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The Disposition of Federal Dollarsin Florida’s Social Services:

Informing a Federal FundingMaximization Strategy

Final Report toThe Florida Philanthropic Network

June 2003

ByAdam Carasso and Roseana Bess

The Urban Institute2100 M Street, NW

Washington, DC 20037

Acknowledgments

This report was prepared for and with funding from the Florida Philanthropic Network. The views expressed are those of the authors and should not be attributed to the Florida Philanthropic Network or to the Urban Institute, or the trustees or funders of either orga-nization.

The authors wish to thank Cindy Andrews and Meghan Bishop for their research assis-tance, and Alan Weil, Eugene Steuerle, and Rob Geen for their insightful comments on earlier drafts of this report. The authors are most appreciative to Brenna Carney for for-matting the report. Finally, the authors wish to thank all those in Florida who provided data and furthered our understanding of the subject through phone interviews.

Copyright ©2003 The Urban Institute

Table of Contents

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iI. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1II. Social service programs examined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4III. Florida’s approach to social services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8IV. Florida’s fiscal climate from 1992 to 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 The Budget Picture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 State Government Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Florida State Tobacco Settlement Revenues and Allocations . . . . . . . . . . . . . . . . . 24 Considerations in Estimating Florida’s Federal Inflows and Outflows . . . . . . . . . . 25 Federal Revenues from Florida versus Federal Spending in Florida . . . . . . . . . . . 28 Florida as Net Recipient . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29V. What does revenue maximization mean? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32VI. Program-by-program analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 1. Medicaid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 2. State Children’s Health Insurance Program (SCHIP) . . . . . . . . . . . . . . . . . . . . 50 3. Title IV-E Foster Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 4. Temporary Assistance for Needy Families (TANF). . . . . . . . . . . . . . . . . . . . . . 56 5. Social Services Block Grant (SSBG) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 6. Child Care Development Fund (CCDF) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 7. Maternal and Child Health Block Grant (MCHBG) . . . . . . . . . . . . . . . . . . . . . 60 8. Prevention and Treatment of Substance Abuse Block Grant . . . . . . . . . . . . . . . 61 9. Community Mental Health Services Block Grant . . . . . . . . . . . . . . . . . . . . . . . 61 10. Supplemental Security Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 11. Food Stamps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62VII. Using private dollars to draw down federal funds . . . . . . . . . . . . . . . . . . . . . . . . . 64VIII. Case study in revenue maximization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66IX. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70Appendix I – Additional Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73Appendix II – Challenges in Gathering Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78Appendix III – Sources of Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

June 2003 i

The Disposition of Federal Dollars in Florida’s Social Services

EXECUTIVE SUMMARY

EXECUTIVE SUMMARY

The foundering economy and the nation’s wartime footing have exacerbated the stress on Florida’s ability to provide social services, already placed there by soaring medical costs, a new state class-size amendment, a fiscally conservative state government, and an anti-tax electorate. Florida has traditionally sought to constrain the growth in social service spend-ing and, in some instances, devolve program responsibility to the local level. State policy has consistently favored leveraging greater federal and local contributions with current state dollars over committing additional state dollars.

Scope of Study. Under a grant from the Florida Philanthropic Network, the Urban Institute agreed to examine Florida’s efforts to maximize federal dollars in select social service pro-grams over the past decade at the state level. The 11 programs were selected with consulta-tion from the Network and are intended to represent the largest social services programs that Florida can readily maximize. These programs are Medicaid, the State Children’s Health Insurance Program (SCHIP), Title IV-E Foster Care, Temporary Assistance for Needy Families (TANF), Social Services Block Grant (SSBG), Child Care Development Fund (CCDF), Maternal and Child Health Services Block Grant (Title V), Prevention and Treatment of Substance Abuse Block Grant, Community Mental Health Services Block Grant, Supplemental Security Income (SSI), and Food Stamps. When possible, compari-sons are made with Georgia and South Carolina—states in the same region—and Texas as a national example.

Demographic Context. Florida is the fourth most populous state in the Union, with par-ticularly large social service caseloads. It has the highest concentration of elderly residents of any state, the lowest concentration of children 18 and under, and has a very large im-migrant population, few of whom can qualify for most federally-funded social service programs in the post-welfare reform era. Florida leads comparison states Georgia, South Carolina, and Texas in per capita personal income of $29,973 and also in per capita wealth of $45,059. Also, F l o r i d a h a s the f i f t h highest concentration of millionaires by population, at 1.8 percent. Thus far, Florida’s resurgent tourism industry and its reliance on a sales tax have helped insulate the state from the fiscal woes felt elsewhere. Florida attracted a record number of tourists in 2002 and its unemployment rate, which jumped to 5.8 percent in the months after September 11, has since dropped to 5.3 percent for the first quarter of 2003—both rates below the national average at the time.

Fiscal and Political Context. According to the Center on Budget and Policy Priorities in Washington, DC, Florida’s forecasted budget state revenue deficit for 2004 is 10.1 percent. Education has been the 800-pound gorilla in the current 2003-04 state budget debates. In trying to pass a $52.3 billion budget—which spends revenues from state, federal, and local sources—the legislature has been grappling with the class-size amendment. The legisla-ture may make a number of cuts in less essential educational facilities and staff, as well as cuts in university and community college budgets while simultaneously raising tuitions. Raising traffic fines, dipping into state trust funds like motor fuels and alcohol, and ex-panding gambling in the state are also measures receiving scrutiny.

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In 1998, Governor Jeb Bush, a Republican, replaced Governor Lawton Chiles, a Demo-crat. Both houses of the state legislature also became majority Republican, marking the first time since Reconstruction that both branches of state government have been Repub-lican-controlled. Republican control has increased pressure to limit the growth of state government. Examples have been annual tax cuts since the mid 1990s, privatization of some programs, increasing requirements for local matches, and more concerted efforts to draw down federal funds, or spend 100 percent federal funds, such as in TANF, rather than increase state spending on matching programs like Title IV-E or Medicaid.

Florida’s neighbors Georgia and South Carolina, and the national example Texas, have social service philosophies similar to Florida. All four states are low TANF benefit states with conservative outlooks on welfare, and all favor work-first policies over income main-tenance in their welfare systems. While these states have had a mix of Democratic and Republican governors, the philosophy and tenor of social services have changed little over the past decade—each is adverse to expansive government, larger social service budgets, and larger, longer-term caseloads. Like the majority of states, each faces a potential budget shortfall in the 2004 fiscal year: Georgia at 5.8 percent; South Carolina at 13.6; and Texas between 13.1 and 25.5 percent, depending on how the deficit is allocated within its biennial budget.

Florida’s revenue challenges exist in part because there is no income tax and the sales tax applies to some goods while exempting others, as well as exempting most services. As Florida and the nation have moved toward a more service-oriented economy over the past twenty years, the sales tax’s base has likely eroded. Efforts to extend the sales tax to in-clude more goods or services have met with stiff resistance in the state legislature. Flori-da’s Department of Revenue has estimated that while the sales tax will raise $17 billion in state revenue in 2003, it will exempt $23 billion worth of products and services. Localities1 have increasingly felt the need to provide services—and raise the requisite revenue—on their own.

The current confluence of fiscally lean times, mounting program costs, and a philosophy of limited government foretells program freezes if not cutbacks and certainly more aggres-sive leveraging of federal and local dollars. Different levels of government in Florida have begun maximizing in earnest to make an end-run around a flat revenue outlook. The state and the larger counties have sometimes been at odds over revenue maximization: the state seeking additional local contributions or reallocating current federal monies; the localities pushing for increased state spending and savvier claiming of local expenditures against federal programs. To this end, several of Florida’s more populous counties having the larg-est affected service populations retained consultants specializing in federal revenue maxi-mization in efforts to boost local receipt of federal funds and lobby the state for greater support in this endeavor. In the current fiscal climate, however, counties fear that any suc-cesses they have in revenue maximization may only further supplant state spending.

1 By “localities,” we mean not just counties but any local jurisdiction capable of levying taxes—such as a children’s services council or a health care taxing district.

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Florida as Net Donor or Net Recipient. Florida appears to be a net recipient of federal funds overall, although only slightly so. Different methodologies could easily produce different results. The four largest factors affecting Florida’s “status”—Social Security spending, Medicare spending, defense spending, and comparably low state and local taxes (which lower the possible deductions from federal taxes)—are also the most difficult for the state to control. However, the larger question is the significance of this issue. Generally, poorer states are net recipients while richer states are net donors, and Florida, because of its concentrations of middle class elderly, wealthy households, and businesses, is not really a poor state.

Florida’s Revenue and Expenditure Picture. Florida state revenue from its own sourc-es—that is, excluding federal and local sources and trust funds—grew 45 percent, from $17.7 billion to $25.6 billion over the 1992-2001 period (in real 2003 dollars). General sales tax receipts, Florida’s largest category of own-source revenue, rose from $10.2 billion to $15.1 billion, or 48 percent. Total state revenues in Florida—including intergovernmental transfers from federal and local government, insurance trust revenues, and the like—rose from $34.7 billion to $47.6 billion, a 37 percent rise or a 3.2 percent real increase per year. Intergovernmental transfers alone increased 74 percent, from $7.0 billion to $12.1 billion2.

Between 1992 and 2003, total appropriations for state operating expenses increased 41 per-cent, from $30 billion to $42 billion. The Florida Appropriations Act classifies appropria-tions into six categories; education; human services; general government; judicial branch; criminal justice and corrections; and natural resources, environment, growth management, and transportation. Over this time period, total appropriations for human services were more than any other section, including criminal justice and corrections. Total appropria-tions for human services increased from $10.3 billion to $18.4 billion, or 78 percent. As a percentage of Florida’s total operating expenses, human services appropriations increased from 34 to 44 percent. Total appropriations for criminal justice and corrections saw a 140 percent increase, from $1.3 billion to $3.2 billion. As a percentage of Florida’s total operating expenses, criminal justice and corrections appropriations increased from 4 to 8 percent.

Florida spent $520 million in tobacco settlement monies in 2000 and $500 million in 2001; half the monies were spent on health care and an additional third were spent on children and adolescents. Specifically, in 2001, Florida’s legislature tapped tobacco settlement revenues to fund the state’s SCHIP program and community-based health care programs among others.

Federal Revenue Maximization. This we define as optimizing current and potential state and local spending to draw down the largest number of federal dollars. Our research led us to consider multiple and competing perspectives on federal revenue maximization. Broadly, there are three types of federal programs through which a state can receive federal social service dollars. The first is federal-state matching programs, like Medicaid or Title

2 Note that many federal programs, such as Social Security, Medicare, and defense spending, bypass the

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IV-E, where the state has to spend additional state (or local) funds to receive additional dol-lars of federal funding; or, the state can claim more of current state spending as eligible for matching funds. The second is block grant programs, such as TANF or CCDF, that require the state to spend a certain level of its own funds to receive the full federal grant, but then once received, the state can optimize how these funds are spent. The third is federally-funded, but state-administered, programs such as Food Stamps or SSI, where state and local outreach efforts can increase participation and the numbers of federal dollars flowing to individuals within the state. The concept of maximization means something different in each of these types of programs.

From the state government perspective, revenue maximization often means just spending less state general revenue and more federal and/or local revenue. A state that currently spends a certain amount of general revenue on a federal program resists spending more than that amount. Localities have the same incentives as the state, but are often not in the driver’s seat. Localities will naturally balk at scenarios where increased local revenues are meant to supplant state general revenues, with no net gain in federal funds. From a local perspective, any additional local or federal funds should be used to expand a program, not relieve the burden on state general revenue.

Several additional concerns that confront localities but not the state are as follows. The first is the administrative burden that comes with increased responsibility for program financing and management. Federal reporting requirements, while necessary, are notori-ously complex and burdensome and the requisite computer systems, skill base, and insti-tutional capacity may not find economies of scale at the local level as they do at the state level. Second, related to the issue of supplantation, increased local contributions and the federal dollars they leverage may not always return to the locality of origin if the state redistributes some measure of the federal largesse to poorer counties that lack the means to come up with the match. Third, while counties may establish special taxing districts to backstop low state social service spending, the revenues so raised may supplant other local financing of social services.

Medicaid. Total spending on Medicaid in Florida grew from $4.8 billion to $9.1 billion, or 87 percent over 1992-2001. The federal portion increased from $2.7 billion to $5.2 billion (96 percent) while the state portion rose from $2.2 billion to $3.9 billion (77 percent). The drivers of this recent growth are increased enrollment, as a consequence of outreach efforts in the relatively new SCHIP program and in the transitional Medicaid program; growth in health- and community-based care funding; and soaring prescription drug care costs. This budgetary behavior is in stark contrast to the policy picture: the expansive nature of health policy initiatives under Governor Chiles gave way to more focused policy initiatives for vulnerable populations such as low-income children, the disabled, and the elderly after Governor Bush took office in 1998.

In the course of this study, we interviewed staff at state health associations, hospitals, and other providers who discussed some possible options for additional maximization under Medicaid. These options fall under the following headings.

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• Disproportionate Share Hospital (DSH) and Upper Payment Limit (UPL) programs

• Florida’s proposed physician UPL program• Targeted Case Management• More community-based emergency care • Community support services• State definitions of allowable Medicaid services• Community-based rehabilitation models• HMOs or monthly premiums in lieu of fee-for-service• Billing innovations and efficiencies• Funding graduate medical education through the UPL program

It is difficult to estimate the federal sums available if the state and localities pursue maxi-mization. This wholly depends on the willingness of jurisdictions to spend on Medicaid versus some other priority. Also to be factored in are the costs and time of scouting out all the facilities and programs that Medicaid might cover, county by county, and developing the institutional capacity to properly bill for Medicaid services in each jurisdiction as well as successfully enroll and validate additional eligible persons.

State Children’s Health Insurance Program. Florida has the third largest SCHIP pro-gram in the nation. Participation was initially slowed by backlogs and delays in the enroll-ment process and, more recently, financial short-falls that prevented some counties from making the local match for SCHIP—this last problem is still an issue. In 2001, the state used Tobacco settlement monies to close the funding gap.

While the SCHIP program in Florida is funded well enough to cover current enrollment, local taxing districts fear the state may cut back on the income range of effective coverage from 200 percent of FPL to 150 percent or simply cap enrollment. South Carolina’s legis-lature is considering lowering the 200 percent FPL and age-21 limit to 150 percent or even 100 percent FPL and an age-18 limit. Often, the same strategies for maximization under Medicaid apply to the SCHIP program.

Title IV-E. With respect to spending on child welfare services, state general revenue was two-thirds of total spending in 1991 ($199 million), while spending from federal funds totaled $99 million, mostly from Title IV-E Foster Care.3 In 2000, spending from fed-eral sources was $443 million, while state spending had increased to $284 million, or 39 percent of total spending. The Department of Children and Families (DCF) made a con-certed effort, and was successful in improving federal revenues for child welfare services. Furthermore, in 2000, DCF began using TANF funds to cover the first year of care for all

state treasury and go directly to individuals or facilities and so are not recorded as state revenues.3 In addition to titles IV-B, IV-E, and IV-A Emergency Assistance (EA), this includes Title XVI Supple-mental Security Income (SSI), Title XIX Medicaid, Title XX Social Services Block Grant (SSBG), and Child Abuse and Neglect Grants. It is important to note that these numbers represent spending for all child welfare services, not just for costs associated with children in foster care. However, the largest federal

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children in foster care, using 100 percent federal funds instead of spending general revenue to claim Title IV-E funds.

Temporary Assistance for Needy Families. With the advent of federal welfare reform and the influx of federal money that came with it, Florida saw a 45 percent increase in spending on TANF/Aid to Families with Dependent Children (AFDC) programs.4 Between 1991 and 2001, combined federal and state spending on all programs under TANF/AFDC (exclud-ing child care) increased from $657 million to $949 million. Federal spending increased 60 percent while state spending increased 26 percent in this same time period. However, in the post-welfare reform era, spending from state funds has continued to decline each year, while more federal dollars are used. Florida, like other states, began spending less in general revenue while spending down to its required maintenance of effort of $368 million. Moreover, as caseloads continued to decline, more funds were spent on services for em-ployed families, such as job training and pregnancy prevention, and less so on assistance for unemployed families, such as cash assistance and transportation.

Social Services Block Grant. The continual cuts at the federal level in SSBG have deflated the value of this funding stream to social service programs. Pure SSBG spending in Florida has declined 41 percent, from $164 million in 1995 to $96 million in 2000. However, with federal welfare reform and the creation of TANF, states are allowed to transfer up to 10 per-cent of TANF funds to SSBG. When calculating the change in SSBG spending including the TANF transfers, there was a 15 percent increase between 1995 and 2000—from $164 million to $188 million.

Child Care Development Fund. In Florida, the effects of welfare reform on child care spending are clear. Prior to welfare reform (1991-96), total spending on child care in-creased 20 percent. However, between 1991 and 2001, total spending increased 250 per-cent from $119.3 million to $417.9 million. In that same time period, federal spending on child care (from all former AFDC programs and CCDBG) increased 314 percent ($83.7 million to $346.7 million), and state spending increased 100 percent ($35.6 million to $71.2 million).

Maternal and Child Health Block Grant. Data received from the Florida Department of Health (DOH) for 1996-2001 indicate that total formula grant spending declined 22 per-cent from $367 million to $286 million due to decreases in state spending. State spending declined 18 percent, from $295 million to $241 million. Federal allocations and spending continued to increase during this period, while budgeted state funds increased but expendi-tures declined. That is, the program was continually budgeted for more than was actually spent from state funds. However, the state continually spent state funds beyond its match for each of these years. Consistently over this time period, the state share of total formula grant spending was between 80 and 89 percent.

source of spending was still from Title IV-E Foster Care.4 The creation of TANF ended the Aid to Families with Dependent Children (AFDC) program and rolled

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Private Dollars for Public Services. A measure that just passed both houses of Florida’s state legislature (Senate Bill 1454, 2nd engrossed) would allow private charities like the United Way, foundations, and even businesses to donate monies to make up the local portion of state matches for social service programs. Under the legislation, organizations would donate funds to a county government or special taxing district where these funds can be certified as local match and be counted as state spending against which to draw down federal funds. It appears that the governor will sign the bill and the law would be-come effective for July 1, 2003.

The process in practice is always more complicated than in theory. A number of issues will need to be addressed if the partnerships among donors, counties, the state, and the federal government are to remain whole. While the legislation stipulates that the state will not redistribute or use locally certified donations to supplant state spending, what safeguards really exist? The bill allows some private entities to make donations and, presumably, receive these donations plus leveraged federal funds in return, but this may conflict with prior federal rulings. How will the law address ethical issues with donor intent? Who will monitor a donor’s request for the use of funds against how those funds are actually applied? What are donors’ rights if the state or county diverts the donated money and the federal sums it leveraged?

We are not aware of any statewide estimates on the volume of funds that this donation pro-gram would raise or leverage. In South Carolina, which runs a similar program, the level of donor-financing has reached $12 million, leveraging $27 million of federal spending.

Principal Findings. This study examines ten years of revenue and expenditure trends in Florida’s social service programs and reports on the state’s efforts to maximize federal revenues. The study was a broad, bird’s eye view from the state level and its findings are likewise broad.

1. The state’s lean tax structure and philosophy of limited government threaten current social service budgets and shut off some avenues of revenue maximization. If current economic, fiscal, and political pressures persist, an even greater decline in the state’s funding of social services is likely—unless counties and local taxing districts fill in the breach—with possibly adverse impacts on poverty rates and on specific groups among the vulnerable, such as children, the elderly, and the undocumented.

2. To live within the current political and budgetary frameworks, it is likely localities will need to take the initiative to expand and even to backstop social service programs. These initiatives may include increasing pursuit of federal dollars or raising additional finances on the local level.

3. Florida appears to be a net recipient of federal funds overall, although only slightly so. Different methodologies could easily produce different results. The four largest factors affecting Florida’s status as net donor or net recipient—Social Security spending, Medicare spending, defense spending, and comparably low state and local taxes (which lower the possible deductions from federal taxes)—are also the most difficult for the state to control. However, the larger question

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is whether being a net donor or recipient is really meaningful. Generally, poorer states are net recipients while richer states are net donors, and Florida, because of its concentrations of middle class elderly, wealthy households, and businesses, is not really a poor state.

4. Local leaders and social service advocates assert that the state has often failed to draw down additional available federal funds, and while these assertions may be true, it is difficult to quantify the sums of money “left on the table.” In evaluating Florida’s efforts, successful or otherwise, to draw down additional federal funds, a number of considerations require scrutiny.

a. Was the goal of a revenue maximization initiative to expand program coverage, access, or benefits, or simply to increase the share of federal funds financing the current program?

b. For federal programs that require a state match, did the funds for a state and local match exist? If a local match was needed, was it sufficiently broad-based, (e.g., from a local taxing district versus a community hospital)? What other state and local spending priorities would be affected if these matching funds needed to be raised?

c. For newer programs such as SCHIP that are still enrolling clients, were enough children and families enrolled to claim the full allotment? What would it cost the state or localities to validate and enroll more eligible persons and how long can this reasonably be expected to take?

d. For localities interested in pursuing revenue maximization, are the billing, reporting, and client validation mechanisms in place to allow proper processing of federal claims? If not, how much would it cost to develop these mechanisms relative to the sums of money that could be claimed and how long will it take to put these mechanisms in place? As a fraction of the current revenues of a federal program flowing into Florida, would the added sums from a revenue maximization effort, minus the costs and time of pursuing that effort, have been significant?

e. It is difficult to ascertain whether other states are “doing a better job” than Florida at maximizing because aside from adjusting for populations, caseloads, and program budgets, one would need to account for all state and local spending by program, subprogram, facility, and so on, where maximization could take place.

f. The pursuit of revenue maximizing policies should not side-step a cautious analysis of federal intent and inquiries with the proper federal authorities. The legality of proposed maximization efforts and the consequences of federal disallowances or sanctions should be considered at every turn. Jurisdictions that hire “rev-max” consulting firms still bear the legal consequences of policies they enact and must also subtract nontrivial consulting fees from the net gains of revenue maximization efforts.

5. Primarily federal programs such as Food Stamps and SSI provide benefits directly to recipients, although the state helps administer the programs. Participation rates in these programs, particularly Food Stamps, are significantly lower than they

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could be in the state and across the nation owing to stigma and limited state and local outreach efforts, among other factors.

6. This study does not evaluate revenue maximization at the county level. However, our research into the dynamics of local match formation points up several concerns:

a. The money and time localities must spend to ferret out maximization opportunities and develop the locally-based institutional capacity to draw down federal funds;

b. The possibility that leveraged local dollars will displace not only state funds but also other, un-leveraged local funds;

c. The ineluctable redistribution issues that will arise between localities with comparable needs but incomparable means; and

d. The legal intents behind the various federal formulas and block grants available and the downside of maximization initiatives that conflict with the spirit or the letter of these intents.

7. Floridians must weigh whether revenue maximization is best managed at the state or the local level. On the one hand, because of cost and efficiency concerns, revenue maximization on a federal program-by-program basis might be better pursued, coordinated, and implemented by the state than by each county on its own. Additionally, it is the state that is held responsible for any spending on unallowable activities. However, with any program administered at the state level, the likelihood of redistribution and perhaps supplantation rises without adequate safeguards established in law.

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INTRODUCTION

5 Buckley (2003).6 By “localities,” we mean not just counties but any local jurisdiction capable of levying taxes, such as a children’s services council or a health care taxing district.

I. INTRODUCTION

The foundering economy and the nation’s wartime footing have exacerbated the stress on Florida’s ability to provide social services, already strained by soaring medical costs, a new state class-size amendment, a fiscally conservative state government, and an anti-tax electorate. Florida has traditionally sought to constrain growth in social service spending and, in some instances, devolve program responsibility to the local level. State policy has consistently favored leveraging greater federal and local contributions with current state dollars over committing additional state dollars.

