The debt ceiling, a lack of integrity and the possible fallout
In the coming days, the United States again confronts our statutory debt ceiling. This is a 1917 law (increased every year or so) establishing a cap on federal government debt. The law itself runs up against the 14th Amendment to the Constitution, which was intended to reassure bondholders that we pay our Civil War debts. That means the debt ceiling may be unconstitutional, giving the Biden administration the option of simply printing money to cover the debt.
The debt ceiling law is politically convenient because it offers an opportunity for members of both parties to engage in a bit of political theater. It is important to remain focused on the real issue of debt rather than the political shenanigans. I expect some sort of compromise, but that is more hope than actual analysis.
Neither the Republicans nor Democrats have performed satisfactorily on this ballooning public debt. The GOP showed zero concern about debt when a Republican president was in office. Not a single Hoosier Senator or member of Congress voted against the Trump administration’s Tax Cut and Jobs Act (TCJA) or the CARES Act. These bills fall in first and third place in terms of recent contributions to the debt.
The Democrats, who voted almost unanimously against the TCJA, voted unanimously for the American Rescue Plan, which came in second place for debt loading. There’s not a clean hand in Congress on the current debt. Insofar as I can tell, the sole Republican speaking honestly about the GOP’s profligate history is Mike Pence.
As I wrote at the time, each of these large spending bills had some merits, and there remain reasonable arguments for each. The problem is that so many now in office want to remake themselves as thoughtful budget hawks, but when it mattered, they were nothing of the sort. It is the lack of integrity that highlights the real problem. No one can be honest about the root of the problem.
In 1946, right after winning World War II, our debt-to-GDP ratio stood at 119%. Today it sits at 121%, down from 127% two years ago. But, there is no peace dividend. Our spending problems are not about our military spending, which is today at near historical lows as a share of GDP.
The big-budget items driving our deficit are spending for Medicaid, Medicare, Social Security, and federal government and military retirements. And yes, I know Social Security and Medicare are supposed to be separate budget items. They are not.
If we cut all foreign aid (including Ukraine defense), housing subsidies, environmental remediation, research, discretionary education spending, immigrants, parks, and clean air or water, we wouldn’t make a dent in our debt. Altogether, these spending items wouldn’t even cover the interest payments on our debt.
In order to reduce our debt in the coming decades, we are going to have to do two very unpopular things: raise taxes and cut spending. We are going to have to do more of both than almost anyone really imagines.
On the revenue side, we are going to have to sunset the TCJA and raise marginal income tax rates on middle- and high-income households. By middle, I mean everyone who pays an income tax. Also, we probably must extend the Social Security taxes (FICA) across all earned income types.
On the spending side, we are going to have to extend retirement age, probably to 70 years or so for younger workers. We won’t have to means-test benefits, because we will have higher taxes on more affluent households. But, we will reduce retirement benefits for younger workers, and end the practice of increasing Social Security for older adults who work. We are also going to have to reduce the rate of inflation adjustments for Social Security recipients.
If all of that sounds distasteful to you, too bad. What I have just outlined is probably the easiest resolution to our current debt problem. But, what if we choose a different path?
We could cut defense spending. I’d vote to eliminate the entire Marine Corps. If we did that, it would only take another 117 years to eliminate today’s debt, though that wouldn’t come close to balancing the current budget. So, we’ll have to cut something else. If we cut our foreign aid, we could pay off the current debt, not counting interest, in 600 years. Alternatively, we could reduce overall Social Security costs by 10%, through later eligibility, and extend FICA taxes to a further 10% of earnings, and retire the debt in 60 years.
It is probably wise to ignore the political talking points about our debt and focus on the arithmetic. Still, many might wonder what if we ignore all this and blow off our debts, and default. After all, many Americans declare bankruptcy. Well, that step would be somewhere between a crisis and a full-blown economic catastrophe.
The United States borrows money like every other government does. We have treasury bills notes, bonds, inflation-indexed securities, floating rate notes, domestic series bonds and the like. Altogether this is about $31.5 trillion in borrowing. About 13 cents on every federal tax dollar collected goes to paying interest on these debts (or about twice the annual cost of the entire Marine Corps).
The reason the U.S. can borrow all this money is simply that everyone believes we will pay it back. Our creditworthiness ensures a reasonably low rate of borrowing and keeps our currency as the world’s reserve currency. So what happens if we default?
