The Affordable Care Act is here to stay. With the Supreme Court ruling last June and President Obama’s re-election in November, the law has no more legal hurdles left to jump.
For that reason, the big decision before states this year is whether or not to expand Medicaid. Chief Justice of the United States John Roberts ruled that the federal government must give states a choice, so the Obama administration has made the offer as enticing as it can: 100 percent of the costs of the expansion population (up to 20 million people) would be covered from 2014 to 2016, and the federal match would never fall below 90 percent after that. That means, according to some estimates, states as a whole would spend as little as $8 billion to expand over the next decade, while the federal government would spend up to $800 billion. But the politics of embracing Obamacare could be tricky for some states. Matt Salo, executive director of the National Association of Medicaid Directors, has called the expansion “one of the biggest public policy decisions of our generation.”
While states grapple with Medicaid expansion, they’ll also have to have their health insurance exchanges -- online marketplaces in the vein of Expedia or Orbitz -- set to open on Oct. 1. About 20 states are developing a state-run exchange, assuming full responsibility for getting it up and running and ready for enrollment. The others are opting for either a state-federal or federal-run exchange. Even under these models, states will be keeping an eye on the administration’s movements in the next year, as the decisions in Washington will have an impact on their residents. “Between now and October, there’s a lot that has to get done,” says Joy Wilson, senior health-care policy analyst at the National Conference of State Legislatures (NCSL).
The Return of Revenue
Last spring, the National Association of State Budget Officers (NASBO ) forecast that state revenue would finally return to pre-recession levels by the end of the 2013 fiscal year. So far states are on pace to meet that projection, but that doesn’t mean states’ budget challenges are over. In fact, the challenges might be even worse this time.
State officials controlling the purse strings had an easy and ready explanation available to anyone who thought they were being too stingy in recent years: “It’s the worst recession since World War II and everyone is facing cuts.” But even with revenue returning to pre-recession levels, not every department will be flush with new money. State lawmakers are expected to focus “re-funding” on just a few key areas. “The problem is, they’ve short-changed and haven’t put money into their pension systems,” says Scott Pattison of NASBO . “They slashed the hell out of a lot of stuff like higher education. It’s not like there’s all this new money to do new things.”
With states seeing more revenue than they have in the past, some interests may have unrealistically high expectations. “We’re better than we were, but it was such a lengthy, bad period for states,” Pattison says. “They’re filling a little bit of this hole, but not a lot.”
The Fiscal Cliff (And Beyond)
As of press time, Washington lawmakers still hadn’t averted the looming fiscal cliff. But regardless of what steps are taken to prevent or delay it, the ongoing debate over federal deficit reduction will have big implications for state and local leaders, who have spent vast amounts of time trying to understand how various federal cuts would impact their budgets.
With state governments only now seeing revenues return, and city governments still in the midst of their sixth consecutive year of revenue declines, any loss in federal money is bad news for them. Leaders at both the state and local level are especially concerned with cuts to transit, community policing, affordable housing and workforce development, among a slew of other programs that face the chopping block as part of federal budget talks. Additionally, many communities with ties to the military fear that defense cuts could hurt their local economies. Looking beyond the immediate cuts threatened by sequestration, the feds’ ongoing conversation about austerity is one that states and localities will have a large stake in.
State and local leaders are especially concerned that if Congress tackles tax reform, the historic tax exemption for municipal bond earnings could be diluted, which would increase their borrowing costs. Elected state and local officials, as well as the associations representing them, have been fiercely lobbying Washington lawmakers to protect existing funding and avoid changes to tax codes that might affect their bottom lines. Expect that conversation to continue in 2013.
Implementing Common Core
Full implementation of the Common Core State Standards, new national academic standards that are supposed to ensure students are college-and-career ready, will occur in the 2014-2015 school year. But the 45 states that have adopted them can’t really wait until then. End-of-year testing this spring and at the start of the school year this fall are crucial for states implementing the standards.