Until now, Florida’s resurgent tourism industry and its reliance on a sales tax have helped insulate the state from the fiscal woes felt elsewhere. Florida attracted a record number of tourists in 20025 and its unemployment rate, which jumped to 5.8 percent in the months af-ter September 11, has since dropped to 5.3 percent for the first quarter of 2003—both rates below the national average at the time. However, going into state fiscal year (SFY) 2004, the state faces a potential budget shortfall of 10.1 percent.

Florida is the fourth most populous state in the Union, with particularly large social service caseloads. It has the highest concentration of elderly residents of any state, the lowest con-centration of children 18 and under, and a very large immigrant population, few of whom can qualify for most federally-funded social service programs in the post-welfare reform era. Starting in the late 1980s, concerns over the state’s financial commitment to social ser-vices prompted a number of Florida’s larger, urban counties to establish independent taxing districts to raise extra tax revenue to fund children’s services or support local hospitals. In 1993, dissatisfaction with the operation, incentives, and outcomes of the state’s welfare program led the legislature to begin crafting a state welfare waiver that in many ways re-sembled federal welfare reform, especially with its work requirements and time limits on cash assistance. The waiver was in place several months prior to passage of the federal law. Thereafter, the concurrence of federal welfare reform, falling welfare caseloads, and state coffers flush from the expanding economy, dovetailed with the state’s fiscal philosophy and voter sentiment.

However, the current confluence of fiscally lean times, mounting program costs, and a philosophy of limited government augurs program freezes if not cutbacks and certainly more aggressive leveraging of federal and local dollars. Different levels of government in Florida have begun maximizing in earnest, to make an end-run around a flat revenue outlook. The state and the larger counties have sometimes been at odds over revenue maxi-mization: the state seeking additional local contributions or reallocating current federal monies; the localities6 pushing for increased state spending and savvier claiming of local expenditures against federal programs. To this end, several of Florida’s more populous counties having the largest affected service populations retained consultants specializing in federal revenue maximization in efforts to boost local receipt of federal funds and lobby

2 The Urban Institute


INTRODUCTION

June 2003 3


INTRODUCTION

7 That is to say, this study examines federal social service program expenditures primarily at the state level and does not examine how the state distributes these federal monies by counties.

the state for greater support in this endeavor. In the current fiscal climate, however, coun-ties fear that any successes they have in revenue maximization may only further supplant state spending.

Under a grant from the Florida Philanthropic Network, the Urban Institute agreed to ex-amine Florida’s efforts to maximize federal dollars in select social services over the past decade at the state level7 as well as provide some comparisons with neighboring states Georgia and South Carolina, and national example Texas. The programs were selected with consultation from the Florida Philanthropic Network and are intended to represent the largest social services programs that can be readily maximized.

These programs are:

1. Medicaid2. State Children’s Health Insurance Program (SCHIP)3. Title IV-E Foster Care4. Temporary Assistance for Needy Families (TANF)5. Social Service Block Grant (SSBG)6. Child Care Development Fund (CCDF)7. Maternal and Child Health Services Block Grant (Title V)8. Prevention and Treatment of Substance Abuse Block Grant9. Community Mental Health Services Block Grant 10. Supplemental Security Income (SSI)11. Food Stamps

Some programs such as Social Security and Medicare do not appear on the list above as these monies go directly from the federal government to individuals, bypassing the state, and already enjoy extremely high participation rates. Other programs, such as the Earned Income Tax Credit, School Lunch Program and Section 8 Housing also bypass the state, going to particular institutions or communities, and so are not treated in this study.

We define federal revenue maximization as optimizing current and potential state and local spending to draw down the largest number of federal dollars. The complexity and challenges surrounding maximization arise from (a) the political philosophy that drives a state’s social service spending and program design, (b) the variety of matching formulas under these federal programs and the different incentives that accompany them—espe-cially when these federal financing streams are combined within a single state program, (c) the intent, explicit or not, behind federal law versus the purposes for which the state and localities seek to draw down federal funds, and (d) the often conflicting state and local perspectives on what is optimal revenue maximization.



INTRODUCTION

June 2003 3


INTRODUCTION

This study is divided into nine sections. Each section, in addition to reporting on Florida, includes comparisons with neighboring states Georgia and South Carolina, as well as with Texas, which is similar in many respects to Florida.

This first section has laid out this study’s scope and the programs examined, and has broadly defined federal revenue maximization and the parameters that govern it. Section II describes Florida’s socio-economics and demography in relief. Section III explains the major social and political forces behind the design of social service programs in Florida and behind governance in the state in general and concludes by tracing overall spending priorities in the state over the past decade. Section IV reports on Florida’s fiscal outlook, placing the state in national and regional context, describing in some detail its state, local, and federal revenue pictures, and discussing the sources of budgetary strain and how the state plans to respond. Section V asks what does maximization really mean for Florida and explains how the federal government, the state, and localities approach the topic from rather different perspectives. Section VI is a program-by-program analysis of the 11 social service programs we proposed to study, the possible strategies for maximization at the state level, and what the state has or has not done. Section VII briefly examines the mechanism whereby counties can use private, charitable contributions from organizations such as the United Way to make up their portion of the state match for a particular program like Medic-aid or SCHIP. Section VIII presents a South Carolina case study in revenue maximization in child welfare programs. Section IX, the conclusion, presents this study’s findings. Ap-pendix I contains additional tables from this study. Appendix II details the data sources we used to complete this study and Appendix III outlines the challenges involved in obtaining these data.

While this study often compares per capita state and federal spending on programs, it does not attempt a needs-based assessment of Florida’s social services. This task we leave to others.



SOCIAL SERVICE PROGRAMS EXAMINED

June 2003 5



II. SOCIAL SERVICE PROGRAMS EXAMINED

Florida benefits greatly from federal aid, particularly where its under-18 and over-65 popu-lations are concerned. The fastest component of growth in the 1990s for Florida’s state revenues was transfers from the federal government.

Although federal aid for vulnerable populations comes from many funding streams, this study focuses on 11 key programs that distribute federal funds in Florida. Medicaid is the largest federal funding source we analyze here, at $5.2 billion, while the Maternal and Child Health Services Block Grant is the smallest, at $20 million in 2001 (see table 1).

As there are significant disparities in the relative sizes of these programs—as well as in the opportunities for maximization—some programs will be more thoroughly treated here than others. For each of these programs, allocation formulas to the states vary. Where pos-sible, we compare Florida to Texas, Georgia, and South Carolina.

Florida’s demographics have remained largely consistent over the past decade. While its population grew 13 percent between 1990 and 2000, this growth was in line with the com-parison states. Florida began the decade with quadruple the population of South Carolina, double that of Georgia, and about three-quarters that of larger Texas (see table 2). Florida also maintained the lowest percentage of the under-18 population among the comparison states, lagging the others by 4 to 5 percentage points and the largest over-65 population, hovering between 17 and 18 percent, with a solid 8 percentage point lead over its neighbors and Texas. (For more about Florida’s demographic characteristics, please see appendix table 1.)

Florida’s poverty rate resembles that of its neighbors, but with less fluctuation over time—all three states in this comparison have lower poverty rates than Texas by 4 percentage

TABLE 1. Federal Expenditures On Select Social Services In Florida In 2001

Program $ MillionsMedicaid $5,229

Supplemental Security Income (SSI) 2,074

Food Stamps 855

Temporary Assistance for Needy Families (TANF) 644

State Children’s Health Insurance Program (SCHIP) 279

Title IV-E Foster Care 146

Social Services Block Grant (SSBG) 95

Block Grants for Prevention and Treatment of Substance Abuse 87

Child Care Development Fund (CCDF) 78

Block Grants for Community Mental Health 24

Maternal and Child Health Services Block Grant (Title V) 20

TOTAL $9,531

Source: Consolidated Federal Funds Report, U.S. Bureau of the Census, 2002.




June 2003 5



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1990

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June 2003 7



points or more. Florida’s unemployment rate was the lowest of the four states in 2000. The economic down turn and the events of September 11 pushed these rates up in each state from 2001 on. For Florida, unemployment peaked at 5.8 percent in the months after Sep-tember 11 but was down to 5.2 percent in February 2003. In that same month, Georgia’s unemployment rate was 4.5 percent, South Carolina’s was 6.2 percent and Texas’ was 6.6 percent.

Florida leads the four states in both per capita personal income ($29,973 in 2002) and per capita wealth ($45,059 in 1998)—however, it lags the U.S. average in the former, while dominating it in the latter (shown later in figures 2 and 3). Florida has the fifth highest con-centration of millionaires by population, at 1.8 percent, just edging out New York. Texas is not far behind with 1.1 percent millionaires by population concentration.

In terms of caseloads for the major welfare programs, shown in Table 3, Florida’s cash as-sistance (TANF/Aid to Families with Dependent Children) and Food Stamp caseloads, like those of the other three states, have tumbled over the past decade while its SSI, Medicaid, and foster care caseloads have substantially increased. Some of this increase is a result of the soaring incidence of claimable disability in the population as welfare offices become more proficient at signing up individuals and some of it is due to the states’ pursuit of ad-ditional, open-ended federal revenues to compensate for the new caps and increased eli-gibility requirements on other welfare assistance programs such as TANF. The decrease in the Food Stamp caseload is partly a result of the past decade’s economic prosperity. However, because the traditional route to Food Stamp eligibility was through welfare sign-up (known as “joint sign-up”), the post-welfare reform perception is that TANF is much more difficult to apply for; thus, it is to be expected that Food Stamp participation would decline in step with falling TANF rolls. Furthermore, the Food Stamp program, because of the stigma attached to welfare in general, and because the benefits are in-kind rather than cash, has always seen appreciably fewer persons sign up than are eligible. Nonetheless, it is almost completely federally financed and ripe for revenue maximization if states are will-ing to commit more resources to outreach. Finally, while SCHIP has not been around long enough to discern a true trend in its caseloads, we do examine where and how revenues were drawn down and what opportunities may have been overlooked. (For more about Florida’s safety net, please see appendix table 2.)

In light of the current economic crisis, which is weighing more heavily on state budgets than on the federal Treasury, states are already pursuing cuts in social service programs, particularly those that target the working poor and recent welfare leavers, such as transi-tional Medicaid, SCHIP, and child care programs. Given that the economic downturn is affecting poor Floridians at the same time, some sources of aid may be in jeopardy just as the poor are more likely to need them. Clearly, state providers of such programs will be caught in the middle, as the demand for safety net services increases while the supply of safety net monies remains flat or even declines in some programs.




June 2003 7



TA

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FLORIDA'S APPROACH TO SOCIAL SERVICES

June 2003 9



8 This section is partly informed by an earlier Urban Institute report, Holcomb et al. (1999).

III. FLORIDA’S APPROACH TO SOCIAL SERVICES

The design and operation of social welfare policy in Florida,8 a fiscally conservative state, reflects a general unwillingness to rely solely on state government to provide and manage social services. A result of this philosophy is pressure to leverage general revenues spent on social service programs with the expectation that localities, which bear the problems and understand them better, provide a portion of state matches or else fund programs at the local level. Governor Jeb Bush believes in limited government and has favored devolving some control and responsibility for programs to localities, or outsourcing portions of their operations to private agencies. In a major restructuring of the state’s child welfare program, for instance, the governor privatized many of its services under the “community-based care” initiative.

In 1998, Governor Bush, a Republican, replaced Governor Lawton Chiles, a Democrat. Both houses of the state legislature also became majority Republican, marking the first time since Reconstruction that both branches of state government have been Republican-controlled. Republican control has increased pressure to limit the growth of state govern-ment. Examples have included annual tax cuts since the mid 1990s, privatization of some programs, increasing requirements for local matches, and more concerted efforts to draw down federal funds, or spend 100 percent federal funds in such programs as TANF rather than increase state spending on matching programs such as Title IV-E or Medicaid. As one local leader told us, proponents of limited government sometimes dislike spending a dollar of state funds even if it is to receive a $1.50 of federal funds in return.

From the 1990s to the present, Florida governors, regardless of party affiliation, have typi-cally shied away from significant changes in the funding levels of social services, particu-larly any moves to broadly increase funding or service provisions. Most of the impetus for program funding increases or expansions has come from the state legislature, often at the behest of local governments and state and county advocacy organizations.

Florida’s initiative to revamp welfare pre-dated the national reform effort. A desire to see greater personal responsibility and accountability in the structure of welfare led to the Florida Family Transition Act of 1993. The bill called for demonstration projects in Pensacola and Gainesville, consisting of a time-limited Aid to Families with Dependent Children (AFDC) program, higher earnings limits allowed for receipt of cash benefits, work requirements, transitional child care, and job counseling. Expansion efforts to other counties halted as Congress took on federal welfare reform.

Welfare reform for the most part made state funding less dependent on welfare caseloads. Under the AFDC program, had caseloads dropped off substantially, so would state spend-ing. Under a block grant approach, however, the state must maintain a certain level of effort—75 percent of its 1994 spending levels if the state meets its work requirements, 80 percent if it does not—to secure the block grant. The state loses a dollar from the block grant for every dollar it is short of reaching its maintenance of effort (MOE). It is also




June 2003 9



9 In Florida, introducing a new type of tax requires that the measure first pass a state-wide referendum and second be written into the state constitution.10 Georgia is the most generous, comparatively, in its average TANF cash benefit, ranked 38th among states in 1998, with Florida at 40th, Texas at 47th, and South Carolina at 49th (U.S. House of Representatives, Committee on Ways and Means, 2000).

important to note that the TANF legislation fixed the value of the block grant in nominal terms at the level of federal aid to states in 1994 i.e., the block grant sums available to states do not increase for inflation and therefore decline in real value over time. A combination of falling caseloads and low inflation has kept this from being an issue for states so far, but should caseloads rise again or inflation rates spike, then the current TANF block grant formula will progressively constrain state spending on welfare.

There has been increasing pressure over the past several years for Florida to leverage its state general revenue funds in its federal matching programs. The state’s intent is to have a greater share of local funds comprise the state match for welfare-related programs so that general revenue funds can be spent on other pressing state needs, such as education, juvenile justice, and prisons. The challenges are that (a) there is no income tax9 and (b) the sales tax—which is Florida’s revenue work horse, and intended to fall partly on non-resi-dents such as tourists—taxes some goods while exempting others, as well as most services. As Florida and the nation have moved toward a more service-oriented economy over the past 20 years, the base for the sales tax has likely eroded. Efforts to extend the sales tax to include more goods or services have met with stiff resistance in the state legislature. Therefore, localities have increasingly felt the need to provide services—and raise the req-uisite revenue—on their own.

Since the late 1980s, Florida’s larger urban counties including Palm Beach and Hillsbor-ough, which tend to have the largest social service caseloads, have been establishing local taxing districts dedicated to cover children’s services, support local hospitals, and provide indigent care for groups not covered by Medicaid, such as single adults and immigrants, both documented and undocumented. These districts, often county-wide but independent of county control, and endowed with their own taxing authority, were created to backstop both state and county social service spending at the local level.

Florida’s neighbors Georgia and South Carolina, and the national example Texas, have so-cial service philosophies similar to Florida’s. All four states are low TANF benefit states, with conservative outlooks on welfare, and favor work-first policies over income mainte-nance in their welfare systems10. South Carolina, like Florida, anticipated federal welfare reform by a couple of years, petitioning for a waiver that would allow time limits. Georgia did not go quite as far, but shifted its welfare philosophy in the early 1990s: instead of con-cerning most staff with families’ program eligibility, the governor refocused this concern on helping families find work and move off cash assistance. While these states have had a mix of Democratic and Republican governors, the philosophy and tenor of social services have changed little over the past decade—all four states are adverse to expansive govern-ment, larger social service budgets, and larger, longer-term caseloads.




June 2003 11



11 The Bureau of the Census, which collects state government finance data each year, delineates these broad areas of state spending. 12 What this shows is that even the per capita measure of spending is not always the most telling, as South Carolina’s population is far smaller than the population of the three other states (see table 1), meaning that even a subsistence-level of expenditure—what it takes to maintain infrastructure such as roads, hospitals, schools, and the like—would appear comparatively generous in this state.

Figures 1A through 1D provide a useful introduction to the overall spending priorities of Florida and its companion states, at the state level. Figure 1A shows that Georgia consis-tently leads the pack in per capita spending on education as well as in spending growth over the 1992-2000 period while Florida lags all. Florida also trails in state spending on public welfare and hospitals, but is the runner up to South Carolina on overall health spending11. (Already alluded to, Florida’s hospitals are supported in the main by state capital outlays and specially created local health care taxing districts while health spending includes state and federal spending on programs like Medicaid). On figure 1B, Florida typically spent the most on highways, natural resources, and corrections per capita, but is in the middle of the pack in police protection. On figure 1C, what stands out is that Florida leads in expenditures on government administration and interest in general debt. On figure 1D, Florida trails the field on insurance trust expenditures. The last graph in figure 1D shows total state general expenditures (excluding federal and local dollars) per capita—Florida, Georgia, and South Carolina are nearly indistinguishable, although Florida and South Carolina’s per capita spending has dropped off on the order of 8 percent over 1999-2001. South Carolina leads (often substantially) on per capita public welfare; hospital and health spending; highways after 1999 and police protection throughout; and utilities and insur-ance trust expenditures12.




June 2003 11



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June 2003 13



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June 2003 13



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June 2003 15


FLORIDA'S FISCAL CLIMATE FROM 1992 TO 2001

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June 2003 15



IV. FLORIDA’S FISCAL CLIMATE FROM 1992 TO 2001

Below is an overview of major developments in Florida’s budget and revenue outlooks over the past 10 years. These subsections are intended to provide economic and fiscal context for the issues of social service provision and revenue maximization.

The Budget Picture

States are confronting the most severe fiscal crisis since World War II as they seek to close some $100 billion in deficits in their 2003–04 budgets13. Thirty-seven states reduced their enacted fiscal year 2002 budgets in midstream by a collective $12.8 billion. While many states have taken formal revenue-raising steps in the FY 2003 budget (e.g., 19 states raised excise taxes like those on cigarettes and alcohol14), Florida, Georgia, South Carolina, and Texas have held back.

2001–02 Budget

In the 2001 regular legislative session, the governor and the House supported enacting a tax cut, while the Senate called for scaling back the cut because of the sagging economy. However, the events of September 11 hit the state’s tourism industry hard, triggering an un-expected $1.3 billion shortfall in a $48 billion budget that placed the state $928.5 million in deficit.15 Because Florida has a very strict balanced budget amendment that will not let the treasury spend any monies it does not have, the governor had to call two special sessions of the legislature to deal with the crisis.

Tobacco settlement monies were appropriated from the Lawton Chiles Endowment Fund to cover shortfalls in the 2001 budget, closing budget gaps in the state’s SCHIP and Medicaid programs, among other social services, and even helping finance additional tax cuts. While Florida has a rather ample budget stabilization fund of around $980 million, the rules on its use and the requirement that the state pay back any funds withdrawn make lawmakers reluctant to draw from this fund.

2002–03 Budget

To close the budget gap in 2002–03, the government has tapped non–tobacco settlement monies, state trust funds, and other nonrecurring revenues.16 Additionally, Florida canceled some tax holidays, postponed an increase in the exemption level of its intangibles tax, and reduced the eligibility limit for Medicaid from 90 percent to 88 percent of the federal pov-erty level (FPL).17

13 Lav (2003).14 National Governors Association and National Association of State Budget Officers (2002).15 Yemane and Hill (2002).16 Florida Tax Watch (2002).17 Finegold, Schardin, and Steinbach (2003).




June 2003 17



2003-04 Budget

Education has been the 800-pound gorilla in the current 2003-04 state budget debates. In trying to pass a $52.3 billion budget—which spends revenues from state, federal, and local sources—the legislature has been grappling with the class-size amendment and may make a number of cuts in less essential educational facilities and staff as well as cuts in university and community college budgets simultaneous with tuition hikes. Raising traffic fines, dip-ping into state trust funds such as motor fuels and alcohol, and expanding gambling in the state are measures receiving scrutiny. Cuts to cultural arts budgets are also deemed likely. According to the Center on Budget and Policy Priorities in Washington, DC, Florida’s bud-get deficit forecast for SFY 2004 is 10.1 percent of just the state revenues18.

The Revenue Picture

The 1990s was a decade of surplus for the state, especially as a result of the sales and in-tangibles taxes. Additionally, the drop of the TANF maintenance of effort payment to 75 percent of pre-reform spending, plus the decline in caseloads was a real boon to Florida, as it was to the other states, and helped finance the expansion of some social service programs without any new state general revenues. Finally, Florida’s lack of dependence on taxes that tax income directly have helped insulate the state from the capital gains shocks of the past few years.

An assessment of the state’s revenue picture would not be complete without some discus-sion of the underlying personal income and wealth picture. In figure 2, the real per capita personal income of Florida and its comparison states lags the U.S. average. Florida has the highest personal income of the four states at $29,973 in 2002 (real 2003 dollars). Georgia and Texas are just $1,000 or less behind, while South Carolina trails by more than $4,000, and the U.S. average leads them all at $31,335. Growth in real per capita personal income for the four states over the past decade has been about the same, in the 20 to 24 percent range, with Florida lagging all at 20 percent and Georgia leading all at 24 percent. From the standpoint of per capita wealth (figure 3)—where wealth is obtained from 1998 IRS data from estate and gift tax returns that tally only households with gross assets above $625,000 and net worth below $20 million—Florida dominates the field at $45,059 per capita, 41 percent above the national average, 62 percent above Georgia, 53 percent above South Carolina, and 76 percent above Texas.

Florida is one of nine states that has no income tax, and it raises more than 60 percent of its own-source revenue from its state sales tax (see table 4). The sales tax base is somewhat arbitrary—many products and most services are exempt. The sales tax is meant to fall 18 to 20 percent on tourists and other nonresidents19 and 30 to 40 percent on businesses. The three major exemptions, intended to make the tax less regressive, are groceries, personal utility bills, and prescription drugs. The remaining exemptions—of which there are some 300—apply variously to professional and business services and many agricultural items.

18 Lav and Johnson (2003). Projected budget deficits for Georgia, South Carolina, and Texas presented later also come from this brief.19 Interview with Dominic Calabro, president of Florida Tax Watch, February 26, 2003.




June 2003 17



FIGURE 2. Real Per Capita Personal Income in Four Select States and the U.S., 1992-2002

$15,000

$17,000

$19,000

$21,000

$23,000

$25,000

$27,000

$29,000

$31,000

$33,000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Inre

al20

03do

llars

US Florida Georgia SC Texas

Source: Bureau of Economic Analysis, June 2003.

FIGURE 3. Real Per Capita Personal Wealth* for Four Select States and the U.S. in 1998

$32,073

$45,059

$27,900$29,510

$25,605

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$50,000

U.S. Florida Georgia South Carolina Texas

Inreal2003

dollars

* Includes households with net worth under $20,000,000 and gross assets of $625,000 or more, only.Source: IRS personal wealth data, 1998.

FIGURE 2. Real Per Capita Personal Income in Four Select States and the U.S., 1992-2002




June 2003 19



The sales tax for 2003 is estimated to raise $17 billion, but the exemptions will be worth an estimated $23 billion. The exemptions for groceries, utilities, and medicine comprise about one-third of this amount.20

In discussing state revenue, it is important to differentiate total state revenue (which in-cludes local taxes and federal grants) and state own-source revenues. For the moment, we will consider only the latter. After the 60 percent or so that the state general sales tax con-tributes to Florida’s own-source income comes a series of selective sales taxes on motor fu-els, alcohol, tobacco, and other items. Collectively, these taxes generate around 17 percent of own-source revenues. The motor fuels tax is the largest, bringing in 6 to 7 percent of state revenue. A tax on intangible property such as investor-owned securities nets another 6 to 7 percent. License fees also bring in about 6 percent, while the corporate income tax raises less than 5 percent.

As in a number of states, Florida’s legislature requires a two-thirds majority to pass a tax increase. The legislature cannot establish a new tax such as an income tax without a special amendment to Florida’s constitution, which requires a statewide referendum. Even propos-als to reduce the exemptions under the sales tax or to expand its reach to include some services failed in the 2002 legislative session.

