doing anything is better than doing nothing. But as even this truncated history of CON laws has shown, wrong-headed or short-sighted policies can always make a situation worse.
A Path Forward What, then, are some judicious ways Alaska can repeal its CON laws without creating more chaos? Some states have chosen to “sunset” these laws by designating future dates at which they expire, allowing the system to prepare for the new legislative landscape over time. Pennsylvania is an example of a state that has accomplished this transition by giving all facilities and treatments previously covered by CONs time to adjust to a new landscape.
Another variation of this idea involves phasing out aspects of a state’s laws one at a time, as states such as Florida and Georgia have done. Alaska has 19 health care products and facilities, from MRI scanners to neonatal intensive care units, that require certificates of need. If removing all of them at once would prove problematic for facilities, removing a few at a time from the list may allow an easier transition.
On the other hand, states have the option of simply repealing their CON laws all at once, remembering that patients have suffered and even died from the lack of care they have caused. When it comes to repeal in Alaska, faster may be better. Eleven states abolished all CON mandates by 1990, and the sky did not fall in any of them.
Whichever path Alaska chooses the rollback of this “failed experiment” can only be an improvement. Certificate of need laws have continually proven to serve the needs of corporations rather than communities, yet Alaskan policymakers have carried on for 40 years with detrimental laws that are no longer mandated — or even recommended — by the federal government. Policymakers have had ample evidence and opportunity to move forward, and it is high time they do so.
A Delaware agency is preparing a regulation to require auto manufacturers to sell only electric-powered vehicles. EVs now account for less than 1% of new vehicle sales. This is an effective ban on cars and trucks powered by gasoline. The state is selling this to the public with a series of myths highlighted below.
EVs will end motor vehicle air pollution. Conventional vehicles have already reduced two pollutants 83% and 91%, respectively, and will continue to fall rapidly as older vehicles leave the fleet. Delaware meets all air pollution standards. We have clean air. Much of our electricity comes from coal- and natural gas-powered plants. Line losses waste 11% of that power, and another 10% is lost converting from AC current to DC current to charge the batteries. Many studies show EVs cradle-to-grave emissions are higher as minerals used in 1,000-pound batteries require moving 150,000 pounds of dirt and rock. In the end, very little carbon dioxide is saved, if any.
EVs will save on fuel cost. Most EV charging is done overnight at home at lower rates, but as more EVs hit the road, special rates will end. EVs currently don’t pay taxes for road repairs. New taxes are coming based on miles driven using intrusive devices to track driving. Massive investments needed in electricity infrastructure to support charging will drive electric rates up.
EVs will be price competitive. There are nine vehicle models available both as conventional and EV options. The average price premium for the EVs is $14,000. Federal legislation provided $7,500 per EV subsidies and many auto manufacturers raised vehicle prices by about that amount. Caution should be shown in buying a used EV. GM’s list price for a replacement battery at eight years or 1000,000 miles is $16,250 plus $870 to install it.
The proposed regulation is not a ban on gasoline-powered vehicles. Once the 100% EV requirement goes into effect, you will not be allowed to register a new gasoline-powered vehicle in Delaware. That’s a ban.
The U.S. Environmental Protection Agency is forcing the new regulation based on regional pollution violations. New Castle County is included in a greater Philadelphia non-attainment region. However, the county and the 10 next closest upwind air quality monitoring stations now meet all air quality standards, proving the county is not contributing to upwind pollution. Delaware is now in a position to petition to be removed from the non-attainment region. Doing so reduces the stringency for new air quality permits and is considered and economic development advantage.
An underlying question is if all these myths are true, why is a government mandate even needed? Won’t people flock to buy EVs? Anyone who wants to buy an EV should be able to, but without government-enforced subsidies or mandates. See our public comments to the state on the proposed regulation for detailed sources at tinyurl.com/5n6mdp6a.
WILMINGTON, Del. – Governor John Carney on Friday released the sixth annual report of the Government Efficiency and Accountability Review (GEAR) Board. Governor Carney established GEAR by Executive Order #4 in February 2017 to identify ways for state government to operate more efficiently, improve the delivery of state services, and provide cost savings.