Well, there will be a flight away from U.S. securities. This will lead to financial markets devaluing our bonds, leading to higher borrowing rates on futures. Since our bonds turn over all the time, that would mean an almost immediate increase in the share of taxes we have to spend to service the debt.
If the U.S. defaults on our debts, the stock market will decline precipitously. It would strengthen China and Russia, while weakening the U.S., perhaps sliding our economy into recession along with most of our allies. The worst forecast I have seen suggests that an extended default would result in a Great Recession-level shock to the global economy.
I think this is an unlikely scenario, only because the domestic political backlash would be so severe we will come to some compromise. But, I’m a notoriously bad political forecaster. Rather than risking default, we’d be wise to heed the rare wisdom of then-President Donald Trump’s advice on the debt ceiling: “That’s a sacred element of our country. They can’t use the debt ceiling to negotiate.”
Michael J. Hicks, Ph.D., is the director of the Center for Business and Economic Research and the George and Frances Ball distinguished professor of economics in the Miller College of Business at Ball State University. He can be reached on Twitter @hicksCBER.
Header Image: Debt ceiling (Credit: Douglas Rissing / Getty Images/iStockphoto)
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Treasurer Elliott explains his plans to keep the new ESG policy from becoming a ‘witch hunt’
He calls himself the “nerdy cowboy” — wearing boots with his suit and winning his election, in part, by driving his truck to far, less-populated corners of the state.
State treasurer Daniel Elliott, a farm owner from Morgan County, took over the Indiana Treasurer of State office at the start of the year, but he’s been involved in politics for about a dozen years. First as a precinct committeeman and then as a GOP county chair, county councilman and president of the local redevelopment commission.
Still, he viewed himself as an underdog when seeking the Republican nomination for treasurer last year against three other candidates because he came from a less-populated area, just outside of Morgantown.
During his first legislative session in office, Elliott has drawn attention for his more controversial focus on cracking down on environmental, social and governmental investing — known as ESG — in the state, but he’s also spent some time highlighting issues important to Hoosiers from rural parts of the state.
State Affairs sat down with Elliott to talk about his first few months in office, how the state’s new ESG policy will work and his 2018 fight against party insiders regarding the GOP’s platform.
The conversation has been edited for clarity, brevity and length.
Why should the average Hoosier care about what the state treasurer does? It sounds fairly wonky.
It is. I jokingly call myself the nerdy cowboy because I am.
You look at the main role of the treasurer, chief investment officer. Some of the issues that are going on right now in the nation, in the world and in our country really require someone who’s willing to dig into the details. Being a software engineer by trade, that is my nature. I find elegance in numbers.
[One example that benefits Hoosiers is we work with] 911. I’m the only treasurer in the country that chairs the 911 system.
[Another example is] the Indiana Bond Bank. Coming from rural Indiana, big communities don’t worry about financing. You take Hamilton County, my friends over there, great people. They have such great credit. They have so much revenue coming in. They are very well suited to work on what they need to get done.
Rural small towns need resources like the Indiana Bond Bank to help them be able to accomplish some of their goals, whether it be trying to get broadband into their communities or trying to fix a water supply situation.
Can you explain what the Indiana Bond Bank is?
Bonds are loans for municipalities and local governments. The Indiana Bond Bank is oftentimes the lender of last resort. One of my goals is to make the bond bank one of the first tools that local governments come to.
When session started, I naturally assumed my role was to go and talk to legislators about the issues that my office found important. I found people telling me, wait a minute, you’re not supposed to do that. You’re supposed to go through lobbyists. I’m like, ‘Why? Why can’t I?’ And that’s something I tend to always ask is, ‘Why?’ So I started saying, ‘Well, these are the issues that I find important.’
One of the things I was concerned about when it comes to rural Indiana was not just the rural communities, but also hospitals. Health care is a big issue these days, and rural hospitals have a hard time competing with the big monopolistic nonprofits. So I started saying, ‘How can we help rural communities through the Bond Bank?’ The Bond Bank only had the ability to do bonds or loans for 10 years. Most big projects need a much larger runway— 20 or 25 years. So I presented that idea to the leadership. That bill passed.
You wouldn’t think the treasurer’s office would be involved in finding solutions for health care problems.