Florida’s government has reduced the sales tax—not so much the tax rate as the base of products and businesses to which it applies—and the intangibles tax21 in each year between 1998 and 2001. It is a stated goal of both branches of government to gradually abolish the intangibles tax.22 Both the sales tax and the intangibles tax were contributing to the state surplus in the late 1990s. Added to this reduction is the gradual phase-out of the state’s estate and gift tax, following the scheduled repeal of the same federal tax by 2010. This source is worth about 3 percent of state revenues—approximately $700 million per year.

Table 4 shows the distribution of Florida’s taxes along with the companion states, by rev-enue source. Texas, like Florida, has no income tax and depends on a sales tax. South Caro-

20 Hallifax (2003).21 The intangibles tax is meant to fall on relatively well-off households, applying to capital gains as well as royalties earned from copyrights and trademarks.22 Hallifax (2003).

TABLE 4. State Tax Collections and Distribution by Type of Tax Fiscal Year 2000

General Sales & Use

IndividualIncome

CorporateIncome

MotorFuels Licenses All Other

U.S. Average $10.6 32.3% 36.0% 6.0% 5.6% 6.1% 14.0%

Florida $24.8 60.5% 0.0% 4.8% 6.5% 6.1% 22.2%

Georgia $13.5 34.3% 47.1% 5.3% 4.7% 3.5% 5.2%

South Carolina $6.4 38.5% 38.3% 3.6% 5.8% 5.9% 7.9%

Texas $27.4 51.1% 0.0% 0.0% 9.8% 13.9% 25.2%

Source: Tax Foundation, Washington, DC, 2003. Based on data from the U.S. Department of Commerce and the Bureau of the Census.

StateTotal

($Billions)

Distribution




June 2003 19



lina and Georgia, which both have income taxes, have diversified revenue-raising ability but are correspondingly more susceptible to economic shocks that affect the income and capital gains of higher income earners.

Tax growth in Florida outstripped growth in personal income over the 1990–2000 period—meaning Floridians are increasingly paying more taxes of late, even after tax cuts—while the reverse is true for the comparison states (see table 5). Furthermore, as fast as local tax burdens have been increasing, state burdens have climbed even faster (Florida Tax Watch 2002). However, over the past five years, local taxes have begun to increase faster than state taxes, and while state taxes themselves are still increasing, they do not raise substan-tial sums per capita. Yet, overall, Florida’s taxes are low.

Table 6 shows per capita tax burden (state plus local and federal) as a percentage of state per capita income for Florida and the comparison states. The state and local tax burden as a percentage of per capita income is in the 9 to 10 percent range for the four states, slightly below the national average. However, when one adds in the federal tax burden, Florida jumps far in front of the comparison states, because Florida has more wealth per capita than the comparison states and because it, like Texas, has no income tax, which means that taxpayers cannot claim their state income taxes against their federal tax liability. Because federal income taxes allow taxpayers to deduct their state and local income and property taxes (but not sales taxes), federal tax per capita would be lower—all other things being equal—in states that have income taxes and comparatively higher wealth taxes and prop-erty taxes. Florida has a steadily declining intangibles tax, no income tax, and middle-of-the-road property taxes, so there’s less to deduct.

Florida is facing fiscal difficulties not unlike its neighbors’ difficulties, although the dimen-sions may differ. Texas is the only one of the four states whose per capita tax revenue eroded over the past decade; Texas and South Carolina, like Florida, are pursuing some combina-tion of social service spending cuts, devolution, and federal maximization as possible ways out of their situations; only Georgia has resisted spending any of its rainy-day funds until perhaps 2003. None of the comparison states is considering instituting or raising income taxes, although hikes on excise taxes such as cigarette taxes are receiving attention.

TABLE 5. Comparison of Growth in State Taxes and Personal Income, 1990-2000

State

Real Annual Average Tax

Growth (1)

Real Annual Average Personal Income Growth (2)

Difference(1) - (2)

U.S. Average 3.83% 2.95% 0.88%

Florida 4.24% 3.12% 1.12%

Georgia 4.47% 4.49% -0.02%

South Carolina 2.78% 3.10% -0.32%

Texas 4.22% 4.31% -0.09%

Source: Tax Foundation, Washington, DC, 2003. Based on data from the Department of Commerce.

Note: Personal income adjusted for fiscal years.




June 2003 21



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June 2003 21



Texas, like Florida, does not have an income tax, but raises revenues primarily through a sales tax of 61⁄4 percent on all goods excluding groceries, utilities, and medicines and comprising 55 percent of state tax collections. Texas ranks 49th of the 50 states in terms of state tax burden, but ranks 39th, when state and local tax burden is taken into account. Texas ranks 14th in local taxes per capita.23 Texas is again like Florida in that it devolves spending on many programs, such as social services or education, to the local level. State taxes as a fraction of personal income have declined over the 1990s, and Texas will face an estimated deficit of $4.7 billion in 2002–03. The state cut taxes in 1997, 1999, and 2001,24 effectively lowering SFY 2002–03 revenues by $2.6 billion. The state’s projected SFY 2004 shortfall is between 13.1 and 25.5 percent.25 Texas is said to have a structural deficit, in that its revenue-raising capabilities have not kept up with increases in state personal income—Texas is the only state of the four to have lost state revenue in real terms over 1992–2001. The state’s sales tax, far more than Florida’s, has failed to keep pace with (1) the transformation of the state’s economy from one based on manufacturing and mining/oil drilling to one based increasingly on services and (2) the growing volume of Internet and mail-based sales. The sales tax does not apply to business and profession-al services, and the state comptroller has estimated that broadening the sales tax base to include services would balance the budget while allowing the state to lower the tax rate. In Texas, counties levy property taxes but the state sets the level of the property (called “homestead”) exemption, which it tripled in 1997. Texas is not likely to contemplate an in-come tax, and like Florida, it would require a state referendum to do so, which is more of a challenge in that the state’s legislature meets only biannually. Texas has used tobacco settlement monies to shore up its SFY 2001-02 budget; in SFY 2002, Texas spent $808 million just on its Medicaid and SCHIP programs.26 Texas, like Florida, has a rainy-day fund approaching $1 billion, but has so far forgone tapping it.

Georgia is probably in the best financial shape of the four states, with a projected budget shortfall for SFY 2004 of 5.8 percent of state own-source revenues. One reason may be that the state has the most balanced distribution of revenue instruments among the four states, including an income tax. Georgia is contemplating dipping into its budget stabilization fund for the first time in the FY 2003–04 budget cycle.

South Carolina has a smaller, more manufacturing-based economy than Georgia (and a far smaller economy than Florida), so even though it has a more diversified tax structure, administrators from the Department of Social Services noted the state may not be able to weather economic downturns such as these, and consequently may be in the worst financial shape, at least from a budget standpoint, with an SFY 2004 deficit forecast of 13.6 percent. In South Carolina, just before the recent economic distress, counties lowered their property 23 Figures in this paragraph come from Lavine et al. (2002)24 In 1997, Texas tripled the homestead exemption, which narrows the assessable base for county property taxes. In 1999, the state created a sales tax holiday and granted exemptions to small businesses and tax breaks for research and development and job creation. In 2001, Texas implemented a tax abatement for new, large-scale corporate investments.25 Texas has a biennial budget, so the first figure assumes the deficit is evenly divided between 2004 and 2005, while the second estimate assumes that two-thirds of the two-year deficit is charged to SFY 2004.26 Dunkelberg (2002).




June 2003 23



taxes by 15 percent because the state had promised to rebate the “surplus” in state sales tax collections. The governor has pledged to keep this promise, but doing so will clearly aggravate the fiscal situation. Counties have begun piggy-backing 1 percent sales taxes on the state sales tax.

State Government Revenues

Florida state revenue from its own sources—that is, excluding federal and local sources and trust funds—grew 45 percent, from $17.7 billion to $25.6 billion over the 1992-2001 period (in real 2003 dollars). Florida’s general sales tax receipts—the majority of the state’s own-sources—rose from $10.2 billion to $15.1 billion, or 48 percent. Total state revenues in Florida—including intergovernmental transfers from federal and local govern-ment, insurance trust revenues, and the like—rose from $34.7 billion to $47.6 billion, a 37 percent rise or a 3.2 percent real increase per year. Intergovernmental revenues alone increased 74 percent, from $7.0 billion to $12.1 billion.

Figure 4 compares the growth in the different sources of Florida’s revenue. The larg-est component of growth came from federal and local revenues, most of which are fed-eral—although this is not the whole story. Many federal monies, such as federal salaries and benefit payments to individuals (such as Social Security, disability, and Medicare) bypass the state. Trust funds were the revenue source that experienced the most fluctua-tion in absolute terms—these are composed of the salaries and benefits of state, local, and federal employees, fees that different levels of government charge for their own products and services (such as postage stamps or utilities), mandatory contributions by businesses to unemployment compensation, and so on. In other words, these are revenue sources that the state government has limited discretion over.

Additional state tax data indicate that some categories of state own-source financing fell between 2001 and 2002. As of this writing, the Bureau of the Census had not yet released data on federal revenues to the states for 2002.

According to figure 5, Georgia and South Carolina saw their total state revenues grow 28 percent and 16 percent per capita, respectively. Florida’s total state revenue increased only 13 percent, while Texas saw a 15 percent per capita decrease. Each of the states experienced a net increase in population over the same period, with South Carolina experiencing the smallest growth in population.

Figure 6 compares the four states’ revenues by source only for revenues that pass through a state agency (e.g., TANF block grants but not Social Security payments). Texas consis-tently leads the other states, with Florida next, for both own-source and federal plus local intergovernmental transfers.

Florida State Tobacco Settlement Revenues and Allocations

In 1997, Florida settled a lawsuit with the tobacco companies separately from the class ac-tion suit filed by the other states. Also in 1997, Governor Lawton Chiles won a landmark




June 2003 23



FIGURE 4. Total Florida State Revenues by Source, 1992-2001(In billions of real 2003 dollars)

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

$50

$55

$60

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Other

Property

CorporateIncome

Licenses

Sales & GrossReceipts

Trust Fundsand Misc.

Federal andLocal

Source: State government tax collections data from the U.S. Bureau of the Census, 2002, available at http://www.census.gov/govs/www/statetax.html.

FIGURE 5. Total State Revenues Per Capita for Florida, Georgia, South Carolina, and Texas, 1992-2001

+13%

+16%

+28%

-15%

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

$5,000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Inre

al20

03do

llars

Florida Georgia South Carolina Texas

Source: The Urban Institute, 2003. Based on Consolidated Federal Funds Report and state population data, U.S. Bureau of the Census, 2002.




June 2003 25



lawsuit against the tobacco companies. Initially, Florida was to receive $11.3 billion over 25 years; however, the agreement also included a “most favored nation” clause mandating that Florida receive additional funds should other states negotiate better settlement agree-ments with the tobacco companies thereafter. Owing to that clause, Florida is to receive an additional $1.7 billion over the next five years. To ensure that the funds benefit Floridians in perpetuity, the amounts appropriated in any given year are to be no more than single-digit percentages of the settlement amounts. The settlement broadly stipulated that these tobacco monies be spent on children’s health and health care coverage, reimbursements to Florida of the medical costs the state incurred in treating smokers, improvements in the state’s ef-forts to enforce the denial of sales of tobacco products to minors, and most relevant here, state matching for the federal Block Grants for Prevention and Treatment of Substance Abuse and Community Mental Health Block Grants.

Most of the tobacco monies flow into the Lawton Chiles Endowment Fund. Figure 7 dis-plays the complex funding of Florida’s finalized tobacco settlement agreement. The initial settlement amounts represent the basic tobacco settlement funds, while the additional amounts (e.g., pilot program) represent sources of funding that were tacked onto the to-bacco settlement.

Florida spent $520 million in tobacco settlement monies in FY 2000 and $500 million in FY 2001; half the monies were spent on health care and an additional third were spent on children and adolescents. Specifically, in FY 2001, Florida’s legislature tapped tobacco settlement revenues to fund the state’s SCHIP program and community-based health care

FIGURE 6. Comparison of Total State Revenues Among Florida,Georgia, South Carolina, and Texas for Select Years

$7.0 $9.2 $7.3

$24.1

$9.5$13.6

$8.4

$33.5

$12.1 $11.2 $11.0

$37.0$17.7

$8.9$4.8

$20.8

$22.1 $11.5

$5.7

$23.9

$25.6

$14.7

$6.3

$30.2

$0

$10

$20

$30

$40

$50

$60

$70

$80

FL GA SC TX FL GA SC TX FL GA SC TX

Inbillionsofreal2003dollars

Federal and Localities State Own-Source

Source: The Urban Institute, 2003. Based on state government finance and tax collections data from the U.S. Bureau of the Census,2002, available at http://www.census.gov/govs/www/.

1992 1996 2001




June 2003 25



programs, among others. In 2002, the Lawton Chiles Endowment Fund received additional settlement payments worth $396 million, raising the state’s total that is available for spend-ing to $860 million.27

Figure 8 focuses on the tobacco settlement funds and the various purposes for which they are used in the four states. Each state is using the largest share of its tobacco settlement funds for health care, and each, with the exception of South Carolina, is using some por-tion of the funds for tobacco use prevention. Of the four states, Florida is spending both the largest absolute amount and the largest percentage of its funds for child and adolescent programs.

Considerations in Estimating Florida’s Federal Inflows and Outflows

The next three sections ask how much Florida sends to the federal government in taxes—that is, what is the federal tax burden on the state of Florida? In turn, how much does Flor-ida receive back from the federal government, and what have the trends been? Is Florida a net donor of federal dollars or a net recipient? Is either label meaningful?

A state that is a net recipient receives more in federal spending than it pays out in federal taxes. A net donor is the opposite. Generally, a net recipient is either a poorer state or a state that has substantial government investments in it, often in the form of military bases, ener-gy concerns, natural resources, and the like. Examples of net recipients are Mississippi and New Mexico. Generally, a net donor is a wealthier state with many prosperous individuals and businesses per capita. Connecticut and New Jersey are examples of net donor states. The progressivity of the income tax—the fact that persons with higher incomes are taxed at a higher rate—drive federal outflows from a state, while the amounts of social services, military bases, and federal procurement contracts drive federal inflows.

The tax collection data the U.S. Department of the Treasury releases do not allocate the fed-eral tax burden by state. Hence, analysts must make a number of assumptions in calculating how much a state sends to the federal treasury and how much it receives in return. Below are some examples of key assumptions and concerns:

Federal Revenues

• Gross or net tax collections. Net tax collections subtract out the amount of Florid-ians’ tax refunds from the total amounts sent to the federal treasury, while gross collections do not. We would argue for net tax collections, as gross collections over-state how many tax dollars go to the federal government; however, the calculations we consider here do not make this adjustment, in part because it is not easy with current federal tax data to disentangle personal tax refunds from withholding and payroll taxes.

• Changes to federal and state tax laws. Reductions in federal tax rates lower the revenues all states send to the federal treasury. Likewise, reductions in certain state

27 Yemane and Hill (2002).




June 2003 27



FIGURE 7. Tobacco Settlement Annual Payments to Florida(As calculated under the June 2001 amendment)

$597

$236 $231 $255$332 $330

$406

$217

$132

$433$430

$429

$215

$39$41

$43

$47

$25

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04

Inm

illio

nsof

real

2003

dolla

rs

Net Operating Profits

Most Favored NationFunds

Pilot Program

Initial FloridaSettlement

Source: The Auditor General of Florida, "Florida's Tobacco Settlement Agreement: AnAccountability Update," October 2001.

FIGURE 8. How Florida, Georgia, South Carolina, and Texas Allocated Tobacco Settlement Funds in 2001

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

$550

Florida Georgia South Carolina Texas

Inm

illio

nsof

real

2003

dolla

rs

Tobacco Growers andCommunity

Child and AdolescentPrograms

Education

Long-Term Care

Health Care

Tobacco Use Prevention

Source: National Conference of State Legislatures, "State Allocations of Tobacco Settlement Funds (FY 2000 and 2001),"August 2000.




June 2003 27



and local taxes on income and property will tend to boost the revenues the state’s residents send to the federal treasury because of the deductibility of state and local taxes from individuals’ federal tax liability.

• Corporate taxes. Does one assign a corporation’s taxes to the state where it is head-quartered, where it has subsidiaries, or where it does the most business?

• Excise taxes (federal taxes on cigarettes, alcohol, gasoline, etc.). Tax collection data would suggest that the bulk of excise taxes on tobacco, alcohol, and gasoline are paid in just the few states that produce these goods. Clearly, though, the citizens of such states do not bear the full burden of these taxes, so one must allocate these taxes across states. Further research suggests that those at lower incomes consume more alcohol and tobacco than those at higher incomes. Should poorer states be as-signed a larger share of the tax burden? What about excise taxes that tourists and other visitors pay while in Florida—where should those taxes be allocated, and in what proportions?

• Surplus. Suppose the federal treasury is running a surplus that is used to pay down the federal debt. These surplus monies are not paid back to the states. All other things being equal, the general tendency during times of surplus is for all states to resemble net donors.

• Tariffs. Tariffs are levied on imports, which means the tax burden is on the people of other countries, yet these monies are spent across the states. How does one allocate these revenues? Does one even count them, since they were not internally generated?

• How does one properly evaluate the vast sums of money in federal loan guarantees for housing, mortgages, or student loans? What about federal insurance for disasters?

Federal Expenditures

• Social Security, Medicare, and defense. Social Security and Medicare are by far the largest sources of federal revenues into Florida. In 2001, Social Security was worth $32 billion and Medicare was worth $20 billion. Minor fluctuations due to changes in the numbers of elderly, their average age, their average state of health, or the availability of the health services they depend on could easily push Florida into the red or the black—regardless of most state efforts to maximize federal revenues. Defense procurement and military salaries are also sizable programs, worth about $13.5 billion collectively in 2001. If the nation takes a peace dividend, then Florida could be pushed into the net donor category.

• Interest on the debt. Currently, nine cents of every dollar that goes to the federal government pays for interest on the public debt. These monies do not return to the states in any direct form.

• Foreign aid. Again, this is U.S. money that simply exits the country and is lost to the states.

• Deficit. Suppose the federal treasury is running a deficit, spending more money than it is taking in. All other things being equal—and assum-ing that the source of the deficit is not foreign aid or interest on the public




June 2003 29



debt—the general tendency is for all states to resemble net recipients.

In sum, different assumptions and methods of allocation can lead to different conclusions. In the next two sections, we draw on federal tax and spending numbers tabulated by the Florida Legislative Committee for Intergovernmental Relations (LCIR) report (2001a) and the Tax Foundation in Washington, DC. Both use the same data sources. All figures are in inflation-adjusted, 2003 dollars.

Federal Revenues from Florida versus Federal Spending in Florida

Over 1991–2000, the sums Florida sent to the federal government grew from $70.4 billion to $120.9 billion, or 72 percent, according to the LCIR. Individual income taxes and payroll taxes compose the lion’s share of federal taxes from Florida—53 percent and 28 percent, respectively, in 2000—while corporate taxes make up another 12 percent.

Individual income taxes and estate and gift taxes grew the fastest. Income taxes grew 85 percent, from $34 billion to $64 billion, while estate and gift taxes more than doubled, from $1.6 billion to $3.4 billion. These trends may not have persisted into the recession, however; also, recall that the federal estate and gift tax is scheduled to phase out.

The data series we have on federal spending trends is for a slightly different span of time (see table 7). In the aggregate, federal spending in Florida rose from $82.9 billion to $105.6 billion over 1993–2001. Among the four states, Texas saw the largest absolute expenditures, and Georgia experienced the fastest rate of increase. Florida saw the lowest rate of increase in federal spending.

For most of the past decade, the six largest sources of federal spending in Florida have been, in order:

(1) Social Security and Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $32 billion(2) Medicare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20 billion(3) Defense procurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7 billion(4) Medicaid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5 billion(5) Federal retirement & disability for military personnel . . . . . . . . . . . . . $ 4 billion (6) Federal retirement & disability for civilian personnel . . . . . . . . . . . . . $ 3 billion

TABLE 7. Total Federal Expenditures Going to Select States, 1993-2001(In real 2003 dollars)

Total Expenditures ($ Billions)

State FY1993 FY2001 % Change

Florida $ 82.9 $ 105.6 23.7%

Georgia 36.3 48.5 33.7%

South Carolina 19.7 25.3 28.7%

Texas 91.2 115.4 26.5%Source: Consolidated Federal Funds Report of the U.S. Bureau of the Census, 2002, available at http://www.census.gov/govs/www/cffr.html.




June 2003 29



These six programs amounted to $71 billion for Florida in 2001. Appendix table 3 provides details on the top 15 federally funded programs in Florida by year, 1993–2001.

The preceding account of federal taxes and expenditures concerns aggregate amounts. Ta-bles 8 through 10 look at per capita amounts of tax burden and expenditure and come from the Tax Foundation of Washington, DC, which uses a methodology comparable to that of the LCIR.28 Table 8 shows federal per capita tax burden by state. Table 9 shows federal per capita spending by state. Table 10 takes the ratio of per capita spending to per capita tax burden to determine whether a state is a net recipient or a net donor. Ratios greater than 1 indicate recipient; ratios less than 1 indicate donor.

Table 8 provides federal tax burden per capita figures for the four states for 2001, broken out by tax source. Florida has the highest per capita burden of the four states and ranks 17th nationally. Florida also has the highest per capita individual and corporate income taxes of the four. Interestingly, Florida ranks last of the four in federal estate and gift taxes. All four states lag the national average in federal tax burden. As a point of reference, per capita tax burdens for the top and bottom states (Connecticut and Mississippi) are provided. Con-necticut has a per capita burden nearly double Florida’s, while Mississippi’s burden is about half.

Table 9 shows per capita expenditure data for 2001, broken out by type of expenditure. Flor-ida receives a slightly higher per capita expenditure than the national average, and higher than all four comparison states, ranking 19th nationally. Florida leads the comparison states in retirement and disability payments per capita as well as in “other direct payments per capita,” the largest segments of which are Medicare, the earned income tax credit, and Food Stamps. However, Florida edges out only Nevada on the basis of grants to states and local governments, procurement, and federal salaries and wages.

Florida as Net Recipient

Table 10 shows that Florida is a net recipient of federal dollars, if only slightly, although it has lost a bit of ground between 1991 and 2001. Receiving an estimated $1.05 in federal expenditures for every dollar it pays in taxes, Florida ranks 31st in 2001, down from 26th in 1991. It bests Georgia and Texas, which both turn out to be donor states in this analysis, although it does not do as well as South Carolina. Providing perspective are top-ranked New Mexico at $2.08 and bottom-ranked New Jersey at $0.66. While Florida is above the break-even mark, it is not far above it. Employing slightly different assumptions could eas-ily make Florida appear as a donor state.

28 The Tax Foundation, the Florida Legislative Committee for Intergovernmental Relations, and this re-port, in most cases, draw on data from the U.S. Department of the Treasury and the Consolidated Federal Funds Report, maintained by the U.S. Bureau of the Census. The Florida Legislative Committee for In-tergovernmental Relations produced a thorough, department-by-department analysis (2001b) of federal revenues flowing into Florida for 1999-2000 and illuminated a number of was for the state government to better maximize federal dollars flowing into the state, which those reading this study should also read.




June 2003 31



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Another important consideration, touched on earlier in the discussion of table 6, is Florida’s comparatively low state and local taxes and their deductability from federal income taxes. If Florida had an income tax and higher wealth and property taxes, Floridians would pay less federal tax, which would make the state “better off” in terms of the net donor/net re-cipient debate, but not Floridians necessarily.

Finally, there is the reality that states receiving the most federal expenditures versus the amount of federal taxes they pay are also often the most in need of those dollars. A wealthy state, such as Connecticut or New Jersey, will tend to be a donor state as a fundamental purpose of the federal government is to redistribute income.



WHAT DOES REVENUE MAXIMIZATION MEAN?