“You’re not going to flip the light switch on in 2014. It’s a dynamic process,” says Carrie Heath Phillips of the Council of Chief State School Officers, which helped develop the standards. “You’ve got to build the capacity and infrastructure.”
That starts with aligning all of the learning materials and lesson plans with the standards (21 states are expected to have done so by the start of the 2013 school year). Many states are planning summer professional development programs. And a few states (including Kentucky, New York and North Carolina) are testing pilot assessments, the end-of-year computer-administered exams based on the learning objectives in Common Core.
When it comes to the military, the feds typically take the lead. But that’s starting to change as more than 2.4 million veterans of two grueling wars try to reintegrate themselves into life after combat. “These are issues that haven’t been on our radar screen in a long time,” says Michael Bird, senior federal affairs counsel at NCSL.
Last year, states enacted 43 pieces of legislation related to the mental health and reintegration of service members. That’s double the previous year’s total, according to NCSL. It’s a trend that should continue, along with a movement toward addressing issues like employment and benefits for veterans and their families.
Outgoing state Rep. John Grange of Kansas, a Vietnam veteran who co-chaired NCSL’s military and veterans’ task force, says states in the next year will definitely focus on making it easier for veterans who earned occupational licenses in the military, like trucking permits, to get the state-level equivalent without lots of red tape. Easing the pathway toward civilian employment is critical for veterans’ adjustment to post-military life, Grange says, and helping them with licensing could be a good start.
Another issue starting to gain traction in some states is the creation of special courts for veterans led by judges who are attuned to mental health issues like post-traumatic stress disorder. States are also exploring ways to provide foreclosure prevention for vets and provide unemployment insurance to military spouses who leave their jobs in order to accommodate relocation orders.
While the feds passed a highway and transit bill last year, it merely maintained the status quo for funding. What’s worse, there is little reason to think that the federal gas tax, the main tool used to fund federal transportation funding, will increase this year. It’s been nearly 20 years since that last happened, and inflation -- along with the increasing fuel efficiency of vehicles -- means the per-gallon fee lacks the purchasing power it once did.
As a result, many states are taking it upon themselves to find ways to fund their aging transportation infrastructure. Massachusetts Gov. Deval Patrick is expected to call for some type of transportation tax hike. Virginia Gov. Bob McDonnell is reportedly considering indexing the gas tax to inflation. And there’s growing advocacy among some Texas lawmakers for an increase in vehicle registration fees.
Meanwhile, states in recent years have increasingly crafted legislation authorizing various types of public-private partnerships and tolling mechanisms. While those can be controversial in their own right, they’re one of the primary ways state governments have to build ambitious projects. Elected officials are likely to turn to these solutions and others in the upcoming year. “There’s a consensus that there’s a nationwide funding crisis, and states have to figure it out -- with or without federal support,” says Jaime Rall, a senior policy specialist on transportation at NCSL.
The decision by voters to legalize marijuana in Colorado and Washington has set the two states on a collision course with the federal government. Although voters would allow adults age 21 and older to purchase small amounts of the drug for recreational use -- regulating and taxing it much like alcohol -- marijuana remains a Schedule I controlled substance under federal law.
So what happens now? Since the election, Obama has said the federal government has “bigger fish to fry” than prosecuting pot smokers, but the U.S. Justices Department has yet to issue an official response. Though the White House has tacitly allowed 17 states and the District of Columbia to authorize marijuana for medical use, administration officials have been adamant that they oppose outright legalization. “Legalization isn’t in the president’s vocabulary,” Gil Kerlikowske, Obama’s drug czar, said in 2009.
Some have speculated that federal lawsuits could hold up the Colorado and Washington laws in court for years. But the political calculus of the federal reaction could be trickier than expected. An October 2011 Gallup poll found that, for the first time, 50 percent of Americans support marijuana legalization, and the Colorado and Washington ballot initiatives passed by double-digit margins.