That’s what’s fascinating about this job, and now you see why I’m having so much fun.
[We also offer] 529 plans, helping kids go to college. To me that’s really important because I grew up in Nebraska, Indiana. I’m the first one in my family ever to go to college and I grew up really poor. I didn’t get the chance to do Little League or swim practice or [Boy] Scouts like other kids, like my own kids got to do.
I spent my weekends and my summers helping my dad, who was a laborer. I remember one day, pushing a wheelbarrow of cement. I was 11 years old, the age of my youngest son right now, and I remember thinking, this stinks. There’s no way I want to do this the rest of my life. I need to go to college. Now 529 plans give kids an opportunity and parents an opportunity to actually start saving for that.
You see there’s a Millennium Falcon [model on my desk]. So if I’m not pointing out how geeky I am, I am 100% a geek. The reason I have that is we’re a small office and we say we’re a ragtag group of rebels. Our mission is to blow up Death Stars because we’re smaller, more nimble.
There was a community in Fulton County; they spent all this money on a new 911 center, but they couldn’t get it to work. We got ATT and Motorola and everybody in the same room and said, ‘What’s going on?’ In two weeks, they got it resolved. I want to say it was because our office is super smart. All we did was get people who weren’t talking to each other, and kind of cut through the red tape.
That’s the blowing up of the Death Stars.
What’s been the most surprising part so far of your role five months in?
Honestly, it surprised me how much bureaucracy and red tape there is. I always ask, ‘Why?’ since I grew up in poverty. Why can’t I do this? And as a software engineer, you learn to ask why. You’ll have 15 mistakes before you get to the right solution, but that’s part of the process.
I find that in state government, people are not always comfortable when a statewide elected official says, ‘Why are we doing it this way? Is there a reason?’ Sometimes there’s a very good reason, but if not, why can’t we do it differently? It’s gotten me in trouble a little bit. But we’ve also gotten some things done.
When you say that’s gotten you in trouble, what do you mean?
What I mean, is people [say] that’s not the way you’re supposed to do this. I think people expect me to sit behind that desk and then go to a few dinners and shake some hands. That’s not my style. I wear the suit because I want to be respectful to the state of Indiana, but generally if you want to see how Daniel normally dresses right there in jeans and cowboy shirt, me on my horse. When I’m not doing interviews, I’m usually wearing jeans. This weekend I spent my time brush hogging a field, because that’s just who I am.
One new law you haven’t touched on yet was the law limiting environmental, social, and corporate governance (ESG) investing. Why do you think it was important for House Bill 1008 to pass?
I truly believe in that issue. If we look at the markets you have a lot of investment fund managers who have been pushing policy, not just looking at the fiduciary reasons for why to invest. I am uncomfortable with that. Since I grew up in poverty you don’t ever escape that even though it’s not my experience now. You always know that’s in the back of your mind. I see family members, I see relatives, they’re surviving on pensions, that’s if they’re lucky. Many of them are surviving on just Social Security.
If you’re a wealthy person, you can afford to say, ‘I’m going to invest in such a way that maybe I won’t make as much money, but that’s okay because I’m going to feel good about my investments. I want to invest in the environment.’ That’s a great, absolutely worthy goal. I’m an outdoorsman. I love taking care of our planet, but at the same time, when you’re looking at somebody who has driven a highway truck for the county, someone who’s been a teacher, someone who has worked in these halls. I’ve got people in my office who have worked here for 30 years that are hardworking, great people. But they’re not millionaires. They’re not rich.
If they had to choose between paying for a mortgage and paying for medicine, then we’re doing something wrong. So in my mind, we all need to focus on what is the best return on investment; anything beyond that, then we’re not doing our duty.
Unfortunately, that’s been a trend the last decade or so, where there have been a lot of these ESG funds focusing on other issues, and I’m not saying those issues aren’t worthy. And if an ESG-focused fund makes money, it’s still the best return on investment.
That’s my role. I’m the chief investment officer, and I should be out there advocating for bringing the best return to the state of Indiana, and best return to [the Indiana Public Retirement System] as one of the board members.
Can you explain how this will work? What will the state do differently?
We have to be looking first and foremost at what’s the best return.