The report highlights key accomplishments and ongoing efforts across state government in 2022, including:
Development of continuous improvement professionals within state government is expanding. Fifty-two practitioners from fifteen state organizations are executing projects within a portfolio of one hundred twenty-five initiatives. Savings to the state are estimated to total $61-65 million over the life of projects underway.
Savings and improvements for taxpayers are being achieved through lease restructurings, refined state vehicle (FLEET) utilization, long-term care delivery optimization, scanning/self-check equipment in Delaware’s libraries, the development of trauma informed care practices for children and families, automated state park fee collection, along with streamlined financial, human resource and information technology systems.
Reviewing capital project processes within public school systems remains a priority through the EdGEAR (Education-GEAR) team with a comprehensive review of all parts of this process currently underway.
Driving improvements to digital government services allowing citizens to access and transact with the state anytime, from anywhere, and on any device.
Continuing the GEAR P3 Innovation and Efficiency and Trailblazer Award programs that rewards state employees who demonstrate successful implementations of innovative, cost saving, and service enhancing continuous improvement projects.
Reimagining State Service Center delivery in Delaware which will improve how citizens apply for benefits such as food assistance, cash benefits, healthcare, and housing.
Expanding high-speed, broadband internet service in Delaware’s underserved areas through public-private partnerships.
“As the GEAR Board performs its valuable role and we continue to train employees across the State, our state government is finding ways to save taxpayer money and foster a culture of continuous improvement.” said Governor Carney. “GEAR’s efforts to improve data-driven decision making are exactly what we need to generate service improvements and communicate the value of savings that are being achieved for Delawareans.”
The Board’s report, released each December, also provides policy and budgetary recommendations for possible inclusion in the Governor’s agenda and budget for Fiscal Year 2024. Governor Carney’s budget proposal will be released on January 26, 2023.
Recommendations in the 2022 report include:
Support the Ready in Six permitting improvement initiative by investing in recommendations for specific process improvements being gathered through a survey distributed to over 1,500 industry focused partners.
Expand participation in the Continuous Improvement Practitioner (CIP) Training program and a new project and process leadership training path by increasing funding for the First State Quality Improvement Fund (FSQIF). Support recommended amendments to the FSQIF modernizing language to reflect current best practices and GEAR’s role.
Identify and implement changes in the state personnel system by establishing job classifications for “project managers” and “Lean business process analysts” in partnership with the Department of Human Resources.
Support investments to procure and use best practice project portfolio management and business process management tools. The use of common tools facilitates collaboration across the enterprise, avoids duplication of effort, increases the precision of estimating quantifiable outcomes, and improves the efficiency of the state’s business processes.
“The ability to quantify outcomes is as important as the development of the skills applied to delivering efficiencies,” said Charles Clark and Daniel Madrid, Executive Director and Deputy Director of GEAR respectively, and Bryan Sullivan, Director of Management Efficiency at the Delaware Office of Management and Budget. “The Enterprise Services Delivery and GEAR Field teams represent fifteen state organizations that are delivering value through the execution of numerous projects aimed at achieving cost savings, estimated to total $61-65 million over the life of projects underway.”
Delaware’s seasonally adjusted unemployment rate in November was 4.4%, up from 4.3% in October 2022, the Delaware Department of Labor reported.
There were 21,800 unemployed Delawareans in November 2022 compared to 23,900 in November 2021. The US unemployment rate was 3.7% in November 2022, unchanged from October 2022. In November 2021, the US unemployment rate was 4.2%, while Delaware’s rate was 4.8%.
Delaware has one of the highest jobless rates. It was tied for the 46th spot (See the chart below, which lists the jobless rate and the national ranking.
District of Columbia
Source: US Bureau of Labor Statistics
In November 2022, seasonally adjusted nonfarm employment was 462,600, down from 463,500 in October 2022. Since November 2021, Delaware’s total nonfarm jobs have increased by ,800, an increase of 2.2%. Nationally, jobs during that period increased 3.2%.