June 2003 33



V. WHAT DOES REVENUE MAXIMIZATION MEAN?

Our research led us to consider multiple and competing perspectives on federal revenue maximization. Broadly, there are three types of programs through which a state can re-ceive federal social service dollars. The first is federal-state matching programs, such as Medicaid or Title IV-E, in which the state has to spend additional state (or local) funds to receive additional dollars of federal funding; or, the state can claim more of its current spending as eligible for matching funds.29 The second is block grant programs, such as TANF or CCDF, that require the state to spend a certain level of its own funds to receive the full federal grant, but once the grant is received, the state can optimize how these funds are spent. The third is primarily federally funded, but state-administered, programs such as Food Stamps or SSI, in which state and local outreach efforts can increase participation, and hence, the number of federal dollars flowing to individuals within the state.

The concept of maximization means something very different in each type of program. The state often has to choose among reallocating federal dollars it has already received, spending (or claiming) an additional dollar of state own-source funds for a federal match, or compelling a locality to provide that dollar in the state’s stead. In addition, for programs that are primarily federally funded, such as SSI, increasing participation not only increases the amount of federal funds flowing into the state but may also relieve the state of spending funds on individuals in another program, such as welfare.

Federal Government Perspective

Maximization also has different ramifications depending on the level of government at-tempting to maximize. From the federal perspective, the purpose of federal entitlement and block grant programs is to finance safety net provisions more adequately; the federal formulas are intended to give states incentives to spend more on necessary programs they would not otherwise (fully) fund because of prohibitive cost. Federal regulators are dis-mayed when a state attempts to use federal spending to supplant spending it would have committed in the absence of the federal program, charge programs for expenses that are outside the intended scope of covered services, or unfairly push the burden onto localities by substituting local matches for state general revenues. If states exploit federal legislation in a program and claim a sufficient volume of services, in agreement or disagreement with federal intent, federal regulators and eventually Congress may have to revisit the legislation and restrict the purview of state claims in the future simply to limit the federal govern-ment’s exposure to program costs. This has happened a number of times in the Medicaid program, for example.

State Government Perspective

Especially over the past decade, antitax sentiment across the electorate has constrained the size of most state budgets by capping or paring back state own-source revenues, even

29 An example of this, discussed in depth later, is targeted case management, where some administrative costs associated with assisting eligible clients in accessing needed medical, educational, social, and other services can be claimed to Medicaid.




June 2003 33



as economic circumstances or social priorities change. Thus, states are often pursuing revenue maximization under constraints. A state that currently spends a certain amount of general revenue on a federal program resists spending more than that amount. Suppose a state has the following choices:

1) Reallocate federal grant dollars the state receives for its current general revenue spending;

2) Claim other current general revenue spending as eligible for federal matching funds;

3) Require localities to contribute more to the overall state match for a federal program;

4) Spend more state general revenue to draw down additional federal dollars.

For choices 1–3, the state may spend virtually nothing additional to obtain a new dollar of federal spending. For choice 4, at Florida’s federal matching rate of 56.43 percent, Florida would need to spend $0.77 of additional state general revenues for each additional federal dollar. Even if the political will exists to expand a program, the state has the incentive to pursue choice 4 in tandem with 1, 2, or 3 rather than pursue 4 alone. From the state govern-ment perspective, revenue maximization often merely means spending less state general revenue and more federal and local revenue.

Local Government Perspective

Localities naturally have the same incentives as the state, but are often not in the driver’s seat when it comes to the design and financing of state-administered federal programs. Lo-calities will naturally balk at scenarios where the amount of state match for a program, and thus also the amount of federal draw-down, remain the same, but increased local revenues are meant to substitute for decreased state general revenues. Localities may construe such a scenario as supplantation, especially if the state does not formally forewarn them of state general revenue retrenchment in a program and the reasons for it. Concerns about sup-plantation could be avoided if the state reinvested the general revenues withdrawn from a particular program in similar services, or in services for the same population. From a local perspective, any additional local or federal funds should be used to expand a program, not relieve the burden on state general revenue. Furthermore, concerns about equity are raised as financial responsibility for programs is increasingly devolved to the local level, because some counties may not be able to raise the necessary revenues. States cannot compel coun-ties that cannot afford the local contribution to participate in a federal program, but they can certainly exclude such counties from the program.

Localities may acquiesce to additional spending only if the state also contributes in the same proportion, so that more federal dollars in total will be drawn down. Difficulties arise in programs such as Medicaid and SCHIP, where the costs of providing services are driven by annual increases in medical inflation that often outpace state and local revenue growth. The state is likely to require increases in the local share of these programs to shoulder the burden, although localities are likely to oppose state decrees that compel their participation or do not share the burden proportionally between the state and the counties.




June 2003 35


PROGRAM-BY-PROGRAM ANALYSIS

Other concerns for localities that the state does not share include the administrative burden that comes with increased responsibility for program financing and management. Federal reporting requirements, while necessary, are notoriously complex and burdensome, and the requisite computer systems, skill base, and institutional capacity may not find economies of scale at the local level as they do at the state level. Even service provision, if enough is de-volved to the local level, could suffer from smaller economies of scale and possibly degrade overall, despite the fact that localities may be best suited to identify and pursue revenue maximization opportunities. Second, related to the issue of supplantation, increased local contributions and the federal dollars they leverage may not always return to the locality of origin if the state redistributes some federal largesse to poorer counties that lack the means to finance the required match.30 Third, while localities may create special taxing districts to handle the additional revenue demands from the states and backstop their local social services against a deteriorating fiscal outlook, the revenues raised may supplant other local financing of social services.

Other States’ Experiences with Revenue Maximization

Finally, some comment is warranted on states’ retention of consulting firms that special-ize in revenue maximization. Revenue maximization is a complex business—virtually all states have grasped most of the incentives discussed above, so the task of ferreting out the remaining opportunities for maximization can sometimes be compared to squeezing blood from a turnip. Consequently, it is only natural that states enlist the aid of consulting firms that have come to specialize in this area. Mississippi’s legislature reported31 on the experi-ences of its own human services department in retaining these services and compared it to experiences in Alabama, Indiana, Nebraska, and Wisconsin.

State Result Mississippi $ 14.7 million disallowed, repaidAlabama $ 2.0 million disallowed, repaidIndiana $ 14.9 million disallowed, repaidNebraska $ 0.3 million disallowed, repaidWisconsin $100.0 million retained

Wisconsin was the only state of the five to bring in money—a substantial amount—through consultant-aided revenue maximization. The other four states either had the federal gov-ernment or the state office of the inspector general disallow their additional claims. Juris-dictions that hire “rev-max” consulting firms still bear the legal consequences of policies they subsequently enact and must also subtract nontrivial consulting fees from the net gains of revenue maximization efforts.

30 This points up an added concern for the state. While it might in principal implement a state-adminis-tered federal program that requires participating counties to pay a percentage of the overall state match, in practice, issues of adequacy generally compel states to redistribute some tax dollars from wealthier to poorer jurisdictions.31 Joint Legislative Committee on Performance Evaluation and Expenditure Review,( 2000).




June 2003 35



VI. PROGRAM-BY-PROGRAM ANALYSIS

In 1992, the human services section of the Appropriations Act consisted of appropriations to two departments—the Departments of Veteran Affairs and Health and Rehabilitative Services. By 1999, the Department of Health and Rehabilitative Services was restructured and renamed the Department of Children and Families. As part of this reorganization, several divisions within the Department became their own entities—the Departments of Health, Elder Affairs, and Juvenile Justice, and the Agency for Health Care Administra-tion.

Between 1992 and 2003, total appropriations for state operating expenses32 increased 41 percent, from $30 billion to $42 billion.33 The Florida Appropriations Act classifies ap-propriations into six categories; education; human services; general government; judicial branch; criminal justice and corrections; and natural resources, environment, growth management, and transportation. Over this time period, total appropriations for human services were more than any other section, including criminal justice and corrections (fig-ure 9). Total appropriations for human services increased from $10.3 billion to $18.4 bil-lion, or 78 percent. As a percentage of Florida’s total operating expenses, human services appropriations increased from 34 to 44 percent. Total appropriations for criminal justice and corrections saw a 140 percent increase, from $1.3 billion to $3.2 billion. As a percent-age of Florida’s total operating expenses, criminal justice and corrections appropriations increased from 4 to 8 percent.

General revenue for total operating expenses increased 46 percent ($14 billion to $20.5 billion) and other funds34 increased 36 percent ($16 billion to $22 billion) between SFY 1992 and 2003 (figure 10). General revenue appropriations for human services increased 36 percent ($4.1 billion to $5.5 billion), while other funds increased 105 percent ($6.2 bil-lion to $12.9 billion). Education saw a 47 percent increase in general revenue and a 30 percent increase in appropriations from other funds. Appropriations from general revenue for education increased from $7.3 billion to $10.8 billion, while appropriations from other funds increased from $2.5 billion to $3.1 billion. Criminal justice and corrections general revenue appropriations rose from $1.2 billion to $2.7 billion, or 120 percent. Education ap-propriations from general revenue were 53 percent of all such appropriations in SFY 2003, exceeding human services (27 percent) and criminal justice and corrections (13 percent).

How does Florida compare with Georgia, South Carolina, and Texas on the basis of social welfare provision? Figures 11A-C provide a “lay of the land” and show per capita federal allocations to twelve social service programs for Florida and its comparison states, by size of program. Note that allocations are the monies that the federal government sends to the states for block and formula grants; the state may not spend the entirety of these sums in the same year, although monies for direct awards to individuals such as Food Stamps and 32 The state Appropriations Act categorizes appropriations as operating expenses and fixed capital outlays. Operating expenses are appropriations for programs, services, and associated administrative expenses. Fixed capital outlays include appropriations for large projects, such as construction.33 All dollar amounts and percent changes presented in this section have been adjusted to real 2003 dol-lars.




June 2003 37



FIGURE 10. General Revenue Appropriations SFY 1992 - 2003

+46%

+47%

+36%

+119%

$0

$3

$6

$9

$12

$15

$18

$21

$24

1992 1994 1995 1996 1997 1999 2000 2003

Inbi

llion

sof

real

2003

dolla

rs

totaloperatingexpenses

education

humanservices

criminaljustice &corrections

Source: Florida State Appropriations Acts, various years.

FIGURE 9. Total Appropriations SFY 1992 - 2003(In billions of real 2003 dollars)

+41%

+78%

+43%

+140%

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

$50

1992 1994 1995 1996 1997 1999 2000 2003

total operatingexpenses

humanservices

education

criminaljustice &corrections

Source: Florida State Appropriations Acts, various years.




June 2003 37



SSI can be more or less assumed to be actual expenditures. (We lack data points for some programs for the full 1993-2001 period; also, the SCHIP program was so recently created that there is little meaningful trend to show, other than an annual, burgeoning take-up rate for all states concerned, so we omit it here).

Readers will note that changes in per capita expenditures on social service programs are generally correlated across the four states we examine. Rates of growth in spending on social service programs vary widely by program—for example, Food Stamps, Unemploy-ment benefits, TANF, and SSBG all decreased over the 9-year span while most other pro-grams increased; also note the large spike in Section 8 housing around 1999. The SSBG program, for its part, has been cut a number of times over the observed time period.

Florida has the lowest per capita allocation in Medicaid, the EITC, Foods Stamps, Head Start, and in 2001, CCDF. Florida leads in Title IV-E Foster Care per capita, however. For several programs, such as Unemployment, Section 8, and SSBG (which has a per capita-based formula), the per capita spending lines for Florida and the comparison states are closely bundled—sometimes this is due to the design of the program (i.e., the intent is for states to spend roughly similar amounts per capita, as with the SSBG program), sometimes to the similar spending tendencies of similar states.

1. Medicaid

Medicaid, Title XIX of the Social Security Act, is a federal-state matching entitlement program that provides medical assistance to various categories of typically low-income beneficiaries such as families with dependent children attached to the welfare system, the aged, blind, and disabled, and certain other pregnant women and children. The recently created SCHIP program, discussed below, is related to Medicaid and shares some program units and organizational components.

Table 11 delineates the operational responsibility under Florida KidCare for the different components of Medicaid and SCHIP, based on eligibility.

TABLE 11. Component Programs of Florida KidCare by Eligibility

KidCare Component Eligibility

Medicaid For children who qualify under Title XIX: Ages 0-1, up to 200% of FPL; ages 1-5, up to 133 % of FPL; and ages 6-19, up to 100% of FPL

MediKids For children who qualify under Title XXI (SCHIP): Ages 1-4, up to 200% of FPL

Healthy Kids For children who qualify under Title XXI (SCHIP): Ages 5-19, up to 200% of FPL; also, limited number of children with family incomes > 200% of FPL

CMS Network For children in any of the other three KidCare component who have serious health care problems

Source: Committee on Health, Aging, and Long-Term Care, “Review of Florida KidCare Program Administration,” The Florida Senate, Interim Project Report 2003-133, January 2003.




June 2003 39



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June 2003 39



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June 2003 41



The complex structure of the KidCare program stems from a strong political sentiment against a pure Medicaid expansion and the desire to build on an existing administrative and service delivery infrastructure.35

Medicaid Spending

Growth in Medicaid spending has risen to double digits in the past several years in most states. There are several reasons for this high growth. The most significant is medi-cal inflation—“catch-up” increases in provider reimbursements, the growing expense of long-term care, and the soaring costs of prescription drugs. The next significant driver is increased enrollment of low-income families with children, and more recently, increas-ing unemployment figures as the economy continues to founder. These costs also tend to breakout along a demographic divide—medical inflation most concerns the costs of treat-ing the elderly and the disabled while increases in enrollment most concern low-income families and children. A third driver is the recently declining federal medical assistance participation (FMAP) rates in many states, which (1) are pegged to a three-year moving average of a state’s per capita income, but with a three-year lag36 and (2) fall as state per capita incomes rise.

The FMAP for Medicaid and other welfare programs (Title IV-E Foster Care maintenance payments discussed below), ranged from 50 percent to 75 percent across states in FFY 2002. Poorer states like Mississippi receive a higher rate of match while wealthier states like Connecticut receive a lower rate. Florida’s FMAP in 2002 was 56.43, meaning that if the state spent $0.44 on Medicaid or a related entitlement program, the federal government would spend $0.56—or, for every $1.00 the state spends on Medicaid, the federal govern-ment contributes about $1.29.37

Between FFY 1993 and 2002, Florida’s FMAP remained relatively stable, increasing from 55.03 to 56.43 percent. Georgia, South Carolina, and Texas each experienced slight declines in their rates, again because of rising state per capita incomes in the late 1990s. However, Florida’s FMAP is still lower than each of the three comparison states.38

Nationally, two competing trends have driven Medicaid enrollment in the past decade. From the mid-1990s to about 2001, welfare-related changes and economic growth were as-sociated with declines in Medicaid caseloads as families left the welfare rolls. Around 1997

35 Compounding the complexity are the different state agencies that oversee each component: AHCA oversees Medicaid and MediKids; the Department of Health oversees Children’s Medical Services; the Department of Children and Families oversees eligibility determinations for Medicaid; and the non-profit Healthy Kids Corporation manages Healthy Kids and determines the eligibility for the KidCare program (the state’s SCHIP program). (Yemane and Hill, 2002.)36 That is, the FMAP rates for 2002 are based on a state’s average per capita income over 1997-99. The reason for the three-year lag is the time it takes to collect accurate survey data on each state’s income.37 The ratio of 56.43 to 43.57 is 1.29. For the state’s SCHIP program, the match rate is even more favorable: $0.69 in federal funding for every $0.31 in state funding, or $2.23 for every $1.00 the state spends. 38 Between FFY 1993 and 2002, Georgia’s FMAP declined from 62.08 to 59.00 percent, South Carolina’s from 71.28 to 69.34, and Texas’ from 64.44 to 60.17. So relatively, Florida’s per capita income has declined while the per capita income of the comparison states has each increased.




June 2003 43



TABLE 12. Change in End-of-Year Monthly Medicaid Enrollment, 1997-2001 for Four States (Thousands of enrollees)

December 1997 December 2001 Increase % Change

Florida 1,460.0 1,832.7 372.7 25.5%

Georgia 941.4 1,063.1 121.7 12.9%

South Carolina 414.9 652.1 237.2 57.2%

Texas 1,892.7 1,972.9 80.2 4.2%

Source: The Kaiser Commission on Medicaid and the Uninsured, “Medicaid Enrollment in 50 States (December 2001 Data Update), October 2002.

and after, however, the implementation of SCHIP, combined with renewed state efforts to enroll low-income families, children, and pregnant women (partly financed by savings in TANF) and to extend Medicaid coverage to families leaving welfare, led to increased state outreach and a streamlining of Medicaid eligibility determinations.39 Net Medicaid enroll-ments have continued to steadily increase across states through the decade. More recently, enrollment growth has been driven by increases in unemployment rates. However, as noted above, the rapidly growing cost of treating the elderly is the leading driver of increased Medicaid spending.

Table 12 shows that Florida’s average monthly Medicaid caseload grew more than a quarter, while South Carolina’s grew 57 percent and Georgia’s grew 13 percent. Growth in Texas was comparably anemic for a number of reasons, chief of which is that after the delink-ing of Medicaid from TANF, many families could not meet that state’s eligibility income restrictions—as low as 17 percent of the FPL.

Figure 12 shows spending trends in Florida’s Medicaid program. Total spending on Med-icaid in Florida grew from $4.8 billion to $9.1 billion, or 87 percent over 1992-2001. The federal portion increased from $2.7 billion to $5.2 billion (96 percent) while the state por-tion rose from $2.2 billion to $3.9 billion (77 percent). The drivers of this recent growth are increased enrollment, as a consequence of outreach efforts in the relatively new SCHIP program and in the transitional Medicaid program; growth in health- and community-based care funding; and soaring prescription drug costs. This budgetary behavior is in stark contrast to the policy picture: the expansive nature of health policy initiatives under Governor Chiles gave way to more focused policy initiatives for vulnerable populations such as low-income children, the disabled, and the elderly after Governor Bush took office in 1998.

Table 13 highlights the major changes in the funding components of the state and federal matches. Total state funds for Medicaid increased significantly—$1.686 billion over the decade in real terms. The largest single source of increase was an added $1.007 billion of pure state general revenues. However, the state also tapped $276 million in tobacco settle-ment revenues, $90 million in drug rebates from the new Medicaid formulary, and $273 million in new transfers from other state agencies. Another shift in Florida’s tactics was to

39 Ellis, Smith, and Rousseau (2002).




June 2003 43



FIGURE 12. Florida's Total, Federal, and State Medicaid Spending, SFY 1992-2001

+87.2%(+22.7%)

+96.1%(+24.6%)

+76.5%(+20.3%)

$0

$1

$2

$3

$4

$5

$6

$7

$8

$9

$10

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Inbi

llion

sof

real

2003

dolla

rs

Total Cost Federal Funds State Funds

Note: The bolded percentage at the right margin is percent growth over the entire period; the percentage inin parentheses is growth since 1999. Source: Florida's Agency for Health Care Administration, 2002.

TABLE 13. Florida's Medicaid Spending By State Fiscal Year(In millions of real 2003 dollars)

Medicaid Expenditures by Category and Fund 1992-93 2000-01 ChangeSTATE FUNDS

1. General Revenue $1,488 $2,495 $1,0072. General Revenue (Public Medical Assistance Trust Fund) $91 $0 ($91)3. Provider Assessments / Penalties / Fines $231 $274 $444. Cigarette Tax $139 $116 ($23)5. Transfers from other Agencies $124 $397 $2737. Transfers from Counties / Local Governments $108 $196 $888. Tobacco Settlement $0 $276 $2769. Overpayment, Fraud, and Abuse Recoupments $0 $22 $2210. State Share of Drug Rebates $26 $116 $90

Total State $2,206 $3,892 $1,686

FEDERAL FUNDS1. Medical Care Trust Fund $2,742 $5,105 $2,3622. Less State Funds in Medical Care Trust Fund ($108) ($35) $733. Net Medical Care Trust Fund $2,635 $5,070 $2,4354. Refugee Assistance Trust Fund $5 $15 $115. Federal Share of Drug Rebates $31 $152 $121

Total Federal (lines 3+4+5) $2,670 $5,237 $2,567

TOTAL COST1. Total General Revenue $1,488 $2,495 $1,0072. Total Medical Care Trust Fund $2,742 $5,105 $2,3623. Total Special Grants or Refugee Assistance Trust Fund $5 $15 $114. Total Public Medical Assistance Trust Fund $460 $390 ($70)5. Total Other State Funds $121 $383 $2626. Total Grants and Donations $56 $465 $4097. Total Tobacco Settlement Trust Fund $0 $276 $2768. Total Emergency Medical Trust Fund $3 $0 ($3)

Total Cost $4,875 $9,129 $4,254

Source: Florida's Agency for Health Care Administration, 2002.

FIGURE 12. Florida’s Total, Federal, and State Medicaid Spending, SFY 1992-2001




June 2003 45



leverage more financing from localities and from the providers themselves—an increase of $114 million, with localities paying 58 percent more in real terms for Medicaid benefits and services (very possibly for beneficial service and program expansions) by 2001 than in 1992.

Florida’s Medicaid per capita spending, as well as the growth in that spending, has been well below the national average. Past research hypothesizes that this may be because the state has a low supply of long-term care providers relative to the size of its elderly population.40 Another reason is that Florida’s elderly are healthier than in the nation as a whole and therefore may require less or less expensive long-term care. Finally, the fact that Florida’s Medicaid system has relied heavily on institutional settings to provide long-term care may also explain why Florida has spent less on long-term care than other states. However, policymakers fear that the rapid growth and aging of the elderly population will overwhelm Florida’s Medicaid program if the state does not fundamentally alter its cur-rent institutional-based system. The composition of Florida’s elderly is gradually changing, from young elderly to old elderly—institutionally based care is challenged when a wave of seniors crosses the 85-year mark. Florida has made an effort to develop and expand more cost-effective home- and community-based service programs for the elderly, but more work is needed. During the mid-1990s, Florida’s long-term care leaned heavily on institutional care, with 88 percent of all Medicaid long-term care dollars going to nursing homes and intermediary care facilities and mental hospitals while only 12 percent went to home- and community-based care programs in 1996. However, by 2001, that ratio had improved to 78:22.

According to the 2000 Green Book and 1998 state population numbers, Florida ranked 40th in the nation in per capita Medicaid expenditures. In comparison Texas, ranked 42nd, Georgia ranked 39th, and South Carolina ranked 25th. Florida ranks slightly below the na-tional average in state per capita income and so has a slightly more generous FMAP rate (56.43 percent) than the average (55 percent). However, as noted above, the state’s reliance on institutional settings, combined with Medicare’s coverage41 of most of the state’s elderly health needs, places Florida’s per capita Medicaid spending in context.

Fiscal Outlook for Medicaid in Florida

Recent double-digit growth in Medicaid costs have pressured Florida, along with many states, to consider cuts in its Medicaid program. However, Florida’s Medicaid program has always been a limited one, tending to grow more slowly than the national average—conse-quently, Medicaid challenges the budget in Florida less than it does in other states. Medicaid was 10.4 percent of general expenditures in Florida in 2001, compared with 13.2 percent in Georgia, 14.5 percent in South Carolina, 12.6 percent in Texas, and 14.7 percent on average across states. In other words, Florida’s Medicaid program was between 17 percent and 28 percent smaller as a percentage of its state budget than in the comparison states, and about 29 percent below the U.S. average.

40 Much of the following analysis is taken from Yemane and Hill (2002).41 To reiterate, Medicare is a purely federal program and so does not directly affect the state’s budget.




June 2003 45



Welfare reform did not directly affect Medicaid, although it did sever the link with TANF and cash assistance. The decline of welfare caseloads apparently did allow the state to fund the expansion of some Medicaid children’s services. To date, Florida has made relatively minor reductions in its Medicaid program: paring back dental services for adults and reduc-ing the eligibility limit from 90 percent to 88 percent of the federal poverty level. However the legislature has contemplated ending the Medically Needy program as well as reducing reimbursement rates to hospitals and providers.

Our discussions with providers and health policy researchers in Florida yielded the follow-ing list of potential programmatic and rate cuts and redesigns. We have not had in-depth discussions with state agency staff.