I always use a figurative ACME investment fund manager. If they say, ‘Hey, we have an ESG commitment. We’re part of XYZ ESG Alliance.’ They want to be carbon neutral by 2030 or something like that, we’re going to say since you’ve made that commitment, what you’re saying is you’re not looking at the financial [aspect]. You’re willing to take a hit on the return because of your political views. Your political views are, hey, we don’t like coal, or we don’t like fossil fuels. Okay, that’s fair. Lots of people have that philosophy, but the reality is, that means you’re going to get less of a return on your overall investment.
What we’re going to simply do is we’re going to present that to the [Indiana Public Retirement System] board members. Now, INPRS will look at who are the other companies that get similar returns and have similar fees. So let’s say ACME has a 6.2% return on their investment, but we can find a company that is similar that has a 6.8% return. That’s a better return. So we’re going to stop using ACME and we’re going to use the new company.
Now it could be that ACME company may actually have the best return and we say, ‘Sorry, we can’t find anybody comparable.’ That’s perfectly legitimate. So since we are focusing only on the financial return, then we’re going to say, ‘Well, we’re going to continue with ACME.’
Have you started compiling a list of investment fund managers the state shouldn’t be using?
We’re working on the process first. The law doesn’t take effect until July 1, so we can’t do anything until then. I don’t want it to be a witch hunt. I want to say here’s the policy, and then this is how we’re executing the law. I want it to be fair across the board.
In 2018 you led the fight to keep the language in the Indiana Republican platform saying that marriage should be between a man and a woman. Is there a place for you to voice your opinion on social matters while serving in the treasurer’s office?
The office itself doesn’t get into social issues as much. It is a lot of numbers. But at the same time, I am who I am. I’m the first Latter Day Saint to hold statewide office.
I’m definitely not afraid to talk about my faith. I chose my faith. In fact, if you look in my office, there are lots of things about my faith here. That leatherbound book right there is a Book of Mormon in Spanish, the one that I used as a missionary in South America. I’m still bilingual which really freaks people out a lot. The last thing they expect is the cowboy from Morgan County to be bilingual.
Yes, I have my beliefs that I feel very strongly about. And I do believe that marriage is important. I do believe that just as a regular citizen I have the right, and I will exercise that right, to speak what I believe in.
Now, I also believe that while I have the right to speak about what I believe in, so do other people. One of the things that people especially talk about in 2018 that they forget is my whole point was advocating for having the discussion because there wasn’t going to be a discussion. Let’s have that conversation out in public.
There’s no doubt I’m a conservative. I’m not going to hide that.
That was a pretty bold push back then because you were fighting against party leadership on a controversial issue.Were you worried that it was going to impact any future political aspirations?
I wasn’t and here’s why. Obviously I want to try to serve. I want to try to be involved.
Honestly, I don’t expect to be in politics my whole life. This is my first time ever having politics as a full-time role. This might be the first and last moment I ever do that. If I go back to my farm, ride my horses and I start a new business when I’m done doing this, I’m perfectly content doing that. I’m not making any plans for the future either. I just want to be a really good treasurer right now. I’m having fun with this.
You’ve talked in detail about your rural Indiana roots. How important do you think it is to have an elected state official that comes from rural Indiana to give a voice to those portions of our state?
I think that’s really important. People who get elected, usually it’s a numbers game. They’re from Fort Wayne or Evansville or Indianapolis. They come from these areas where there are a large amount of people. We didn’t have anybody from rural Indiana.
That gives me the opportunity to be a voice for issues that folks who don’t live in rural Indiana or haven’t lived in rural Indiana since they were children [may not understand]. Like rural broadband, that is one of the most important things we as a state can be doing. Fortunately, we are working really hard at that. Take a child like me who grew up in rural Indiana, if they have broadband and they have the dreams to go to college someday, the tools are there. But if they don’t have broadband they’re already starting behind.
I look at it like electricity was 100 years ago. Can you imagine people living without electricity now? Of course not.
Everyone can now work from home. You could work for Google and live in Posey County and think about how that also is an amazing opportunity for small businesses to get started. When I started my business as a software engineer in Martinsville, Indiana, people were like nobody in Martinsville needs you. Well of course. My clients weren’t in Martinsville.