Meanwhile, state officials have to figure out how to do something that hasn’t been done since Prohibition ended: establish a legitimate commercial market for a previously banned substance.
More Pension Tinkering
Over the past four years, nearly every state has made some change to its pension system in an effort to contain costs -- so the idea of modifying pension benefits is nothing new at this point. But states trying to reform their pensions face an interesting challenge: The easy, common-sense fixes -- things like cutting back on double-dipping and pension spiking -- have already been done in many states. In short, the low-hanging fruit has already been picked, says Keith Brainard, research director of the National Association of State Retirement Administrators. That means the next generation of pension reforms will likely be more drastic, and almost certainly more controversial.
Brainard expects more states to follow the lead of Colorado, Minnesota and South Dakota, for example, which have adjusted cost-of-living increases for existing plan participants. Pennsylvania Gov. Tom Corbett, Illinois Gov. Pat Quinn and Florida House Speaker Will Weatherford are among those who have already said pension reform will be on their agenda in 2013. And this time around, the fights are likely to be tougher.
Citizens United Backlash
In the 2010 Citizens United ruling, the U.S. Supreme Court reversed a Montana Supreme Court ruling when it said the First Amendment prohibits the government from restricting corporations and unions from spending money on advertising in candidate elections. Although the case challenged a federal law, its impact was felt in the states where it effectively rendered similar laws unenforceable. “Citizens United and other case law make it difficult or impossible to take the traditional reformer approach to get the money out [of politics],” says Adam Skaggs, senior counsel for the Brennan Center for Justice’s democracy program. “The ability of states to limit spending, limit outside expenditures -- it’s a bit of a nonstarter.”
Since 2012 was the first major election after the Citizens United ruling, states got a chance to see how a less restrictive campaign finance regiment operates. They may not be able to take the money out of campaigns, but states will likely require greater transparency when it comes to spending. Doing so would still comply with the Supreme Court ruling.
Expect to see states consider mechanisms to provide public funding for candidates too, based on the logic that if they can’t limit corporate funding they can at least help elevate the positions of those who want to be part of the debate but lack big financial backing. Legislation addressing “pay to play” schemes may also gain traction.
Delaware led the way in campaign finance reform in 2012 with Gov. Jack Markell signing a trio of bills aimed at enhancing reporting by third-party groups, among other reforms. In 2013, New York is poised to take the lead on the issue with Gov. Andrew Cuomo continuing to advocate for a public financing system. “I think there’s going to be increased concern among policymakers on both sides of the aisle on the role that outside groups are playing,” Skaggs says.
Ruling on the Voting Rights Act
Several conservative states in the past year have challenged parts of the Voting Rights Act, the landmark 1965 law that outlaws voting practices considered discriminatory. Their beef is with part of the law known as Section 5 that requires federal approval of any changes to their voting practices. In November, the Supreme Court announced that it will hear a federal lawsuit filed by Shelby County, Ala., on that aspect of the act.
The implications of the case could be big. If the court rules that Section 5 is, in fact, unconstitutional, the pre-clearance requirements could vanish. As it stands, nine states (Alabama, Alaska, Arizona, Georgia, Louisiana, Mississippi, South Carolina, Texas and Virginia) and a handful of localities must seek approval of any changes.
“It’s an extremely important case for voting and for state-federal relations,” says Margaret Paton-Walsh, assistant attorney general in Alaska, which has filed its own Voting Rights Act lawsuit that could be affected by the Shelby ruling. “It will make a big difference for state governments if they no longer have to deal with these pre-clearance problems. It’s a lot of time, a lot of resources and frankly a lot of aggravation.”
Any ruling will be hugely controversial, as civil rights advocates don’t want to see Section 5 go away. The decision comes at a time when many states have pursued voter ID laws and other changes in election law that critics say disenfranchise minorities. Section 5 has been one of the primary tools that the Justice Department has used in fighting those laws.