• Most optional programs in Medicaid, such as the Medically Needy program42

• Six percentage point reduction in state Medicaid reimbursement rates to hospitals and other providers43

• $15 co-pay to patients for emergency hospital visits later deemed not to be emer-gencies

• Continuing the diversion of Medicaid enrollees into capitated health maintenance organization (HMO) plans

• Additional prescription drug price controls

State policymakers have also discussed further tapping tobacco settlement monies to shore up the Medicaid program. What the legislature will pass this year is still unclear, although these options for program reductions have been on the table since before the events of Sep-tember 11. Texas has benefited from a higher FMAP rate in recent years—$206 million in additional funding for SFY 2002–03—but still anticipates cost reduction measures such as price controls on prescription drugs, new enrollee cost-sharing, and expanding Medicaid managed care. Texas’ Medicaid program also delays recognizing medical inflation and demand for provider rate increases. Furthermore, Texas has relied on tobacco settlement monies to shore up the Medicaid program in its biennial SFY 2002–03 budget.

Medicaid Maximization

Past research by Coughlin et al. (1999) illuminated several maximization strategies that states were using in the Medicaid program. During the 1990s, states increasingly moved patients out of state psychiatric hospitals, where they are ineligible for Medicaid funds, and back into the community, where they are eligible for a wide range of Medicaid-financed mental health services. Second, states used intergovernmental transfers or provider taxes

42 The Medically Needy program provides Medicaid services to recipients not eligible for traditional wel-fare, but who demonstrate that their medical spending will impoverish them; a subset of this group are seniors, formerly on Medicare, who spent down all of their assets and are now dually eligible for Medicare and Medicaid.43 Florida’s current Medicaid reimbursement rate is 83 percent. The national average is 94 percent. The cut would reduce Florida’s rate to 77 percent. This point was made to us in an interview with state hospital staff.




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to finance the state share of their disproportionate share hospital (DSH) programs.44 Third, in a highly controversial move, states have been leveraging their DSH reimbursements to fund general state services—that is, after using their designated DSH facilities to attract federal Medicaid payments, they have diverted a portion of the federal match to other state services, sometimes completely outside of health care, rather than providing it all to the DSH facilities.

Many states exploited the DSH program in the late 1980s and early 1990s, using DSH funds to finance the entire budgets of state-owned hospitals. A 1993 federal law conse-quently limited hospital payments to actual unreimbursed costs, resulting in more DSH funds made available to nonstate-owned hospitals. A similar abuse has occurred with the Upper Payment Limit program (described below), although this time with nonstate-owned hospitals, and a similar federal crackdown began with a 2002 ruling limiting use of these funds.

Examples of state efforts at maximization, successful and unsuccessful, follow.45

• Generating a Local Medicaid Match. In 2001, $89 million in local taxes and state graduate medical education funds leveraged $135 million46 in federal Medicaid matching funds through the Upper Payment Limit (UPL) program, all of which was channeled back to fund local hospitals. A state can raise matching funds by either directly appropriating them or soliciting what are called intergovernmental transfers (IGTs) from public Medicaid providers (hospitals, nursing homes, and the like). If the providers agree—and often, they are not given much of a choice by the state—the IGTs can be used just like state general revenues for drawing down Medicaid dollars.

An example might work as follows.47 Suppose the state asks a public hospital for $10 million to help make up the state match, whether through an intergovernmental transfer, a direct tax on the provider, or a donation from a state or local private non-profit on behalf of the hospital. The $10 million goes to the state Medicaid agency and constitutes the state match for that locality. The state then takes $4 million to cover administration and otherwise shore up the Medicaid program statewide. The remaining $6 million is used to draw down federal funds. If the state’s federal match rate were simply 50 percent, the state would receive $6 million from the federal government for the $6 million of state match. The state then returns the $12 million ($6 million state match plus the federal $6 million) to the hospital, which sees a 20 percent return on its investment, while the state keeps $4 million without putting up any state general revenues. In a number of circumstances this practice is allowable, but it contradicts federal intent, and Congress has been working me-

44 Disproportionate share hospitals receive higher Medicaid reimbursements than other hospitals because they treat a disproportionate share of Medicaid patients. These patients are typically in poorer health than other patients and can less afford health care.45 Material in the following bullets also came from Coughlin and Zuckerman (2002).46 Yemane and Hill (2002).47 Taken from Coughlin et al. (1999).




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thodically to close all the loopholes, especially over the past 10 years, as states seek to exploit them.

• DSH and UPL. Florida’s DSH program began in 1988 and was funded through a combination of provider taxes and state general revenues.48 However, the DSH allotment to each state is capped, and many states, including Florida, bumped up against the cap in the early 1990s. The UPL program, which states can ap-ply for, offers a second mechanism for extending financial support to hospitals that provide high levels of uncompensated care to Medicaid enrollees. Under the UPL program, certain providers can receive from the state additional fund-ing that exceeds regular Medicaid reimbursements but is less than 150 percent of what the Medicare program would reimburse for the same service. These ad-ditional payments are not included in a state’s DSH expenditure cap, which makes UPL programs an attractive mechanism for expanding funding of safety net providers. In Florida’s 2000 legislative session, funding was approved through a UPL program, and local and provider taxes raised $89 million that were used to draw down an additional $135 million in federal matching funds. The legislature deemed the UPL program successful in its first year and has required localities to raise roughly three times the revenue through provider taxation—$300 million.

However, in 2000 the legislature also announced that $45 million of these funds would go to the state treasury as an “administrative” fee localities would have to pay to reap the benefits of the UPL program. Hospital officials—as a result of new guidelines handed down by the federal government49 that lower the UPL maximum of 150 percent to 100 percent—fear this move may further undermine federal sup-port for the UPL program in the same way that DSH support was undermined when states used it to support non-DSH spending.

• Florida’s Proposed Physician UPL Program. In the 2002 session, the legislature authorized the Agency for Health Care Administration (AHCA), for the purpose of

“maximizing all available federal Medicaid funds,” 50 to submit a state plan amend-ment to the federal government for its current UPL program that would allow sup-plemental payments to doctors providing Medicaid services who are employed by a public or private university medical school or teaching hospital. AHCA estimates

48 Yemane and Hill (2002).49 On May 15, 2002, the federal government revised the rules for Medicaid’s UPL program in response to states’ exploitation of the law to inappropriately increase the federal share of Medicaid costs. In recent years, states have made Medicaid payments to nonstate government-owned or -operated facilities that far exceed the actual costs of Medicaid patient care—and then required those same facilities to reimburse the state some or all the excessive payments through IGTs. The fallout from this practice is that states man-aged to obtain excessive federal Medicaid payments without putting up the state share required by law or ensuring that the additional money was being used for Medicaid-related expenses. However, the federal government plans to allow states up to five years to phase out these inappropriate financing mechanisms.50 Florida Office of Program Policy Analysis and Government Accountability (2003).




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that the program will generate $62 million in additional UPL payments over SFY 2002–03. The federal Centers for Medicare and Medicaid Services (CMS) are in the process of approving the state plan.

• Mental Health and Maximization. Maximization can have its drawbacks. Changes in federal financing rules made it worthwhile for Florida to significantly expand its financing of state mental hospitals beginning in the early 1990s. Recently, the mental health community realized that state mental health services were becom-ing increasingly organized around Medicaid-eligible services—in other words, overmaximized to the extent that the availability of Medicaid dollars was crowding out the services formerly available to non-Medicaid-eligible mental health patients, which providers and insurers would have to fully cover. Hence, a coalition of state mental health advocates asked the government to either close down some facilities and programs or otherwise divert the Medicaid dollars so that parity of service be-tween Medicaid-eligible and non-eligible mental health patients could be restored.

• Targeted Case Management. Through targeted case management services, if allow-able under a state’s plan, states can claim Medicaid for a portion of the salaries of social workers, nurses, and others who assist Medicaid-eligible clients in accessing necessary medical, social, educational, and other services. States have an incentive to use Medicaid funds because these costs would probably otherwise be covered by state or local funds. In addition, for children in state custody in more expensive res-idential settings, if states can claim Medicaid under the residential rehabilitative op-tion, some of their financial burden is removed, which potentially frees state or local funds for other purposes, including social services. As part of Florida’s larger effort to increase federal revenue for child welfare services in 1993, the Department of Chil-dren and Families (DCF) claimed Medicaid for targeted case management. Spending increased from $0 in SFY 1992 to $12.7 million in SFY 1999 (in real 2003 dollars).

In the course of this study, we interviewed staff at state health associations, hospi-tals, and other providers who discussed some possible options for additional maxi-mization under Medicaid. A number of the bullet points below suggest commu-nity-based health delivery, which, unlike DSH and UPL, is not subject to a federal spending cap.

• More community-based emergency care • Community support services• Looser state definitions of allowable Medicaid services• Community-based rehabilitation models• Moving away from fee-for-service toward HMOs or monthly premiums• Billing innovations and efficiencies• Funding graduate medical education through the UPL program




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Role of Localities in Medicaid Financing

As discussed in section III, counties and locally created special taxing districts such as children services councils and health care taxing districts have played an increasing role in the financing and design of Florida’s Medicaid services as the trend to devolve state gov-ernment functions to the local level accelerates.

Florida mandates the participation of local government in Medicaid’s financing. Counties must pay 35 percent of patient hospital days 11 through 45 and the lesser of 35 percent or $55 per enrollee for nursing home costs. If a county fails to pay its share, the balance is taken out of state sales tax receipts due to the county board of commissioners.

An example of a Medicaid match generated locally is the case of Palm Beach County’s Health Care District (HCD).51 The HCD’s Medicaid match is an intergovernmental transfer to Florida’s AHCA. In 2002, this IGT totaled $19 million. As stated earlier, Florida receives $1.29 from the federal government for $1.00 of this local match. Of the $2.29 total, HCD is supposed to receive $1.19—a $0.19 return on the investment—while the state retains the remaining $1.10, channeling it into graduate medical education programs and state trauma centers.

In interviewing staff of various local taxing districts, county hospitals, and statewide as-sociations, a list of difficulties and fears regarding the increasing local share of Medicaid financing emerged:

• The Florida Association of Counties reports that most of the state’s 67 counties can-not afford to pay their share of the local match—granted, their needs may also pale in comparison to those of the eight or nine largest counties, but meeting their needs requires some sort of redistributive formula.

• It is difficult to develop the local institutional capacity to draw down federal funds and comply with complex state and federal billing requirements.

• There is fear of supplantation of state funds with local funds or, at least, loss of control over how these local funds are used.

• Localities charge the state with reluctance to pursue revenue maximization initia-tives; they feel that pushing any new maximization initiative at the local level en-tails a drawn-out “round robin” with state and local agencies, the legislature, and federal agencies to ascertain what is legal. State officials respond that researching and formulating appropriate and legal maximization initiatives take a lot of time, caution, coordination among state agencies, and consultation with federal oversight bodies.

51 The HCD, like the Children’s Services Council described earlier, is a special independent taxing district in Palm Beach County, established through referendum and able to levy a certain millage rate on county property values. The taxes it raises finance a wealth of health insurance and health delivery options around the county, which include health insurance plans, hospitals, and nursing homes. The revenues it raises and the programs it undertakes are independent of county efforts or veto (although county represen-tatives do sit on the HCD’s board).




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• Contemplated state repeals of optional Medicaid programs such as the Medically Needy program and reductions in hospital and health plan reimbursement rates mean that localities will have to fund many new initiatives from 100 percent local funds and otherwise shore up a deteriorating state health safety net.

2. State Children’s Health Insurance Program (SCHIP)

The State Children’s Health Insurance Program, unlike Medicaid, is not an entitlement. It is designed to cover children in families with income above the state’s Medicaid eligibility standard, up to 200 percent of FPL or 50 percentage points above a state’s 1997 Medicaid income eligibility, whichever is higher. Authorized under Title XXI of the Social Security Act, the program allows states to impose certain cost-sharing requirements, such as premi-ums, deductibles, and coinsurance payments, on participants. The state also has a stronger hand in deciding who is eligible for the program. SCHIP offers a higher match rate than the Medicaid FMAP—69 percent versus 57 percent for Florida—to entice states to provide adequate health coverage to children in lower- and middle-income families. The program began in 1997 with 10 years of funding (about $40 billion nationally). States have three years to spend Title XXI funds, at which point the unspent sums revert to the national pool. Under SCHIP, states are supposed to spend at least 90 percent of funds on children’s health insurance and no more than 10 percent on outreach.

SCHIP can be operated in several fashions—one is to run it as a Medicaid expansion, which eases administrative complexity; another is to run it as a stand-alone program, which en-hances design freedom; and the third is to run it as a combination of an expansion and a stand-alone program, which is the course that states running SCHIP-like programs prior to the passage of Title XXI have chosen. Florida runs a combination program under Kid-Care for this reason. In comparison, Georgia operates a stand-alone program for SCHIP; South Carolina runs SCHIP through a Medicaid expansion; and Texas, like Florida, runs a combination program.

Florida has the third largest SCHIP program in the nation. Participation was initially slowed by backlogs and delays in the enrollment process and, more recently, financial shortfalls that prevented some counties from making the local match for SCHIP—a problem that still exists. In 2001, as mentioned in section V, the state had to use tobacco settlement monies to close the funding gap—these monies were also used for some Medicaid programs. The use of tobacco settlement monies points up the increasing scarcity of general revenue dollars.

Nationally, SCHIP enrollment has shot up each year since 1998, when it began. Florida’s average monthly SCHIP caseload has grown by 160,000 enrollees. The caseloads in Geor-gia and Texas grew even faster; Texas, because of its biennial budgeting process, was slow-er than most states to begin SCHIP enrollment and so had to double its efforts to catch up. South Carolina is the poorest of the four states on a per capita income basis and also runs the most generous Medicaid program in terms of income eligibility. By screening children up to 150 percent of the federal poverty level for eligibility in its SCHIP program, South Carolina added more than 144,000 children who were at or below 96 percent of FPL to its




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Medicaid program as of September 2001, so the small increase in its SCHIP enrollment shown in table 14 is somewhat misleading.

Figure 13 shows total SCHIP funding, separated into state and federal components, since the program’s inception in 1998. The program saw its largest growth between 1999 and 2000, when expenditures increased from $61 million to $161 million. In 2001, SCHIP in Florida spent $344 million, of which $105 million was state and $239 million was federal. By comparison, Texas spent $364 million in 2001, of which $99 million was state and $266 million was federal—very similar numbers overall, but Texas has a slightly higher SCHIP match as a consequence of its lower per capita income. South Carolina has a much smaller program, spending $61 million, of which $13 million was state and $49 million was federal. While SCHIP in Florida is funded well enough to cover current enrollment, local taxing districts fear the state may cut back the income range of effective coverage from 200 per-cent of FPL to 150 percent or simply cap enrollment. South Carolina’s legislature is con-

TABLE 14. Change in Mid-Year Monthly SCHIP Enrollment, 1998-2002 for Four States

(Thousands of enrollees)

June 1998 June 2002 IncreaseFlorida 100.7 260.9 160.2Georgia 31.0 164.9 133.9South Carolina 45.5 52.1 6.6Texas 34.5 531.8 497.3

Source: Vernon K. Smith and David M. Rousseau, “S-CHIP Program Enrollment: June 2002 Update,” The Kaiser Commission on Medicaid and the Uninsured, January 2003.

FIGURE 13. Florida's Total, Federal, and State SCHIP Spending, SFY 1998-2002

$161

$260

$112

$181

$61

$344

$42

$239

$105$79

$49$19

$0

$50

$100

$150

$200

$250

$300

$350

$400

1998 1999 2000 2001 2002

Inm

illio

nsof

real

2003

dolla

rs

Total Federal State

Source: Florida's Agency for Health Care Administration, 2002.




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sidering lowering the 200 percent FPL and age 21 limit to 150 percent or even 100 percent of FPL and an age 18 limit. Texas has a biennial budget process, and because SCHIP was signed into law just as the legislature went out of session, Texas did not begin its SCHIP until 1999. State officials fear they have lost their claim to the 1997–98 share of the SCHIP money and hope they will be allowed to reclaim it somehow. Texas has sidestepped fiscal pressures for the time being and tapped $355 million in tobacco settlement revenues to fund its SCHIP state match for the biennial SFY 2002–03 budget.

SCHIP Maximization

Essentially the same tactics that are used in Medicaid maximization—with the same po-tential upsides and downsides—are used here. In this section, we focus specifically on the nuances of SCHIP.

• Use of Provider Taxes. Prior to SCHIP, the counties in which the Healthy Kids program operated were scheduled to contribute a larger and larger percentage to this state-run program each year, gradually reaching 100 percent. However, counties were much freer than now to obtain local matching—it could come from any source, whether local tax dollars, provider taxes, or donations. With the authorization of Title XXI in late 1997, federal rulings prevented Florida’s Healthy Kids Corporation from using provider taxes in the state match. This rul-ing imposed some hardship on localities, cutting off a primary revenue source for making the local match, and stymieing efforts to fill SCHIP slots for rev-enue-starved jurisdictions. After counties balked at the funding requirement, the legislature made county participation voluntary, meaning that if a county opts not to make the assigned fraction of the match, it cannot run an SCHIP program.

• A Missed Opportunity? Some hospitals and other providers have expressed discon-tent with the Healthy Kids Corporation, which they feel failed to assemble an ad-equate state-local match in 2002 that could have pulled down significant additional outreach funding. Interviews with providers and federal regulators yield conflicting accounts and amounts—providers feel it was several million dollars, while federal regulators, after having walked us through SCHIP allocation records, suggest it might be more like several hundred thousand dollars. In a five-year-old program for which Florida has already spent $805 million—$560 million federal and $245 million state—the sums are paltry. The program is still developing, children are still being enrolled, and most states have not been able to spend all the monies al-located to them—the state and local funds have to be available, the children have to be enrolled, services have to have been billed, and the proper billing mechanisms have to be in place. That is, if the program had matured immediately, all children possible had enrolled and been validated, they had significant health needs, and the MediKids and Healthy Kids programs had brought an error-proof SCHIP billing system online and billed correctly bill for all these needs, and the state and locali-ties were in firm agreement that SCHIP dominated all other pressing social service




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concerns, then Florida could have pulled down another $200 million52 or so over the past five years—but so could most other states.

• Modes of Financing the Nonfederal Match. In FFY 2001, according to the state SCHIP plan kept by CMS, Texas financed the nonfederal match for its SCHIP program with state general revenues and private provider donations (from organi-zations such as the United Way)53—like Florida, it also needed to use public trust funds to fill out the state share. South Carolina used both private donations and employer contributions to finance its state match for SCHIP.54

An SCHIP program review conducted by the staff of the Florida State Senate concluded that the state has done a decent job of pulling down federal revenues. “Though the com-plexity of the program has at times proven to be challenging to participants and providers, overall, the program is meeting its goals of providing health care coverage to low-income children in a manner that maximizes draw-down of federal funds.” 55

3. Title IV-E Foster Care

Title IV-E of the Social Security Act is the largest federal program that funds child welfare services. Title IV-E consists of both the Foster Care and Adoption Assistance Programs, which are open-ended entitlements, and the Chafee Foster Care Independence Program, which is a capped entitlement. The Title IV-E Foster Care Program, the largest of these three programs and the one of particular interest for this study, reimburses states for maintenance payments provided to cover the cost of shelter, food, and clothing for eligible children in care56; placement and administrative costs associated with children in care; and training for staff and foster and adoptive parents. To a lesser degree, states can also use Ti-tle IV-E funds for youth in the juvenile justice system within specific federal guidelines.

The federal government reimbursed states for maintenance payments for eligible children at rates between 50 and 75 percent in FFY 2002. These rates are the same as the states’ FMAP rates for the Medicaid program discussed above, which are determined by states’ per capita income. Different from the FMAP rates, however, are placement and adminis-trative costs, which the federal government reimburses at 50 percent, and training costs, which it reimburses at 75 percent.

52 This is an approximation of the total amount of Florida’s annual allotments that has returned to the fed-eral treasury over the past five years. Thirty-six or more states lapse SCHIP funding each year.53 Texas’ state plan document for FFY 2001 is available at http://cms.hhs.gov/schip/chartx01.pdf (Ac-cessed March 9, 2003).54 Comparable data for Florida and Georgia were not available owing to an ongoing reorganization of the CMS web site.55 Florida Senate Committee on Health, Aging, and Long-Term Care (2003).56 With the passage of the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996, AFDC was eliminated. However, eligibility for Title IV-E is still based on a child’s eligibility for AFDC as it existed in their state’s plan on July 16, 1996. Therefore, states must base a child’s eligibility for Title IV-E on a program and income guidelines that no longer exist in practice.




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Nationally, there is some disparity in each state’s ability to claim Title IV-E for all eligible costs. One reason is inefficient claiming systems that do not accurately reflect all the state activities that should be claimed. Another reason is a state’s ability to pay the nonfederal match in order to draw down federal funds—that is, a state’s efforts through state or local general revenue to support activities that are eligible for Title IV-E reimbursement (Bess et al. 2002).

The federal government reimbursed states for maintenance payments for eligible children at rates between 50 and 75 percent in federal fiscal year (FFY) 2002. These rates are the same as the states’ federal medical assistance participation (FMAP) rates (for the Medicaid program as discussed above), which are determined by states’ per capita income. Dif-ferent from the FMAP rates, however, are placement and administrative costs, which the federal government reimburses at 50 percent, and training costs, which it reimburses at 75 percent.

Nationally, there is some disparity in each state’s ability to fully claim Title IV-E for all eli-gible costs. Part of this is due to inefficient claiming systems that do not accurately reflect all the activities undertaken by a state, which should be claimed to Title IV-E. Another reason is a state’s ability to pay the non-federal match in order to draw down federal funds. That is, a state’s efforts through state or local general revenue to support activities which are eligible for Title IV-E reimbursement (Bess et al 2002).

Beginning in 1993, DCF made a concerted effort and was successful in increasing federal revenue from Title IV-E and several other federal funding streams that could be used for child welfare services.57 By improving the random moment sampling system (adminis-trative claiming), the state was able to increase federal spending from Title IV-E Foster Care by 200 percent, from $54 to $168 million between FFY 1993 and 2000, according to federal reports. At the same time, while federal claims from Title IV-E Foster Care and other federal funds used for child welfare services were increasing, the state’s share of total spending for child welfare services declined, and then significantly increased due to the Kayla McKean Act of 1999.58

In SFY 1991, child welfare spending totaled $99 million from federal funds59 and $199 million from state general revenue—that is, the state supplied two-thirds of child welfare funding. DCF estimated, however, that the federal portion would increase to $268 million in real terms in SFY 1999 while the state portion would decline to $156 million (DCF 1998),

57 Specifically, Florida sought to improve Title IV-E recoupment, increase the number of determinations of children in foster care who were eligible for SSI, begin using Title IV-A Emergency Assistance (EA), and begin claiming Medicaid for case management.58 Most of the increase in state spending is due to an increase in the number of children coming into care because of the highly publicized death of Kayla McKean from abuse. In 1999, the Kayla McKean Act was passed, mandating a full investigation for all reports of child abuse submitted by school personnel, physi-cians, and judges, and all reports where a previous report has been received. Fearing a repeat of Kayla McKean’s case, DCF shifted its focus from family preservation to family safety.59 In addition to Titles IV-B, IV-E, and IV-A EA, this includes Title XVI SSI, Title XIX Medicaid, Title XX Social Services Block Grant (SSBG), and Child Abuse and Neglect Grants.




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or 37 percent of total child welfare spending. In SFY 2000, spending from federal sources was $443 million, while state spending had increased to $284 million, or 39 percent of total spending (Bess et al. 2002). It is important to note that these numbers represent spending for all child welfare services, not just for costs associated with children in foster care. How-ever, the largest federal source of spending was still from Title IV-E Foster Care.

In comparison, federal Title IV-E Foster Care spending in Georgia increased 79 percent between FFY 1993 and 2000, from $29 to $52 million. South Carolina and Texas increased federal spending by 64 percent and 8 percent, respectively, in this period.