But at the same time, what did I get out of Martinsville? I got the ability — I remember when my wife and I picked our little farm 21 years ago — to raise my children. I always wanted my kids to be able to drive an old pickup truck to school and nobody would look at them sideways. My older son got to do that. He thought it was the coolest thing in the world to drive the old farm truck. It was rusty. It was loud. But he would drive that and he was just proud as punch. I will talk about horses all day long. My kids all got to show in 4H. My 11-year-old still shows in 4H.
Those of us who enjoy and choose a rural lifestyle, there’s no reason we can’t also be able to provide and have successful careers.
We obviously have a gubernatorial election coming up. Do you plan to endorse anyone?
Honestly, so far, the people running, I know them. They’re friends. So I’m going to let them have all the fun that I did and just focus on their races; and me, I’m going to focus on being state treasurer. At this point in time, I am not looking at getting involved in any races right now because I’m frankly kind of busy doing this.
Contact Kaitlin Lange on Twitter @kaitlin_lange or at [email protected].
Plans to turn junkyards and landfills into massive park take shape in southern Indiana
CLARKSVILLE — What once was undisturbed wildlife along the shore of Silver Creek now contains a trail of weedy gravel leading to a discarded mobile home. It’s the only thing left from a junkyard stationed among this patch of forested landscape.
“We call it the graveyard,” Vern Eswine, communications director of River Heritage Conservancy, said on a recent May afternoon. “The first thing you saw as you pulled into New Albany was all these trucks and buses and junk sitting here.”
Much has already been cleared, the latest steps in a process that began in 2016 to transform an unsightly mix of junkyards, landfills and other industrial properties into a massive park along the Ohio River in southern Indiana. Think hiking trails, kayaking and treehouses, but also the restoration of land and preservation of wetlands and waterways.
It’s called Origin Park, and Eswine is among an army of people who have been working — often behind the scenes, but increasingly out in the open — to ensure that the transformation takes shape. Hopefully sooner than later.
River Heritage Conservancy, the nonprofit group driving the change, is close to either acquiring or reaching agreements for about 430 acres. And it just received maybe its most important endorsement to date: The two-year budget passed by the Indiana General Assembly last month contained $37.5 million to accelerate Origin Park’s timeline.
The funding is key to a business plan at the center of Origin Park’s ambitions. It will pay for about half of the costs associated with building a 35-acre Outdoor Adventure Center that will house ziplines, climbing walls and manmade water recreation. The goal is to charge fees for access to that part of the park in order to pay for the conservation of the rest — not only protecting the wildlife but also ensuring free access to hundreds of acres of Indiana nature. And it’s just across the bridge from a city full of potential visitors in Louisville.
Plans for the Outdoor Adventure Center
Planners originally slated the Outdoor Adventure Center as maybe the third phase of the project. Work can soon begin, though, because of the cash infusion from the state.
“We basically push a lot of our deadlines way forward because of that,” Eswine said. “And now that’s totally jump-started our ability to actually start planning and permitting, just to actually start building this thing while we’re finishing phase one.”
The state’s spending on Origin Park is just one part of a larger investment into conservation and nature projects that have been celebrated by Gov. Eric Holcomb and legislative leaders in recent weeks: $30 million for new trails; $10 million to the President Benjamin Harrison Conservation Trust Fund; $5 million for ongoing storm damage cleanup at McCormick’s Creek State Park; and $1.9 million toward acquiring the land for the closed Minnehaha Fish and Wildlife Area. The list goes on.
Perhaps the most ambitious plan of them all, though, is Origin Park.
“We’re not going to own it, but in terms of setting aside property for the public, we’ll be making significant gains,” Holcomb told reporters following the passage of the state budget in late April. “I’m very pleased with the trails and park potential to keep our momentum going.”
Where Eswine stood next to the mobile home, at the northern end of the park, will one day become the Outdoor Adventure Center.
The plan for the Outdoor Adventure Center is modeled after Whitewater in Charlotte, North Carolina. A group from Origin Park visited there for inspiration, learning that it pulls in $2.5 million to $3 million in revenue each year, Eswine said.
The company that built Whitewater is going to build Origin Park’s version, Eswine said. Projections show it will draw up to $3 million in revenue each year.
In materials shared with Indiana lawmakers, planners said the park will also drive at least $8 million in new spending to nearby towns.
The goal is to open the Outdoor Adventure Center by 2028.
But that’s just a small slice of the overall plan. Other parts of the park are already open, with a lot more on the way.