While total employment in Delaware is up by 9,800 from a year ago, the state did see a loss of 1,700 jobs in hospitality in November. Still, jobs in that category were up by 3,200 over the previous year.
Delaware’s Population Consortium approved the state’s 2022 population projections Thursday – projections that counties, municipalities and school districts are required to use for planning and budgeting purposes.
This year’s projections — both for 2022 and for the coming decades — pose several challenges for city governments and the state as a whole.
UD’s Center for Applied Demography and Survey Research projects a dramatic shift in the ratio of working-age adults to seniors in Delaware over the next three decades.
Center Director Ed Ratledge says the number of new births appears on track to remain flat for the foreseeable future, while the population over the age of 65 is vastly outpacing both births and in-migration of working-age people.
“The population from 0 to19, which is where your new labor force is going to come from, is going to grow by 4,000 from 2020 to 2050,” he said. “At the same time, the over-65 crowd grows by almost 90,000.”
Overall, UD researchers expect the state’s population to begin declining by 2050, with only slow growth in the intervening decades. In-migration is the key driver of Delaware’s population growth, but that migration is disproportionately concentrated in Sussex County and includes retirees.
But some at Thursday’s Consortium meeting were skeptical about the accuracy of local-level population estimates from the 2021 American Community Survey.
Newark Acting Director of Planning and Development Renee Bensley questioned data suggesting Newark’s population has slightly declined since 2020.
“If you look at the specific census tracks, the ones that had the most severe drops were the ones with concentrations of student housing – and where we’ve been building denser student housing,” she said. “Not only was that additional density not counted, but it suggested a decrease, which is not reflective of our reality on the ground.”
Bensley says Newark may conduct a supplemental census in 2023 to double-check the most recent population data, which she said may be necessary to ensure Newark receives its fair share of state resources.
“Our City Manager in particular is very concerned about the fact that since these are used to determine the distribution of street funding money, we could see a pretty severe percentage drop that isn’t reflective of an actual drop in our population,” she said.
Consortium members previously identified apparent population declines in Sussex County municipalities like Georgetown as potential survey errors.
Delaware’s overdose crisis reached a new peak in November with a record 43 deaths, surpassing a previous high set in May of this year.
376 people have died of drug overdoses in Delaware in 2022 — 18 percent higher than in the same period in 2021, which saw 515 people die by the end of the year. Division of Substance Abuse and Mental Health Director Joanna Champney says historical overdose data gives her agency reason to worry that deaths may continue to trend upwards in the coming months.
“The month of December, for the past three years, is always higher than the preceding month of November,” she said. “So seeing a spike in November has us concerned about what may be coming down the pike next month.”
Roughly half of last month’s deaths occurred in New Castle County, where needle exchange workers say unusually strong free samples – likely containing high concentrations of fentanyl – offered to drug users in November may have played a role in some deaths.
Champney says her agency received similar reports, and notes while it can be helpful to alert healthcare providers and law enforcement of drug supply changes, warning users poses an ethical challenge.
“One of the challenges is – and it’s the same challenge with fentanyl test strips – that some people are seeking those substances,” she said. “We have to balance that when we’re telling people there’s a new, particularly potent drug out there.”
Champney adds her agency will attempt to increase its distribution of the overdose-reversal drug naloxone, including with more door-to-door visits in communities hardest-hit by the crisis. And with health conditions associated with drug use – including sores and infections – taking an increasing toll on users, Champney says her department is looking into deploying nurses or other medical professionals to offer more mobile treatment options.
Meanwhile, DSAMH is also preparing for the launch of an overdose response center next month to identify localized overdose hotspots for faster and more targeted outreach.
So far, the state’s response to the opioid crisis has centered largely on distributing basic harm reduction supplies and providing referrals to treatment options — namely Medication-Assisted Treatment (MAT), which relies on less potent opioids like methadone or opioid antagonists to treat dependency — through outreach teams or drop-in centers. The state is also investing in expanded residential treatment capacity.