In July 2000, DCF made a significant change in foster care funding. Due to shortfalls in general revenue, an increase in the foster care caseload, and a surplus of TANF funds ow-ing to declining welfare caseloads, the state opted to use TANF funds to cover the costs associated with the first year of care for children in foster care.60 With this change in the funding stream, Title IV-E eligibility is not determined until the child has been in care for a year, and the state is not claiming Title IV-E for these potentially eligible children. However, from a state perspective on maximization, the state is spending 100 percent federal funds to cover these costs, saving general revenue for other purposes, including social services.

To illustrate the magnitude of this shift, in SFY 2000 approximately 78 to 84 percent of children in care were eligible for Title IV-E maintenance payments. Nationally, about 57 percent of the children in care were eligible for Title IV-E reimbursed maintenance pay-ments in SFY 2000, so Florida was above the national average with respect to determining eligibility and claiming Title IV-E. As recently as SFY 2002, the percentage of children eligible for Title IV-E maintenance payments in Florida has hovered between 41 and 44 percent.61 Assuming there has not been a significant change in the socio-economic status of children coming into care, and allowing for naturally occurring declines in eligibility due to the link to AFDC, this is still a significant decline in the penetration rate62; lending itself to a significant savings in state general revenue formerly used to draw down these federal funds.

While this strategy saves general revenue, it decreases the share of state spending for child welfare services if the state does not reinvest these “saved” dollars in child welfare services. Since the change in funding was based on a shortfall of general revenue, it seems unlikely that these funds were reinvested in child welfare services. As we did not receive data from DCF, we cannot say definitively how the funds were used. It is also not clear how much the state “saved” in general revenue.

Advocates, social service providers, and some of the former and current DCF administra-tors interviewed are concerned that this decision will negatively affect the state’s ability to claim Title IV-E in the long term, as the state’s general revenue commitment for this

61 This is allowable under Florida’s IV-A EA state plan in effect prior to welfare reform. The EA program funds were rolled into the TANF block grant under PRWORA.62 This decline is also attributed to the implementation of the Relative Caregiver Program, which uses TANF dollars to cover the payments.63 The number of children in foster care who are eligible for Title IV-E maintenance payments.




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purpose will be dwindling each year. The concern is that if and when TANF funds are not available (because welfare caseloads increase or the federal government decreases its ap-propriation), the state will return to Title IV-E to cover the costs associated with the first year of care for all eligible children. The state will need general revenues to draw down these funds, and more significantly, for children who are not Title IV-E eligible, the state will need general revenue to cover the costs associated with their first year of care (which is currently being covered by TANF funds in most cases).

Florida is not unique in this regard. Due to general revenue shortfalls in South Carolina, the legislature is contemplating using TANF funds to cover some costs associated with family foster care for eligible children during this fiscal year. South Carolina currently uses TANF funds to cover room and board for some eligible children in group home care. Texas uses TANF funds for children in foster care who are not Title IV-E eligible.

In addition to these changes, in 1998, DCF sought and received authority to certify lo-cal funds as state match for Title IV-E reimbursement. At the end of SFY 2002, the state had agreements with seven counties or CSCs, six of which were implemented. Since the beginning of the initiative, reimbursements to the participating counties have totaled $2.7 million (DCF 2002). However, given the change in financing for the first year of care, it is likely that many localities will not see great increases in federal reimbursements.

4. Temporary Assistance for Needy Families (TANF)

In 1996, the Aid to Families with Dependent Children (AFDC) program, which provided an open-ended entitlement of federal cash assistance payments to individuals, funding for child care and emergency assistance, and funding for job training, was converted to a fed-eral block grant to each state. Temporary Assistance for Needy Families (TANF) combined the entitlement program, emergency assistance, and job-training funds into one block grant fixed at the level of federal expenditures in 1994. The funding for child care provided under AFDC was combined into the Child Care Development Fund (CCDF). This was a substantial change in how the federal government funded cash assistance.

Under AFDC, the federal government reimbursed states for 50 percent of their costs. While TANF is not a strictly matching program, states are required to spend 75 or 80 percent of the amount they spent on the combined AFDC programs to receive the grant.63 As a result, states have an incentive to move as many families as possible off welfare and into work to free up TANF monies for other activities, beyond cash assistance, that meet one of the four purposes of the program. This incentive is bolstered by the additional requirement that states have 50 percent of their 1995-level caseload either working 30 hours a week or off the rolls by 2002, else the block grant is reduced. Note that the maintenance of effort requirement also affects whether a state can receive its CCDF grant (see below); failure to do so means the state loses more than just TANF dollars.

63 Under TANF, the federal government has set work participation rates that states must meet. If a state meets its participation rate, its maintenance of effort (MOE) is at 75 percent of spending in 1994. If a state does not meet its work participation rate, its MOE is 80 percent of spending in 1994. If a state does not meet its MOE, its grant award is reduced by the difference.




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States have considerable flexibility in the use of TANF funds. While the funds can be used only to meet one of the four purposes64 of TANF, states also have the flexibility to use the funds for allowable purposes under their approved AFDC state plan as in effect on Septem-ber 30, 1995, or August 16, 1996. Therefore, in addition to using the funds for assistance to maintain children in their own homes or the homes of relatives, preventing out-of-wedlock births, and promoting marriage, states may use these funds for costs associated with ju-venile justice or foster care for eligible children, if allowable under their approved AFDC state plan. Moreover, up to 30 percent of TANF funds can be transferred to the CCDF and the Social Services Block Grant (SSBG) and be used according to guidelines of these pro-grams. However, no more than 10 percent can be transferred to SSBG, and TANF funds used in these two programs can be used only for people with incomes at or below 200 percent of the FPL.

In addition to giving states considerable flexibility in the use of TANF funds, federal wel-fare reform gives states unlimited time to spend the funds. These funds may be carried over from year to year; however, any funds carried over must be spent on cash assistance and supports, such as transportation and child care, for unemployed families. Funds used for services such as nonrecurring short-term benefits and work supports for employed fam-ilies must be obligated65 by the end of the federal fiscal year for which they were awarded and spent (or liquidated) by the end of the next federal fiscal year. This is an important point to understand, because any funds the state does not obligate for services will become funds that must be used for assistance, essentially limiting some of the state’s flexibility. Moreover, while maintaining some funds for assistance is a wise fiscal decision in case of a sudden increase in the caseload, being too conservative and limiting funds for services while maintaining a large unobligated balance could potentially retard a state’s welfare reform efforts.

In 1991, Florida spent $657 million (in real 2003 dollars) in combined federal and state funds on all the programs under AFDC (excluding those related to child care). This total increased to $949 million, or 45 percent, in 2001 under TANF. Federal spending increased 60 percent, to $572 million, while state spending increased 26 percent, to $378 million. However, over the five years after federal welfare reform was implemented, spending from state funds has continued to decline each year, as in other states, while more federal dollars are used. The state was slowly spending less while spending down to its required MOE ($368 million in nominal dollars). In addition, like most states, Florida began to spend more in federal TANF dollars as caseloads continued to decline, and funds were spent for services (to assist those moving off the rolls and prevent others from coming onto the rolls) instead of cash assistance. In 2001, only 7 percent of TANF funds were spent on assistance

64 The four purposes of the TANF program are to “(1) provide assistance to needy families so that chil-dren may be cared for in their own homes or in the homes of relatives; (2) end the dependence of needy parents on government benefits by promoting job preparation, work, and marriage; (3) prevent and reduce the incidence of out-of-wedlock pregnancies and establish annual numerical goals for preventing and re-ducing the incidence of these pregnancies; and (4) encourage the formation and maintenance of two-par-ent families.” Section 401(a) of the Social Security Act.65 Obligated funds are those committed by contract to be spent at a later time for a specific purpose. This would also include grants to counties.




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for unemployed families, such as cash assistance and transportation, while the remainder was spent on services for employed families, such as job training and pregnancy preven-tion.

The legislature, DCF, and the Workforce Board determine how the funds will be obligated. They examine the contracts held by DCF, the Agency for Workforce Innovation, and the Department of Health to appropriate and obligate TANF funds for such uses as substance abuse programs, mental health services, and school readiness services. Before spending TANF funds on assistance and other services, the state has the opportunity to transfer funds to CCDF and SSBG. By the end of FFY 2002, Florida spent approximately $552 mil-lion in TANF funds transferred to CCDF. By the end of FFY 2000, it spent $232 million in TANF funds transferred to SSBG.66 After transferring funds to these programs, the state is left with the TANF funds it will use immediately or obligate for future use. At the end of FFY 2002, Florida had obligated but not liquidated $49 million, while $130 million was unobligated.67 Given Florida’s move to reform welfare prior to the federal reform, caseloads declined more quickly than in other states because the state was able to implement TANF beginning October 1, 1996. This head start freed TANF funds to be used for other services instead of cash assistance at a more rapid rate.

According to DCF administrators, in SFY 2003 state general revenue was used to meet the MOE. Moreover, while the sources of funding used to meet the MOE have varied from year to year, local funds have not been considered to meet the MOE.

While the historical picture of TANF expenditures and uses is informative, as the economy declines there will be changes in how Florida spends its TANF funds. Increases in the caseload have already been reported (DHHS 2003). Between FFY 1996 and March 2002, the number of families receiving AFDC/TANF assistance declined 71 percent, from ap-proximately 210,000 to 60,000. However, between FFY 2001 and March 2002, the number of families receiving assistance in Florida increased from 59,000 to 60,000. Between FFY 1996 and March 2002, the number of recipients declined 77 percent, from approximately 561,000 to 128, 000. Between FFY 2001 and March 2002, this number increased from 125,000 to 128,000 recipients.

If the caseload continues to increase, it can be assumed that spending on assistance versus services will shift; and the flexibility the state has in using TANF funds will be limited, as these funds will be needed to provide cash assistance to families.

5. Social Services Block Grant (SSBG)

The Social Services Block Grant, Title XX of the Social Security Act, is a capped entitle-ment to states for the purposes of financing a wide variety of social policy goals that in-clude achieving economic self-sufficiency; remedying the abuse, neglect, and exploitation

66 As of FFY 2002, Florida had transferred $560 million (in real 2003 dollars) in TANF funds to CCDF and $323 million to SSBG. FFY 2000 are the most recent data for SSBG expenditures.67 From www.acf.hhs.gov/programs/ofs/data/TANF_2002.html, accessed May 10, 2003. Includes data received and entered by HHS as of February 21, 2003.




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of children and adults; reuniting families; and promoting community-based care. There is no required state match, and states are given wide discretion to determine the services funded by SSBG and the eligible population. States usually allocate funds to the various programs by a formula, or programs may receive a set dollar amount each year. Over time, SSBG has lost its buying power and significance as the block grant has been continually cut.

The level of the grant has been roughly constant in nominal terms since 1977 but has de-creased 67 percent in real terms. Allocations and spending from SSBG funds have contin-ued to decline between FFY 1993 and 2001 because Congress has continued to appropriate SSBG funds at a level that is below the authorized level. In addition, in 1996 as part of welfare reform, SSBG funds were cut by 15 percent, so allocations to states have declined. SSBG funds are allocated to states based on the proportion of the under-21 population in the state. Detailed state expenditure data are available only for FFY 1995 to FFY 2000; prior to 1995, the federal government did not require extensive reporting from the states beyond specifying what services were offered. Because states are allowed to transfer up to 10 percent of TANF funds to SSBG, the true impact of the decline in SSBG appropriations has been buffered. However, funds so transferred must be spent on persons or families with incomes equal to or less than 200 percent of the FPL.

The detailed state data confirm the decline in pure SSBG spending in Florida from $164 million in FFY 1995 to $96 million in FFY 2000—a 41 percent decline. Between 1998 and 2000, the state spent $232 million in transferred TANF funds on services funded under SSBG. Georgia, South Carolina, and Texas also experienced similar declines in pure SSBG spending, down 37, 28, and 24 percent, respectively between 1995 and 2000. When calcu-lating the change including the TANF transfers, total SSBG spending in Florida increased 15 percent—from $164 million to $188 million.

6. Child Care Development Fund (CCDF)

The Child Care Development Fund, created as part of welfare reform, merged a number of child care programs for low-income families, creating a single program for states to ad-minister. CCDF is also referred to as the Child Care Development Block Grant (CCDBG), which is one of the funding streams that was combined as part of welfare reform. This combined block grant has a discretionary component and an entitlement component. The discretionary funds are allocated to the states based on their share of children under age 5, children receiving free or reduced-price lunches, and per capita income. Discretionary funds do not have to be matched. In addition to these allocations, transfers from the TANF program are treated as discretionary funds.68

The entitlement component is itself divided into two pieces—a guaranteed portion and a matching portion. The guaranteed portion, sometimes referred to as mandatory funds, is allocated to the states based on the funding received under the three programs authorized

68 As noted earlier, states may transfer up to 30 percent of their TANF block grant to CCDF.




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under AFDC.69 States do not match these funds, but must maintain a level of effort equiva-lent to 80 percent of their spending in 1994. To receive the matching portion of the entitle-ment component, states must spend all of their guaranteed funds plus 100 percent of the state share of child care spending in 1994 or 1995, whichever is higher. These funds are allocated to the states based on their share of children under 13. States must match these funds at the 1995 FMAP rate. Match funds not used by a state at the end of a fiscal year are redistributed among the other states.

States must use at least 70 percent of their entitlement funds on families leaving welfare or at risk of coming onto the welfare rolls. In addition to this requirement, the federal govern-ment set the income eligibility limit at 85 percent of the state median family income. States, however, may adopt lower family income eligibility limits. The children served with these funds must be younger than 13 years old and living with working parents or parents in school, or the children must be in need of protective services.

In Florida, between 1991 and 2001, federal spending on child care (from all former AFDC programs and CCDBG) increased 314 percent—$83.7 to $346.7 million. State spending increased 100 percent—from $35.6 to $71.2 million, and total spending increased 250 percent—from $119.3 to $417.9 million. Note the decline in state funds as a percentage of total spending, from 30 to 17 percent. The spending increases are clearly attributable to the changes brought about by welfare reform and the influx of federal money available for these services. In the period prior to welfare reform (1991 to 1996), total spending was increasing, but at a much slower rate, 20 percent—$119.3 to $143.1 million.

Based on data provided by the Agency for Workforce Innovation (AWI) for FFY 1998–2001, it appears the state did not meet its maintenance of effort in 1999. However, the federal reports the agency is required by law to submit indicate that the state did meet its maintenance of effort. We were unable to get a response from AWI regarding this disparity, so it is not clear if the maintenance of effort was missed, and if so, what the loss was to the state.

7. Maternal and Child Health Block Grant (MCHBG)

The Maternal and Child Health Block Grant, Title V of the Social Security Act, provides funds to states with the broad purpose of improving the health of all mothers and children in the nation. It is composed of three funding categories, the largest being a formula grant allocated to the states based on the number of children in poverty in the state as a percent-age of the national number. The remaining two funding categories consist of discretionary grants for Special Projects of Regional and National Significance and discretionary grants for Community Integrated Service Systems. States have two years to spend the formula grant, but they must match federal spending at three dollars for each four dollars of federal spending.

69 Prior to welfare reform, under AFDC three programs were funded for child care—AFDC child care, Transitional Child Care, and At-risk Child Care. Allocations for mandatory funds are based on receipt of funds under these programs in 1994, 1995, or the average of 1992–1994, whichever is higher.




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Data received from the Florida Department of Health (DOH) for FFY 1996–2001 indicate that total formula grant spending declined 22 percent, from $367 to $286 million, due to decreases in state spending. State spending declined 18 percent, from $295 to $241 million. Federal allocations and spending continued to increase during this period, while budgeted state funds increased but expenditures declined. That is, the program was continually budgeted for more than was actually spent from state funds. However, the state continu-ally spent state funds beyond its match for each of these years. Consistently over this time period, the state share of total formula grant spending (i.e., excluding the discretionary grants) was between 80 and 89 percent. In 2001, the state share was 84 percent of total spending from all sources. Georgia, South Carolina, and Texas also spent state funds above the required match, but not to the same degree as Florida.

8. Prevention and Treatment of Substance Abuse Block Grant

The Prevention and Treatment of Substance Abuse Block Grant provides funds to states to support prevention and treatment services for people at risk of or currently abusing alcohol and other drugs. States are required to maintain a level of effort from state funds equiva-lent to the average of the prior two years’ expenditures. Prior to 1992, the Substance Abuse Block Grant and the Community Mental Health Services Block Grant were one funding stream. Given this historical relationship, states have the ability to transfer some of the substance abuse funds to the Community Mental Health Services Block Grant.

While there are federal reporting requirements on the use of these funds and the groups served, no public reports are available to document this issue. DCF was unable to provide fiscal or program data, and we were unable to discuss this program with the appropriate DCF staff, so it is not clear how Florida is using this funding stream or what funds com-prise the state maintenance of effort. Based on the Consolidated Federal Funds Report (CFFR), it appears that federal spending for this program increased 49 percent between 1993 and 2001, from $59.8 to $88.9 million.

9. Community Mental Health Services Block Grant

The Community Mental Health Services Block Grant was created to support community-based services for adults with serious mental illness and children with serious emotional disorders. Funds are allocated to the states by formula. Until recently, there was no uniform federal reporting system; therefore, public data are not yet available on the number served or the use of these funds. DCF was unable to provide fiscal or program data, and we were unable to discuss this program with the appropriate DCF staff. Based on the CFFR, it ap-pears that federal spending increased 61 percent, from $15.4 to $24.8 million, between 1993 and 2001.

10. Supplemental Security Income

Supplemental Security Income, Title XVI of the Social Security Act, is a federally admin-istered, means-tested income assistance program created in 1972. The program provides fully federally funded payments to eligible aged, blind, and disabled adults and children.




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States have the option of supplementing this federal payment, and most states do, although the total costs to states are a fraction of the total federal costs. The federal government de-termines SSI benefit levels, which are indexed to the Consumer Price Index.

While SSI places little cost on the states, there is the possibility that some state welfare recipients who are SSI-eligible have not been properly evaluated. Therefore, states should ensure that potentially eligible welfare recipients have been evaluated (or referred to the Social Security Administration for evaluation) to determine their eligibility for SSI, as this would remove some of the cost to the state for maintaining these recipients on the welfare rolls. This is generally best practice for all available social service programs (including Food Stamps, Medicaid, and other programs). All clients seeking assistance should be con-nected with all the available programs for which they are eligible.

Based on data from the CFFR, even after the changes brought about by welfare reform in 1996, SSI spending in Florida continued to increase, from $1.5 billion in FFY 1997 to $2.1 billion in FFY 2001.

It is not clear to us what, if any, efforts the state has undertaken to ensure that all SSI-eli-gible individuals are receiving SSI and not cash assistance. However, a few of the advocates and social service providers interviewed believed that Florida’s outreach efforts have not been expanded with welfare reform. By comparison, with the advent of welfare reform, Georgia began looking within its TANF caseload for disabled adults and children who might be eligible for SSI. Within the past two years, Texas has begun significant outreach or information and referral efforts to increase the number of eligible individuals receiving SSI.

11. Food Stamps

The Food Stamps program is a federally funded program with some administrative costs borne by the states. The purpose is to increase the ability of eligible low-income house-holds to afford a nutritionally adequate but low-cost diet. The federal government sets benefit levels and eligibility regulations. The states are responsible for daily administration, such as determining eligibility, calculating benefits based on household size and income, and issuing the benefits to participants. Generally, recipients of TANF and SSI are auto-matically eligible, while most noncitizens are not. Participating households are expected to put 30 percent of their income resources toward purchasing food. Hence, for every dollar of counted income lost, benefits increase $0.30, and for every counted dollar of income gained, benefits decline $0.30.

Nationally, fewer than 70 percent of those eligible received food stamps; program partici-pation peaked in 1994 (U.S. House of Representatives 2000). After federal welfare reform in 1996, participation rates have continued to decline as participants, who might still have been eligible, moved off welfare and assumed they were no longer eligible or chose not to participate because of administrative procedures (Lerman and Wiseman 2002).




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Maximizing this program essentially means increasing program participation. Ensuring that as families move off welfare, they are aware of their continued eligibility for food stamps will enable families to make a smooth transition from welfare to work. Toward this end, DCF has entered a contract whereby the elderly in four counties will be the focus of outreach efforts. Other states have also made inroads to reach out to eligible populations. Hagert (2002) reports that Texas has undertaken some recent efforts to facilitate enrollment and remove some of the administrative procedures, which can place a burden on eligible families. For example, in 2001, legislation was passed allowing the Texas Department of Human Services to expand the use of phone interviews with clients who face hardships that prevent them from appearing in person (such as working families and seniors). In addition, the Texas legislature appropriated funds in 1999 and 2001 for outreach.



USING PRIVATE DOLLARS TO DRAW DOWN FEDERAL FUNDS

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VII. USING PRIVATE DOLLARS TO DRAW DOWN FEDERAL FUNDS

A measure that just passed both houses of Florida’s state legislature (Senate Bill 1454, 2nd

engrossed) would allow private state and local charities such as the United Way, founda-tions, and even businesses to donate monies to be used for the local portion of state matches for welfare programs. While there are many ways that private provider dollars might be used to draw down federal funds, local, state, and federal laws may significantly narrow what can be attempted in practice. One way such a program would work is that a state or local charity would donate some of its funds to a county government or special taxing district where these funds can be certified as local match and counted as state spending against which to draw down federal funds. Below is an outline of how the donation and match process might work, much as suggested by the legislation. At this point, it appears that the governor will sign the bill into law, which will enter into force July 1, 2003. How-ever, whether the bill actually gets signed or amended as a consequence of implementation issues, the following outline is a useful sketch of the process.

(1) Recognized entities of county/local government—such as a county agency, a local taxing district, or a county hospital—enter into an agreement with a state agency and are certified for making a local match.

(2) A charity or foundation, such as the United Way, makes a donation to a certified county agency.

(3) The county agency uses the donation to finance social services for eligible clients under a federal program.

(4) The county agency then invoices the state agency responsible for administering the program (or designated for contract purposes) the amount of services charged for eligible clients—but not the actual monies.70

(5) The state agency records the amounts the county agency spent (and the source—donation or otherwise—of the amounts).

(6) The state records county charges as state spending on the particular federal program and maintains these records for quarterly/annual federal reporting.

(7) The state bills the federal government for the proper match and draws down these federal funds.

(8) The state then transfers the federal match amount to the county agency—minus a5 percent administration fee.

The process in practice is always more complicated than in theory. A number of issues will need to be addressed if the partnerships among donors, counties, the state, and the federal government are to remain workable.

• The legislation explicitly provides that the state will not use local matching funds to supplant state matching funds; the exception is for local spending on Medicaid, where it had been the state’s intent that localities begin contributing a larger share

70 If the localities charge improperly (i.e., they do not validate clients, itemize services, or record charges in a manner consistent with federal requirements), the legislation holds the county responsible for any re-sulting federal disallowances.




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of the state match—however, either the Legislative Budget Committee or a specific appropriations act will have to formally approve such supplantation.

• Federal regulators are not always keen on a state certifying donations from actual providers such as county hospitals with the intent that these providers will then re-ceive the federal monies. This may be a source of state and federal conflict. Howev-er, as long as the federal funds transferred to the local government entity are spent for broad purposes—say, health care versus a specific health care provider—this may be less of an issue.

• The state could withhold some federal money due the locality for administration, or require a transfer from the localities to cover these costs. It may take a larger sum for redistributive purposes, although federal regulators have sought to prevent states from interfering with federal funds once drawn down.

• Will counties or the state approve a particular charity or business for participation? Will there be a statewide registry? Can any organization donate? What safeguards will be set in place to ensure that (a) state and local politics does not enter into the donor selection process and (b) only legitimate, legally registered organizations are approved?

• How will the law address ethical issues with donor intent? Who will monitor a donor’s request for the use of funds against how these funds are actually applied? What are donors’ rights if the state or county diverts the donated money and the federal sums it leveraged? What mechanisms will be put in place to arbitrate claims of misused or misdirected donations, or to flag donations that may originate from agencies that stand to directly benefit from the sums leveraged?