Contrasts of abandonment and restoration
Just downstream from the mobile home is a new entry point into the water called Croghan Launch, which opened to the public in March.
A paved ramp gives way to a place to drag canoes and kayaks into Silver Creek. The creek is deep and wide enough for anglers, too. On a recent May afternoon, a man who had launched his motorized boat at a different point still waited near Croghan, fishing rod in hand. The creek serves as a tributary into the Ohio River.
On the other side of the boat launch, however, a landfill looms. Someone might think it’s just a hill, but it’s still there, towering beyond stretches of trees and grasses.
What will happen with some of the spaces remains to be seen. At one landfill, for example, park planners watched for years as a once-level horizon grew in height, driven by trucks that were dumping in heaps every day. That finally stopped about four months ago when the conservancy group acquired the land.
“You can’t really do anything with this. You can be on it, but you can’t dig into it,” Eswine said about the landfill. “There’s plans for it, but we’re not really dealing with that part right now.”
At one of the now-closed junkyards, the debris is mostly cleared but what remains is a barbed-wire fence running along a concrete pad where a semi-truck trailer has been sitting for what seems like decades by the look of it. But almost as if to prove Origin Park’s mission about the importance of reclaiming this space for wildlife, a wild turkey trotted just beyond the trailer on its way to a patch of trees.
Moments like that are common right now. The park is a study in contrasts between abandonment and restoration. It’s not just wild turkey surviving among the vestiges of a junkyard; within some draining wetlands live beaver that recently dammed Mill Creek, and soaring above a landfill is a red-shouldered hawk.
The lands are home to flying squirrels too, Eswine said, and more than 150 types of birds. A late May hike revealed the unmistakable calls of eastern wood-pewee and Carolina wren, in addition to much of the backyard fare typically found in Midwestern cities, such as American robins, blue jays and northern cardinals.
A 2019 ecological report also identified 20 species of mammals, including four types of bats, and several amphibians, reptiles and insects that have found homes amid the emerging wilderness.
Elevated walkways and protecting wetlands
What’s unique about much of this land is that it’s within the flood plain. Rather than fight the occasional floods, Origin Park’s planners are incorporating it into the design. Elevated walkways will allow visitors to have access year-round.
“It will literally be in the trees,” Eswine said. “When we started developing this park, we embraced the fact that it’s going to flood more often than not.”
Another goal is to add protections for the wetlands contained within Buttonbush Woods.
And on the southern end of the property, which stretches along the banks of the Ohio River, much of the land is eroding into the waters below. It’s so bad that a riverside road has been closed to motorists because large pieces of concrete have snapped like a Hershey bar. Planners are hoping to bring in a partner organization to slow the erosion.
Meanwhile, Origin Park is being supported by the Environmental Protection Agency. An $800,000 grant, announced last week, will help pay for cleanup of polluted and industrial sites inside the park.
Eswine, who runs New Albany-based The Marketing Company and has lived in southern Indiana for almost all of his adult years, said he is witnessing a revival among Indiana’s river communities, where downtowns are booming and festivals are filling with visitors.
And he sees Origin Park, which is aptly named to acknowledge that it’s linked to a new beginning, as inherently connected to the region’s revival.
“There is a lot of history along these banks, other than just the formation of Clarksville, New Albany and Jeffersonville,” Eswine said. “Wildlife and civilizations have called this home and we’re trying to honestly get back and protect as much as we can.”
Contact Ryan Martin on Twitter, Facebook, Instagram, LinkedIn, or at [email protected].
Thousands of Hoosiers will soon lose Medicaid access, but the cost of the program is still increasing
Hundreds of thousands of Hoosiers are poised to lose Medicaid insurance access over the next year due to the end of a COVID-19 pandemic-era federal policy that prevented states from kicking people off Medicaid.
Despite that, state costs for the health program serving more than 2.2 million low-income Hoosiers, including more than 60% of Indiana’s children, are only expected to continue to grow over the next two years. That puts pressure on the system and the state’s budget.
Indiana spends billions of dollars on Medicaid each year, making it the second largest expense to the state’s general fund following K-12 education.
In the last decade, Medicaid assistance has doubled, growing at a faster pace than the state’s general fund budget as a whole. It now makes up nearly 18% of the general fund budget, which means less money for other priorities such as education, paying down state debt or infrastructure.