We are not aware of any statewide estimates on the volume of funds that this donation program would raise or leverage. However, revenue maximization consulting firms such as those retained by some of the Children’s Services Councils around the state may have produced estimates for certain counties.

In South Carolina, providers such as the United Way have donated to the state’s Depart-ment of Health and Human Services (HHS) since the early 1980s. The level of financing began at about $1.5 million and increased through the 1990s to about $12 million currently.. United Way and others donate to localities, which in turn provide an intergovernmental transfer to HHS. South Carolina’s FMAP rate is 69.34, meaning that it leverages $2.26 in federal dollars for every state dollar that it spends—hence, the $12 million of donations leverages $27 million of federal spending.

From the viewpoint of charities, a donation to a state social service program is one of the most efficient cost-sharing arrangements. In Florida, for instance, every dollar a charity donates to the state for a matching entitlement program will garner at least $1.29 in re-turn.




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VIII. CASE STUDY IN REVENUE MAXIMIZATION

The financing of child welfare services in South Carolina provides a concrete example of a state’s attempts to maximize federal revenue. It also presents a clearer picture of the chal-lenges and drawbacks that accompany an agency’s successful maximization successful efforts.

Beginning in late 1991, South Carolina saw an increasing number of children in its care suffering serious emotional behavior problems. As this trend continued, the Department of Social Services (DSS), the umbrella agency for child welfare services, advocated to the Budget Control Board—a legislative entity—that the Department of Mental Health should be covering the mental health care of these children. The board opted for DSS to cover these expenses and, as a result, operate in a deficit until 1994. DSS sought to manage this fiscal situation by accessing Medicaid dollars with dollars the state was already spending on eligible clients and services as the match. Moreover, DSS amended its AFDC state plan to allow Emergency Assistance (EA) funds to cover the first 365 days of care for eligible youth in foster care.

DSS began using Medicaid, under the mental health rehabilitative option, to cover the treatment components for children in group home treatment facilities. In addition, for some levels of group home care, Medicaid was used to cover supportive services such as behav-ior modification services, and Title IV-E, state, or EA funds were used to cover room and board, depending on the eligibility of the child.

Additionally, in 1992 DSS began using Medicaid funds under the Targeted Case Manage-ment option to pay salaries of caseworkers in South Carolina’s foster care and adoption service programs. DSS has drafted a proposed Medicaid amendment to use Medicaid funds under targeted case management for child protective treatment services. Currently, the state does not have the general revenue for the state match, so this initiative is not ac-tive. However, when the initiative was first proposed, South Carolina’s information system could not appropriately identify eligible Medicaid clients. Once the information systems were in place to identify eligible clients, the state opted not to seek the funds because it was already maximizing Title IV-E and EA dollars.

After federal welfare reform, state funds for welfare services were reduced, as was the case with most states, because the state was spending more than the required maintenance of effort. These “surplus” state funds were appropriated for child welfare services. However, the appropriation was reduced by the amount of nonrecurring state funds given to DSS for the emotionally disturbed children. This occurred over a period of several years.

In 2001, DSS made a concerted effort to claim Title IV-E for administration expenses by amending its cost allocation plan. The amendment allowed for DSS to estimate the percent-age of children who are candidates for foster care who might be IV-E-eligible and claim Title IV-E for allowable administrative costs associated with these children. Title IV-E funds can be used for administrative costs associated with child protective services cases when the child is at serious risk of removal and potentially IV-E-eligible. In order to docu-




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ment that a child is at serious risk of removal, the child welfare agency must have a case plan indicating that foster care is the planned arrangement for the child, absent effective preventive services; a completed IV-E eligibility determination form with evidence indi-cating that the child is at serious risk of removal; or a petition to the court, a court order, or court transcripts relating to the removal of the child. The federal Department of Health and Human Services approved the amendment in late 2002 retroactive to January 2002.



CONCLUSION

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CONCLUSION

IX. CONCLUSION

This study has examined trends in Florida’s social service provision over the past decade, the budgetary and political structure that shape this provision, where Florida has succeeded in max-imizing federal revenues and where it could do more. The following are its major findings.

1. The state’s lean tax structure and philosophy of limited government threaten current social service budgets and shut off some avenues of revenue maximization. If current economic, fiscal, and political pressures persist, an even greater decline in the state’s funding of social services is likely—unless counties and local taxing districts fill in the breach—with possibly adverse impacts on poverty rates and on specific groups among the vulnerable, such as children, the elderly, and the undocumented.

2. To live within the current political and budgetary frameworks, it is likely localities will need to take the initiative to expand and even to backstop social service programs. These initiatives may include increasing pursuit of federal dollars or raising additional finances on the local level.

3. Florida appears to be a net recipient of federal funds overall, although only slightly so. Different methodologies could easily produce different results. The four largest factors affecting Florida’s status as net donor or net recipient—Social Security spending, Medicare spending, defense spending, and comparably low state and local taxes (which lower the possible deductions from federal taxes)—are also the most difficult for the state to control. However, the larger question is whether being a net donor or recipient is really meaningful. Generally, poorer states are net recipients while richer states are net donors, and Florida, because of its concentrations of middle class elderly, wealthy households, and businesses, is not really a poor state.

4. Local leaders and social service advocates assert that the state has often failed to draw down additional available federal funds, and while these assertions may be true, it is difficult to quantify the sums of money “left on the table.” In evaluating Florida’s efforts, successful or otherwise, to draw down additional federal funds, a number of considerations require scrutiny.

a. Was the goal of a revenue maximization initiative to expand program coverage, access, or benefits, or simply to increase the share of federal funds financing the current program?

b. For federal programs that require a state match, did the funds for a state and local match exist? If a local match was needed, was it sufficiently broad-based, (e.g., from a local taxing district versus a community hospital)? What other state and local spending priorities would be affected if these matching funds needed to be raised?

c. For newer programs such as SCHIP that are still enrolling clients, were enough children and families enrolled to claim the full allotment? What would it cost the state or localities to validate and enroll more eligible persons and how long can this reasonably be expected to take?

d. For localities interested in pursuing revenue maximization, are the billing, reporting, and client validation mechanisms in place to allow proper



CONCLUSION

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CONCLUSION

processing of federal claims? If not, how much would it cost to develop these mechanisms relative to the sums of money that could be claimed and how long will it take to put these mechanisms in place? As a fraction of the current revenues of a federal program flowing into Florida, would the added sums from a revenue maximization effort, minus the costs and time of pursuing that effort, have been significant?

e. It is difficult to ascertain whether other states are “doing a better job” than Florida at maximizing because aside from adjusting for populations, caseloads, and program budgets, one would need to account for all state and local spending by program, subprogram, facility, and so on, where maximization could take place.

f. The pursuit of revenue maximizing policies should not side-step a cautious analysis of federal intent and inquiries with the proper federal authorities. The legality of proposed maximization efforts and the consequences of federal disallowances or sanctions should be considered at every turn. Jurisdictions that hire “rev-max” consulting firms still bear the legal consequences of policies they enact and must also subtract nontrivial consulting fees from the net gains of revenue maximization efforts.

5. Primarily federal programs such as Food Stamps and SSI provide benefits directly to recipients, although the state helps administer the programs. Participation rates in these programs, particularly Food Stamps, are significantly lower than they could be in the state and across the nation owing to stigma and limited state and local outreach efforts, among other factors.

6. This study does not evaluate revenue maximization at the county level. However, our research into the dynamics of local match formation points up several concerns:

a. The money and time localities must spend to ferret out maximization opportunities and develop the locally-based institutional capacity to draw down federal funds;

b. The possibility that leveraged local dollars will displace not only state funds but also other, un-leveraged local funds;

c. The ineluctable redistribution issues that will arise between localities with comparable needs but incomparable means; and

d. The legal intents behind the various federal formulas and block grants available and the downside of maximization initiatives that conflict with the spirit or the letter of these intents.

7. Floridians must weigh whether revenue maximization is best managed at the state or the local level. On the one hand, because of cost and efficiency concerns, revenue maximization on a federal program-by-program basis might be better pursued, coordinated, and implemented by the state than by each county on its own. Additionally, it is the state that is held responsible for any spending on unallowable activities. However, with any program administered at the state level, the likelihood of redistribution and perhaps supplantation rises without adequate safeguards established in law.



REFERENCES

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REFERENCES

REFERENCES

Bess, R., C. Andrews, A. Jantz, V. Russell, and R. Geen. 2002. The Cost of Protecting Vulnerable Children III: What Factors Affect States’ Fiscal Decisions? Washington, D.C.: The Urban Institute.

Buckley, Cara. 2003. “State Seesaw: Visiting Is Up, Spending Is Down.” Miami Herald. February 21.

Coughlin, T. A., S. Zuckerman, S. Wallin, and J. Holahan. 1999. “Medicaid Managed Care and Medicaid Maximization.” Health Services Research. 34:1 (April, Part II): 281–293.

Coughlin, T. A., and S. Zuckerman. 2002. States’ Use of Medicaid Maximization Strategies to Tap Federal Revenues: Program Implications and Consequences. Washington, D.C.: The Urban Institute.

Dunkelberg, Anne. 2002. Medicaid and State Budgets. Menlo Park, Ca.: The Kaiser Commission on Medicaid and the Uninsured.

Ellis, Eileen, Vernon K. Smith, and David M. Rousseau. 2002. Medicaid Enrollment in 50 States (December 2001 Data Update). Menlo Park, Ca.: The Kaiser Commission on Medicaid and the Uninsured.

Finegold, K., S. Schardin, and R. Steinbach. 2003. How Are States Responding to Fiscal Stress? Washington, D.C.: The Urban Institute.

Florida Department of Children and Families. 1998. Family Safety and Preservation Child Protection Program Status Report on Earnings. Tallahassee, Fla.

________. 2002. Certification of Local Funds as State Match for Federally Funded Services: Fiscal Year 2002 Annual Report. Tallahassee, Fla.

Florida Legislative Committee on Intergovernmental Relations. 2001a. Estimates of Florida’s Tax Burden. Report-in-Brief. Tallahassee, Fla.

______. 2001b. Review of Federal Expenditures to Florida In Fiscal Year 1999–2000, (With Particular Emphasis on Federal Grants to Florida’s State and Local Governments). Tallahassee, Fla.

Florida Office of Program Policy Analysis and Government Accountability. 2003. “Uncertainty Exists Regarding Florida’s Proposed Physician Upper Payment Limit Program.” Report No. 03-15. Tallahassee, Fla. February.

Florida Senate Committee on Health, Aging, and Long-Term Care. 2003. “Review of Florida KidCare Program Administration.” Interim Project Report 2003-133. Tallahassee, Fla.



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REFERENCES

Florida Tax Watch. 2002. “Use of Non-recurring Revenue to Fund Recurring Expenses: An Impending Moment of Truth Facing Florida’s Budget.” Tallahassee, Fla. May.

Hagert, C. 2002. Food Stamp Demand on the Rise, But Over 3 Million Eligible Texans Still Do Not Get Benefits. Austin, Texas: Center for Public Policy Priorities.

Hallifax, Jackie. 2003. “Issue of Tax Exemptions persistent one in Florida.” Naples Daily News. February 24.

Holcomb, P., K. Flores, M. Pernas, C. Herbig, and K. C. Tumlin. 1999. Income Support and Social Services for Low-Income People in Florida. Washington, D.C.: The Urban Institute.

Joint Legislative Committee on Performance Evaluation and Expenditure Review. 2000. The Department of Human Services’ Use of Revenue Maximization Contracts. Jackson, Miss. December 6.

Lav, Iris J. 2003. The State Fiscal Crisis Is Impeding Economic Growth: Federal Aid to States Would Be Most Effective Stimulus. Washington, D.C.: Center on Budget and Policy Priorities.

Lav, Iris J., and Nicholas Johnson. 2003. State Budget Deficits for Fiscal Year 2004 Are Huge and Growing. Washington, D.C.: Center on Budget and Policy Priorities.

Lavine, D., E. D. Castro, P. Bresette, and F. S. McCown. 2002. The Texas Revenue Primer: Finding a Way to Pay. Austin, Texas: Center for Public Policy Priorities.

Lerman, R., and M. Wiseman. 2002. Restructuring Food Stamps for Working Families. Washington, D.C.: U.S. Department of Agriculture.

Lipson, D. J., S. Norton, and L. Dubay. 1997. Health Policy for Low-Income People in Florida. Washington, D.C.: The Urban Institute.

Moody, J. S. 2002. “Federal Tax Burdens and Expenditures by States: Which States Profit the Most from Federal Fiscal Operations?” Special Report. Washington, D.C.: The Tax Foundation. http://www.taxfoundation.org/SR116.pdf. (Accessed March 5, 2003).

National Governors Association and National Association of State Budget Officers. 2002. The Fiscal Survey of States. Washington, D.C.: NGA and NASBO.

Smith, V. K., and D. M. Rousseau. 2003. “S-CHIP Program Enrollment: June 2002 Update.” Menlo Park, Ca.: The Kaiser Commission on Medicaid and the Uninsured. January.

U.S. House of Representatives. Committee on Ways and Means. 2000. 2000 Green Book: Background Material and Data on Programs Within the Jurisdiction of the



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Committee on Ways and Means. Washington, D.C.: U.S. Government Printing Office.

Yemane, A., and I. Hill. 2002. “Recent Changes in Health Policy for Low-Income People in Florida.” Washington, D.C.: The Urban Institute.



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APPENDIX I – ADDITIONAL TABLES

APPENDIX TABLE 1. Florida's State Characteristics

Characteristics Florida U.S.Population

Population (2002) (in thousands) 16,713 288,368Percent under age 18 (2000) 22.8% 25.7%Percent Hispanic or Latino (2000) 16.8% 12.5%Percent Black 14.6% 12.3%Percent non-citizen Immigrant (2000) 10.4% 6.7%Percent nonmetropolitan 7.2% 19.7%Percent change in population (1990-2002) 29.2% 15.9%Percent births to unmarried women 15-44 (2001) 39.0% 33.5%Percent births to unmarried teens 15-19 (2000) 10.2% 9.1%Birth Rates (births per 1,000) females age 15-44 (2001) 13.2 14.5Birth rates (births per 1,000) females age 15-19 (2001) 49.3 45.8

EconomicsPer capita income (2001) $28,947 $30,472Percent change in per capita income (1997-2001) 5.5% 8.7%Unemployment rate (Dec 2002) 5.3% 6.0%Percent jobs in manufacturing (1998) 7.3% 14.8%Percent jobs in service sector (1998) 36.1% 29.9%Percent jobs in public sector (1998) 14.4% 15.8%

Family ProfilePercent children living in two-parent families (2000) 70.6% 69.1%Percent children living in one-parent families (2000) 29.4% 26.7%Percent children in poverty (2000)* 15.7% 15.2%Percent change in child poverty rate (1994-2000)* -28.96% -24.4%Percent total population in poverty (2000) 10.6% 11.3%Percent change in total population poverty rate (1994-2000) -28.86% -22.07%

PoliticalGovernor's affiliation RepublicanParty composition of Senate 14D-25RParty composition of House 39D-81R*Related Children 5-17 years oldSource: The Urban Institute, 2003. Update of Table 1 in "Health Policy for Low-IncomePeople in Florida," Lipson et al, Washington, DC: The Urban Institute, December 1997



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APPENDIX TABLE 2. The Safety Net in Florida in National Context

Characteristics Florida U.S.Welfare Benefits - Maximum Monthly Benefit (Family of Three, No Income)

1996 (AFDC) $303 Median: $4151998 (TANF) $303 Median: $4212000 (TANF) $303 Median: $421

Ratio of Children Receiving Welfare to All Poor Children1996 (AFDC) 50.4% 59.3%1998 (TANF) 30.3% 49.9%2000 (TANF) 21.6% 37.9%

Percent of All Children Without Health Insurance1997 17.5% 12.2%1999 16.3% 12.5%2001 17.0% 12.0%

Income Cutoff for Children's Eligibility for Medicaid/State Children's Health Insurance Program (Percentage of Federal Poverty Level)

1996 113.2% 123.8%1998 200.0% 178.4%2000 200.0% 205.1%

Income Cutoff for Children's Eligibility for Child Care Subsidy (Percentage of State Median Income/Federal Poverty Level)

1998 (January) 53% / 150% 57% / 182%1999 (June) 53% / 144% 59% / 178%

Source: The Urban Institute, 2003. Update of Table 2 in "Health Policy for Low-Income People in Florida," Lipson et al, Washington, DC: The Urban Institute, December 1997



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1993 Rank Program Amount

1. SOCIAL SECURITY - RETIREMENT, SURVIVORS, AND DISABILITY INSURANCE 24,383,979,9772. MEDICARE - SMI, HI 12,730,513,0283. PROCUREMENT CONTRACTS--DEPT OF DEFENSE 7,707,796,0494. MEDICAID 3,434,680,7375. FEDERAL RETIREMENT AND DISABILITY PAYMENTS--MILITARY 3,217,084,4736. FEDERAL RETIREMENT AND DISABILITY PAYMENTS--CIVILIAN 3,058,092,7057. SALARIES AND WAGES--DEPT OF DEFENSE (ACTIVE MILITARY EMPLOYEES) 2,871,054,0638. PROCUREMENT CONTRACTS--ALL FED GOVT AGENCIES OTHER THAN DEFENSE AND USPS 2,540,305,1439. SALARIES AND WAGES--U.S. POSTAL SERVICE 2,473,162,06810. SALARIES AND WAGES--ALL FED GOVT CIVILIAN EMP EXCEPT DEFENSE & USPS 1,811,656,91111. FOOD STAMPS 1,595,231,50512. UNEMPLOYMENT COMPENSATION BENEFIT PAYMENTS 1,456,201,00413. SUPPLEMENTAL SECURITY INCOME 1,323,611,87814. SALARIES AND WAGES--DEPT OF DEFENSE (CIVILIAN EMPLOYEES) 1,269,688,46415. HIGHWAY PLANNING AND CONSTRUCTION 1,080,506,918


1. SOCIAL SECURITY - RETIREMENT, SURVIVORS, AND DISABILITY INSURANCE 25,236,071,9282. MEDICARE - SMI, HI 13,130,811,8483. PROCUREMENT CONTRACTS--DEPT OF DEFENSE 6,880,553,2584. MEDICAID 3,498,087,2415. FEDERAL RETIREMENT AND DISABILITY PAYMENTS--MILITARY 3,261,881,3226. FEDERAL RETIREMENT AND DISABILITY PAYMENTS--CIVILIAN 3,077,326,1867. SALARIES AND WAGES--DEPT OF DEFENSE (ACTIVE MILITARY EMPLOYEES) 2,564,194,9498. SALARIES AND WAGES--U.S. POSTAL SERVICE 2,491,002,9869. PROCUREMENT CONTRACTS--ALL FED GOVT AGENCIES OTHER THAN DEFENSE AND USPS 2,293,927,41210. SALARIES AND WAGES--ALL FED GOVT CIVILIAN EMP EXCEPT DEFENSE & USPS 1,796,658,37711. SUPPLEMENTAL SECURITY INCOME 1,607,123,84712. FOOD STAMPS 1,547,877,42013. SALARIES AND WAGES--DEPT OF DEFENSE (CIVILIAN EMPLOYEES) 1,259,840,23114. VETERANS COMPENSATION FOR SERVICE-CONNECTED DISABILITY 1,011,606,58415. UNEMPLOYMENT COMPENSATION BENEFIT PAYMENTS 1,001,838,602


1. SOCIAL SECURITY - RETIREMENT, SURVIVORS, AND DISABILITY INSURANCE 26,203,943,1682. MEDICARE - SMI, HI 14,970,732,2363. PROCUREMENT CONTRACTS--DEPT OF DEFENSE 7,131,393,0124. MEDICAID 4,023,245,8375. FEDERAL RETIREMENT AND DISABILITY PAYMENTS--MILITARY 3,334,794,4446. FEDERAL RETIREMENT AND DISABILITY PAYMENTS--CIVILIAN 2,976,715,8697. SALARIES AND WAGES--U.S. POSTAL SERVICE 2,473,679,5608. SALARIES AND WAGES--DEPT OF DEFENSE (ACTIVE MILITARY EMPLOYEES) 2,360,641,3389. PROCUREMENT CONTRACTS--ALL FED GOVT AGENCIES OTHER THAN DEFENSE AND USPS 2,304,200,99010. SALARIES AND WAGES--ALL FED GOVT CIVILIAN EMP EXCEPT DEFENSE & USPS 1,812,747,74311. SUPPLEMENTAL SECURITY INCOME 1,525,868,98312. FOOD STAMPS 1,496,058,08913. SALARIES AND WAGES--DEPT OF DEFENSE (CIVILIAN EMPLOYEES) 1,257,739,73214. FEDERAL GOVERNMENT PAYMENTS FOR EXCESS EARNED INCOME TAX CREDITS 1,213,430,28715. VETERANS COMPENSATION FOR SERVICE-CONNECTED DISABILITY 1,028,956,299

Appendix Table 3. Top 15 Federally Funded Programs in Florida by Year(In real 2003 dollars)

Table page 1 of 3



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1. SOCIAL SECURITY - RETIREMENT, SURVIVORS, AND DISABILITY INSURANCE 26,949,632,6492. MEDICARE - SMI, HI 17,801,396,8553. PROCUREMENT CONTRACTS--DEPT OF DEFENSE 6,598,498,9514. MEDICAID 3,763,683,8875. FEDERAL RETIREMENT AND DISABILITY PAYMENTS--MILITARY 3,346,051,7066. FEDERAL RETIREMENT AND DISABILITY PAYMENTS--CIVILIAN 3,009,552,3127. SALARIES AND WAGES--DEPT OF DEFENSE (ACTIVE MILITARY EMPLOYEES) 2,670,417,3428. SALARIES AND WAGES--U.S. POSTAL SERVICE 2,470,935,1039. PROCUREMENT CONTRACTS--ALL FED GOVT AGENCIES OTHER THAN DEFENSE AND USPS 1,914,924,24310. SALARIES AND WAGES--ALL FED GOVT CIVILIAN EMP EXCEPT DEFENSE & USPS 1,835,659,09911. SUPPLEMENTAL SECURITY INCOME 1,522,851,13012. FEDERAL GOVERNMENT PAYMENTS FOR EXCESS EARNED INCOME TAX CREDITS 1,462,502,50013. FOOD STAMPS 1,453,710,06114. SALARIES AND WAGES--DEPT OF DEFENSE (CIVILIAN EMPLOYEES) 1,296,357,70315. VETERANS COMPENSATION FOR SERVICE-CONNECTED DISABILITY 1,075,636,420


1. SOCIAL SECURITY - RETIREMENT, SURVIVORS, AND DISABILITY INSURANCE 27,817,685,3182. MEDICARE - SMI, HI 18,553,413,2373. PROCUREMENT CONTRACTS--DEPT OF DEFENSE 6,937,976,7694. MEDICAID 3,865,656,3055. FEDERAL RETIREMENT AND DISABILITY PAYMENTS--MILITARY 3,621,690,8416. FEDERAL RETIREMENT AND DISABILITY PAYMENTS--CIVILIAN 3,285,038,0717. SALARIES AND WAGES--DEPT OF DEFENSE (ACTIVE MILITARY EMPLOYEES) 2,454,618,7908. SALARIES AND WAGES--U.S. POSTAL SERVICE 2,451,344,3589. SALARIES AND WAGES--ALL FED GOVT CIVILIAN EMP EXCEPT DEFENSE & USPS 1,889,564,67010. SUPPLEMENTAL SECURITY INCOME 1,673,265,62411. FEDERAL GOVERNMENT PAYMENTS FOR EXCESS EARNED INCOME TAX CREDITS 1,632,550,38912. PROCUREMENT CONTRACTS--ALL FED GOVT AGENCIES OTHER THAN DEFENSE AND USPS 1,340,956,27713. SALARIES AND WAGES--DEPT OF DEFENSE (CIVILIAN EMPLOYEES) 1,297,579,05014. FOOD STAMPS 1,178,978,17715. HIGHWAY PLANNING AND CONSTRUCTION 1,128,131,751


1. SOCIAL SECURITY - RETIREMENT, SURVIVORS, AND DISABILITY INSURANCE 28,615,973,1632. MEDICARE - SMI, HI 18,552,131,3983. PROCUREMENT CONTRACTS--DEPT OF DEFENSE 5,907,089,7304. MEDICAID 3,996,891,4215. FEDERAL RETIREMENT AND DISABILITY PAYMENTS--MILITARY 3,515,265,0436. FEDERAL RETIREMENT AND DISABILITY PAYMENTS--CIVILIAN 3,068,857,8857. SALARIES AND WAGES--U.S. POSTAL SERVICE 2,513,882,6028. SALARIES AND WAGES--DEPT OF DEFENSE (ACTIVE MILITARY EMPLOYEES) 2,310,501,4699. SALARIES AND WAGES--ALL FED GOVT CIVILIAN EMP EXCEPT DEFENSE & USPS 1,953,400,38910. FEDERAL GOVERNMENT PAYMENTS FOR EXCESS EARNED INCOME TAX CREDITS 1,733,971,72011. SUPPLEMENTAL SECURITY INCOME 1,724,427,18112. SALARIES AND WAGES--DEPT OF DEFENSE (CIVILIAN EMPLOYEES) 1,253,981,20913. PROCUREMENT CONTRACTS--ALL FED GOVT AGENCIES OTHER THAN DEFENSE AND USPS 1,156,937,30314. VETERANS COMPENSATION FOR SERVICE-CONNECTED DISABILITY 1,085,487,14615. HIGHWAY PLANNING AND CONSTRUCTION 1,044,311,193

Continued: Appendix Table 3. Top 15 Federally Funded Programs in Florida by Year(In real 2003 dollars)

Table page 2 of 3



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1. SOCIAL SECURITY - RETIREMENT, SURVIVORS, AND DISABILITY INSURANCE 29,507,618,0472. MEDICARE - SMI, HI 18,560,865,6283. PROCUREMENT CONTRACTS--DEPT OF DEFENSE 7,341,257,0384. MEDICAID 4,365,140,4405. FEDERAL RETIREMENT AND DISABILITY PAYMENTS--MILITARY 3,561,978,8726. FEDERAL RETIREMENT AND DISABILITY PAYMENTS--CIVILIAN 3,110,523,0587. SALARIES AND WAGES--U.S. POSTAL SERVICE 2,625,263,8578. SALARIES AND WAGES--DEPT OF DEFENSE (ACTIVE MILITARY EMPLOYEES) 2,266,760,2999. SALARIES AND WAGES--ALL FED GOVT CIVILIAN EMP EXCEPT DEFENSE & USPS 2,033,157,50710. FEDERAL GOVERNMENT PAYMENTS FOR EXCESS EARNED INCOME TAX CREDITS 1,882,192,24211. SUPPLEMENTAL SECURITY INCOME 1,797,673,11112. PROCUREMENT CONTRACTS--ALL FED GOVT AGENCIES OTHER THAN DEFENSE AND USPS 1,296,065,11413. SALARIES AND WAGES--DEPT OF DEFENSE (CIVILIAN EMPLOYEES) 1,259,317,66814. HIGHWAY PLANNING AND CONSTRUCTION 1,228,776,41615. VETERANS COMPENSATION FOR SERVICE-CONNECTED DISABILITY 1,220,260,726


1. SOCIAL SECURITY - RETIREMENT, SURVIVORS, AND DISABILITY INSURANCE 29,462,641,8342. MEDICARE - SMI, HI 18,231,933,0573. PROCUREMENT CONTRACTS--DEPT OF DEFENSE 6,755,064,5654. MEDICAID 4,708,255,3885. FEDERAL RETIREMENT AND DISABILITY PAYMENTS--MILITARY 3,504,637,2886. FEDERAL RETIREMENT AND DISABILITY PAYMENTS--CIVILIAN 3,121,199,5617. SALARIES AND WAGES--U.S. POSTAL SERVICE 2,622,910,8328. SALARIES AND WAGES--DEPT OF DEFENSE (ACTIVE MILITARY EMPLOYEES) 2,152,424,7339. SUPPLEMENTAL SECURITY INCOME 2,135,984,70010. SALARIES AND WAGES--ALL FED GOVT CIVILIAN EMP EXCEPT DEFENSE & USPS 2,125,897,42811. FEDERAL GOVERNMENT PAYMENTS FOR EXCESS EARNED INCOME TAX CREDITS 1,851,974,76612. LOWER INCOME HOUSING ASSISTANCE PROGRAM-SECTION 8 MODERATE REHABILIT 1,413,356,89713. PROCUREMENT CONTRACTS--ALL FED GOVT AGENCIES OTHER THAN DEFENSE AND USPS 1,347,273,87914. VETERANS COMPENSATION FOR SERVICE-CONNECTED DISABILITY 1,223,251,64615. HIGHWAY PLANNING AND CONSTRUCTION 1,163,180,838


1. SOCIAL SECURITY - RETIREMENT, SURVIVORS, AND DISABILITY INSURANCE 32,152,151,2982. MEDICARE - SMI, HI 20,083,731,8873. PROCUREMENT CONTRACTS--DEPT OF DEFENSE 6,785,311,0064. MEDICAID 5,364,007,7465. FEDERAL RETIREMENT AND DISABILITY PAYMENTS--MILITARY 3,613,485,0916. FEDERAL RETIREMENT AND DISABILITY PAYMENTS--CIVILIAN 3,246,637,4027. SALARIES AND WAGES--U.S. POSTAL SERVICE 2,804,666,8088. SALARIES AND WAGES--DEPT OF DEFENSE (ACTIVE MILITARY EMPLOYEES) 2,182,221,9249. SUPPLEMENTAL SECURITY INCOME 2,127,099,46310. SALARIES AND WAGES--ALL FED GOVT CIVILIAN EMP EXCEPT DEFENSE & USPS 2,108,678,21911. FEDERAL GOVERNMENT PAYMENTS FOR EXCESS EARNED INCOME TAX CREDITS 1,896,883,38212. PROCUREMENT CONTRACTS--ALL FED GOVT AGENCIES OTHER THAN DEFENSE AND USPS 1,540,027,47313. VETERANS COMPENSATION FOR SERVICE-CONNECTED DISABILITY 1,318,634,69314. HIGHWAY PLANNING AND CONSTRUCTION 1,180,638,26915. SALARIES AND WAGES--DEPT OF DEFENSE (CIVILIAN EMPLOYEES) 1,169,969,771

Source: The Urban Institute, 2003. Based on data from the Consolidated Federal Funds Report of the U.S. Bureau of the Census, 2002, available at http://www.census.gov/govs/www/cffr.html

Continued: Appendix Table 3. Top 15 Federally Funded Programs in Florida by Year(In real 2003 dollars)

Table page 3 of 3



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APPENDIX II – CHALLENGES IN GATHERING DATA

To gather the financial and caseload data necessary for this project while attempting to minimize the burden on the Florida state agencies responsible for the federal programs of interest, we contacted numerous federal agencies and Florida state officials to determine if some or all of the data were available. Some budget and federal expenditure data are available on the web sites of the federal Department of Health and Human Services and the Census Bureau, but most were not. What data are available are maintained by federal fiscal year, not state fiscal year.

We contacted the following organizations, but were referred to the Florida Department of Children and Families (DCF) or the Agency for Health Care Administration (AHCA) for specific expenditure data:

§ U.S. Department of Health and Human Services, Substance Abuse and Mental Health Services Agency

§ Florida Tax Watch§ Florida Senate Committee on Finance and Taxation§ Florida Division of Library and Information Services, State Library of Florida

(http://dlis.dos.state.fl.us/stlib/)§ The Florida Legislature Office of Economic and Demographic Research (http:

//www.state.fl.us/edr/)§ The Florida Legislature Office of Program Policy Analysis and Government Ac-

countability (OPPAGA) (http://www.oppaga.state.fl.us/)§ The Florida Legislative Committee on Intergovernmental Relations (http://

fcn.state.fl.us/acir/)§ Florida Auditor General

We also searched extensively on the DCF, AHCA, and On-line Sunshine (legislative pages) web pages to determine if any agency reports containing these data were available. We sought assistance from the state library to determine if agency reports were maintained in hard copy. Both search attempts (on the web and hard copy) were unsuccessful. The data available online or in hard copy reports were at such an aggregated level they were not use-ful for this study.

We initially received positive responses from AHCA and DCF. However, once the secretary of DCF resigned in late August 2002, both agencies put us on hold for two months. AHCA stated that our request could not be fulfilled for at least two months, but it was fulfilled sooner. DCF stated that we should resubmit our data request at the end of October once the newly appointed secretary had an opportunity to adjust. While this was a major setback, we continued to pursue other routes for gathering the data. As noted above, most data were not available from any other source than DCF or AHCA.

In October, we resubmitted our data request, and after several follow-up phone calls, re-ceived a response from DCF near the end of November. Over the next four months we had



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discussions with DCF staff to clarify our request and determine what data would most sat-isfy our needs while minimizing the DCF burden. While we reached a consensus on what data would be suitable, DCF staff were unable to provide them in a timely fashion because our request overlapped with the legislative session.



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APPENDIX III – SOURCES OF DATA

Fiscal data were requested from the Florida DCF, the AHCA, DOH, and AWI. DCF over-sees or is the administrative agency for Food Stamps, the Community Mental Health Block Grant, the Prevention and Treatment of Substance Abuse Block Grant, TANF, Title IV-E Foster Care, SSBG, and SSI. AHCA oversees Medicaid and SCHIP, while AWI is the ad-ministrative agent for CCDF. DOH manages the Maternal and Child Health Block Grant. Data were received from AHCA, DOH, and AWI. DCF was unable to fulfill our data re-quest.

We also used various federal sources to supplement or substitute for unavailable state data. These included Annual Reports to Congress on TANF71; SSBG Program Annual Report on Expenditures and Recipients72; the U.S. House of Representatives, Committee on Ways and Means Green Book73; Consolidated Federal Funds Report (CFFR 1992–2001)74; and the Title V Information System of the Maternal and Child Bureau, Health Resources and Services Administration, U.S. Department of Health and Human Services.

To supplement these data and provide a more comprehensive understanding of social ser-vice spending in Florida, we conducted phone interviews with advocates, providers, Chil-dren’s Services Council representatives, federal program administrators, and current and former Florida administrators.75 These interviews focused on the use of the federal funding streams of interest, how the state attempted to maximize these revenues, the state’s phi-losophy with respect to social service provision, and current discussions to enhance federal revenue given the fiscal climate. We also conducted phone interviews with knowledgeable administrators from the Georgia Department of Human Resources, the South Carolina Department of Social Services, and the Texas Health and Human Services Commission. We received written responses from the Texas Department of Protective and Regulatory Services, which oversees Title IV-E.

71 Specifically the 1998, 1999, 2000, and 2002 reports. TANF was implemented in 1997, and the first report was completed in 1998. States are required to submit reports to the federal government regarding their spending and program recipients.72 Specifically the 1995–2000 reports. Prior to 1995, there was no consistent federal reporting requirement. States are required to submit information on spending and recipients to the federal government.73 The Green Book is not published annually. These represent all the published editions during the period of interest for this project 1993, 1994, 1996, 1998, 2000. The data in the Green Book are collected from the federal agencies that have oversight over the programs under the jurisdiction of the U.S. House Ways and Means Committee.74 Data from the CFFR are used in lieu of state data for several of the programs either because (1) DCF was unable to provide the data; (2) federal reporting requirements only demand that states maintain five years of data; (3) there are no public federal expenditure reporting requirements or reporting requirements at all on these funds. The CFFR provides data on federal expenditures or obligations of federal funds by the states (from the available state allocations) for purposes that meet the criteria of the program. There may be some minor differences between state data and the CFFR because the CFFR reports on obliga-tions of federal funds that have not yet been expended by the state. However, the differences are generally less than 5 percent in either direction.75 Current and former DCF administrators provided some basic information about TANF and Title IV-E, but we were unable to meet with staff knowledgeable about the other funding streams. We were unable to interview ACHA and AWI staff.



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Below, we itemize the data we have collected:

1) Federal allocations to Florida, Texas, Georgia, and South Carolina, for state SFY 1993–2001, by

a. Social service programb. 15 largest federal funding streams per yearc. Funding source

2) Federal tax revenues from Florida, by source, FFY 1990–20003) State tax revenue for Florida, Texas, Georgia, and South Carolina, by source, for

SFY 199220014) Enacted Florida state budgets, SFY 19922001; a three-year snapshot of enacted

budgets for Texas, Georgia, and South Carolina for 1992, 1997, and most recent year

5) Florida Medicaid expenditure data—both federal and state—broken down by service, for SFY 1992–2001

6) Florida SCHIP expenditure data—both federal and state—for SFY 1998–2002 (the program was first enacted for 1998)

7) Social Services Block Grant federal expenditure data for Florida, Texas, Georgia, and South Carolina, broken down by services, for FFY 1995–2000

8) AFDC/TANF federal and state expenditures for Florida, Texas, Georgia, and South Carolina, for FFY 1993–2000

9) Caseload data for applicable years from 1990–2000 for SSBG, Medicaid, AFDC/TANF, Food Stamps, CCDF, and SCHIP for Florida, Texas, Georgia, and South Carolina

10) Demographic data, including population (total, under-19, under-14, and 65-and-over breakdowns), immigration, poverty, and unemployment for several snapshot years

11) Reports from federal and state research organizations, think tanks, watchdog groups, state and local advocacy groups, and private consultants

Note that for a variety of data collection and reporting reasons, different data sets often span different years. For example, some data sets such as Florida revenue to the federal government are available for 1990—2000, while federal revenues to Florida are available for 1993–2001. While changes and trends in state and federal funds within Florida that we highlight below do not always correspond to the same set of years, the periods of time are close enough for general comparisons.

Census Data

§ Consolidated Federal Funds Report (CFFR) CFFR data were obtained from various federal government agencies and are pre-sented by federal fiscal year. These data cover federal expenditures or obligations for the following categories: grants, salaries and wages, procurement contracts, direct payments for individuals, other direct payments, direct loans, guaranteed or insured loans, and insurance. Dollar amounts reported represent either actual



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expenditures or obligations. CFFR data are available for FY 1993–FY2001. We have hard copies of two types of CFFRs: one that details all Florida direct ex-penditures by program and another that details all direct expenditures by pro-grams through the Florida Department of Health and Human Services. This information can be obtained at http://www.census.gov/govs/www/cffr.html. Comparable data for other states can also be found on this web site. In addition, we have a hard copy of the technical documentation of the CFFR for reference.

§ Catalog of Federal Domestic Assistance This catalog details all of the programs listed in the CFFRs. It provides informa-tion on the federal agency that administers the grant/program, program objectives, type of assistance, uses and use restrictions, eligibility requirements, applica-tion and award process, assistance considerations, postassistance requirements, financial information, program accomplishments, regulations, guidelines, and literature, information contacts, related programs, examples of funded proj-ects, and criteria for selecting proposals. It can be found at http://www.cfda.gov.

§ State and Local Government Finances The Census Bureau conducts a census of governments at five-year intervals and an annual survey for the intervening years. State and local government finances are available in files and viewable tables. The statistics cover govern-ment financial activity in four broad categories: revenue, expenditure, debt, and assets. Data in these tables and files relate to the governments’ 12-month fiscal years. The data for each annual survey reflect individual government fiscal years that end between July 1 and the following June 30. It provides data for state fis-cal years 1992–1999. Most of the state government data match the state finance data below, so this source is relevant for information about local revenues and expenditures. This information can be found at http://www.census.gov/govs/www/estimate.html. Comparable data for other states can also be found on this web site.

§ State Finances State Government Finances provides a comprehensive summary of annual survey findings for state governments. The tables and data files present the details of reve-nue by type, expenditure by object and function, indebtedness by term, and assets by purpose and type. Data are presented by state fiscal year. Data are provided for SFY 1992–SFY 2000. This information can be found at http://www.census.gov/govs/www/state.html. Comparable data for other states can also be found on this web site.

§ State Tax Collections The State Government Tax Collections (STC) report provides a summary of taxes collected by state for up to 25 tax categories. These tables and data files present the details on tax collections by type of tax imposed and collected by state governments. The data are presented by state fiscal year. Data are available for SFY 1992–SFY 2001. In most cases, the total tax revenue is identical to the total provided by the State Gov-ernment Finances data, so the two documents together provide fairly comprehensive



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information. This information can be found at http://www.census.gov/govs/www/statetax.html. Comparable data for other states can also be found on this web site.

§ Federal Aid to States This report presents federal government aid to state and local governments by state and U.S. Outlying Area. Coverage is restricted to federal government expenditures for grants to state and local governments for which data are available by state and outlying area. Data are available for FY1998–2001. Copies can be found at http://www.census.gov/prod/www/abs/fas.html.

National Association of State Budget Officers (NASBO)

§ The Fiscal Survey of States This report is published twice annually. The series was started in 1977 and presents

aggregate and individual data on the states’ general fund receipts, expenditures, and balances. Spending is presented by state fiscal year, and the web site, http://www.nasbo.org/Publications.html, gives access to May 2002, December 2001, June 2001, and December 2000. We have a hard copy of May 2002.

§ The State Expenditure Report The report examines spending in the functional areas of state budgets: elemen-tary and secondary education, higher education, public assistance, Medicaid, cor-rections, and transportation. The yearly report began 11 years ago; however, the

NASBO web site posts the report only from 1998–2000. We have hard copies of the 1998 and

2000 State Expenditure Reports, which detail expenditures from SFY 1997–SFY 2000. The

report contains an extensive methodology section that details what is included in each program

expenditure. The reports can be found at http://www.nasbo.org/Publications.html.

Florida Legislative Committee on Intergovernmental Relations

§ Estimates of Florida’s Federal Tax Burden The Florida Legislative Committee on Intergovernmental Relations (LCIR) exam-ines the revenue side of federal fiscal operations using data obtained from the Tax Foundation, a nonprofit, nonpartisan research and educational organization based in Washington, D.C. The purpose of this report-in-brief is to summarize national and state estimates of federal tax burden and illustrate the changes in the level of federal taxation of Floridians from 1970–2000. It provides estimates of Florida’s federal tax burden by revenue sources: individual income taxes, corporate income taxes, social insurance taxes, excise taxes, estate and gift taxes, customs duties, and miscellaneous taxes for FFY 1970–2000. This report can be found at http://fcn.state.fl.us/lcir/reports.html.

§ Review of Federal Expenditures to Florida in Fiscal Year 1999–2000 The LCIR annually reviews the state’s receipt of federal funds. The purpose of this



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annual report is to provide the legislature and other interested parties with a re-view and analysis of federal financial assistance to Florida. In particular, the report focuses on federal grants to Florida’s state and local governments. This review is intended to be part of an ongoing strategy to improve federal-state relations gener-ally and facilitate the development of strategies to increase the return of federal tax dollars to the state. Reports are available for FY 1997–1998 and FY 1999–2000. These reports and other publications can be found at: http://fcn.state.fl.us/lcir/reports.html.

Florida Department of Banking and Finance

§ Comprehensive Annual Financial Report Florida’s Comprehensive Annual Financial Reports (CAFRs) provide information that is used by investment companies such as Moody’s Investors Services and Stan-dard and Poor’s to determine the state’s fiscal integrity and to assign its bond rating. The report includes a comprehensive presentation of the state’s financial and oper-ating activities. The 2001 CAFR details revenues and expenditures for SFY 1992–2001. The report can be found at http://www.dbf.state.fl.us/cafr2001/statrevexp.pdf.

§ Citizens’ Report The Citizens’ Report is a new document prepared by the Comptroller’s Of-fice to provide additional information to the citizenry. The Citizens’ Report is prepared on a cash basis of accounting and thus is not prepared in accor-dance with generally accepted accounting principals. Reports can be found at http://www.dbf.state.fl.us/aadir/citizens_report/POPCOVERPG.html.

National Priorities Project (NPP)

§ The NPP database offers state data on socioeconomic needs and federal expen-ditures, and allows users to create customized tables, graphs, and reports. It pro-vides expenditure data for SFY 1992–2001 for Head Start, SSBG, TANF/AFDC, Medicaid, SCHIP, Community Development Block Grant, Section 8, Food Stamps, Women, Infants, and Children (WIC) and School Lunch Program. Its numbers seem to match the estimates provided by the CFFR. The database can be found at http://database.nationalpriorities.org/.



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Florida State Legislature

§ Florida state appropriation acts and related appropriation/budget acts are pro-vided by the Florida State Legislature. SFY1998–2003 data are available on the web. Respective chapter numbers are listed below. Appropriation acts and related appropriation/budget acts for SFY1992–1997 have been photocopied and sent to us as hard copies. The web site for the appropriation acts is http://election.dos.state.fl.us/laws/laws_proced.shtml, and the link is General/Local/Special session laws.

The laws are listed by legislative year, and the chapter numbers are as follows:

SFY 1998 (legislative year 1997): General Appropriations............................. 97.152 Appropriations Implementation ................ 97.153SFY 1999 (legislative year 1998): General Appropriations.............................98.422 Appropriations Implementation ................98.46SFY 2000 (legislative year 1999): General Appropriations.............................99.226 Appropriations Implementation ................99.228SFY 2001 (legislative year 2000): General Appropriations.........................2000.166 Appropriations Implementation ............2000.171 Supplemental Appropriations................2000.371SFY 2002 (legislative year 2001): General Appropriations......................... 2001.253 Appropriations Implementation ............ 2001.254 Supplemental Appropriations................ 2001.56 Supplemental Appropriations................ 2001.367 Supplemental Appropriations................ 2001.380SFY 2003 (legislative year 2002): General Appropriations.........................2002.394 Appropriations Implementation ............2002.402



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Other Useful Resources:

§ Florida Department of State: http://dlis.dos.state.fl.us/fgils/§ Florida State Legislature: http://www.leg.state.fl.us/Welcome/index.cfm§ Tax Foundation: http://www.taxfoundation.org/home.html§ http://www.scstatehouse.net/§ http://www.lbb.state.tx.us/§ http://www.scstatehouse.net/a96ndx.htm - FY1997 Budget (in HTML format

only)§ http://www.scstatehouse.net/ta00ndx.htm - FY2001 Budget (in HTML format

only)§ http://www.scstatehouse.net/reports/j02aar97.htm

The FY 1996–97 Accountability Report for the Department of Health and Human Services is divided into three sections. Each section deals with one of the three programs administered by the Department of Health and Human Services. Part 1 concerns the Medicaid program; Part 2 the Child Care and Development Fund; and Part 3 the Social Services Block Grant program.

§ http://www.scstatehouse.net/reports/aar2000/j02.doc The FY 1999–2000 Accountability Report for the Department of Health and Hu-man Services (DHHS) is divided into six sections: Executive Summary, Mission Statement, Leadership System, Customer Focus and Satisfaction, Other Perfor-mance Excellence Criteria, and the Description of Programs. The Description of Programs section is broken down into five parts, dealing with one of the five pro-grams administered by the DHHS: Part 1 discusses the Medicaid Program, Part 2 the Child Care and Development Program, Part 3 the Social Services Block Grant Program, Part 4 Senior and Long-Term Care Services, and Part 5 the Optional State Supplementation Program. Each part and contains information on program area, rank, cost, goals, objectives, and key indicators.

§ http://www.acf.dhhs.gov/programs/ccb/research/index.htm§ http://tvispast.mchdata.net/Reports_Graphs_1999/finmenu.htm

for individual state expenditure data§ http://www. acf.dhhs.gov/programs/opre/afdc/afdc.htm

for historical AFDC caseload data.§ http://www.acf.dhhs.gov/programs/opre/director.htm#annual

for TANF annual reports to Congress§ http://www.hcfa.gov/medicaid/m64.htm

for expenditures 1994–1999§ http://www.legis.state.ga.us/Legis/budget/index.htm

Budgets for Georgia§ http://www.opb.state.ga.us/Budget%20Information.htm

Georgia budget reports

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