“If you ask me what I lay awake at night thinking about,” Senate President Pro Tempore Rodric Bray, R-Martinsville, said at the end of the legislative session, “it’s Medicaid spending.”
The increased pot of money needed for Medicaid makes it challenging for advocates of either expanded access or increased Medicaid reimbursement rates to make their case. It also means some Hoosiers, such as those who rely on Medicaid for autism services, fear cuts may be coming.
Why so many Hoosiers will likely lose access to Medicaid
Over the next year, the state estimates that a net 400,000 Hoosiers, or nearly one-fifth of the number currently on Medicaid, will lose their Medicaid insurance access.
During the pandemic, the federal government prevented states from disenrolling people from Medicaid even if they were no longer eligible, in exchange for more federal dollars. That caused the number of people on Medicaid in Indiana to increase by more than 800,000 enrollees over the three-year period.
The Biden administration prohibition ended at the end of March, which means that for the next year, the state of Indiana will start double-checking whether those receiving Medicaid still qualify, in a process known as unwinding.
Advocates are worried some people will be kicked off by accident, or won’t realize they lost insurance until it’s too late and they’re hit with a doctor’s bill. The Family and Social Services Administration (FSSA) is sending people at risk of losing access a notice, but Adam Mueller, executive director of the Indiana Justice Project, and other advocates say it’s possible people either won’t get the notice or won’t understand its importance.
“Our biggest concern is that folks who should still be eligible for Medicaid or HIP [Healthy Indiana Plan] or any of the programs could lose coverage for procedural or administrative reasons,” Mueller said. “Even where there’s not a giant unwinding going on, people slip through the cracks.”
To that point, a recent report from the state found that of the roughly 52,000 people who lost coverage in the first month, more than 88% of them lost their Medicaid simply due to procedural reasons such as failing to respond to FSSA, not because the state found them ineligible. That could signal a problem in how Indiana is unwinding, said Joan Alker, executive director and co-founder of the Center for Children and Families at Georgetown University.
“When you see a lot of procedural losses, there’s probably a lot of people, particularly children, who remain eligible, but they’re getting terminated anyways,” Alker said. “Is the state making clear that the children and the parents may have different outcomes, that like the parent is losing [Medicaid access, but] the child is still eligible?”
Advocates also fear that those who do lose access because they are no longer eligible won’t know where to find low-cost insurance options and will go uninsured instead.
So why are the costs still ballooning?
With a net decrease in Medicaid enrollees on its way, it seems counterintuitive that the costs for the program to the state would increase, so why is Indiana’s Medicaid general fund spending poised to increase by almost 40% from the previous budget?
It’s partially because the process of double-checking Medicaid eligibility will take 12 months, which means Indiana will continue to feel the effects of the pandemic requirement until May of next year. Meanwhile, the extra funding from the federal government, which typically covered the extra costs of continuous enrollment to the states, will be phased out by the end of 2023.
“There’s been some inaccurate rhetoric and claims flying around that states have been forced to carry this population, that it’s been very burdensome on them,” Alker said. “That wasn’t true because the federal government was giving them extra money.”
But even if the pandemic requirement had not been a factor, Indiana’s Medicaid costs would likely have increased due to the growth in those enrolling, and are poised to continue increasing in the future. Michele Holtkamp, a spokeswoman for FSSA, said that’s being driven largely by an increase in the number of seniors in Indiana, who often require more costly care.
Hoosiers aged 65 years and older are making up a growing share of the population, and that trend isn’t expected to slow down in the coming years. By 2030, 1 in 5 Hoosiers will be senior citizens, according to a 2018 report from the Indiana Business Research Center.
“That’s just something we and every other state in the country will have to deal with,” Allison Taylor, interim Medicaid director for FSSA, said during an April Medicaid forecast presentation.
Likewise, the state is spending more on behavioral health costs for children. There’s currently no uniform reimbursement rate for Applied Behavior Analysis therapy, commonly used to help children with autism, which means reimbursement amounts are often significantly higher than in other states, Holtkamp said. In 2022, the state spent $420 million on such services, which she called “not sustainable.”
Indiana has also expanded Medicaid in other ways. For example, a new federal rule will require states to provide 12 months of continuous coverage for children enrolled in Medicaid. That protects children from going off and on Medicaid due to minor changes in their parents’ income or other “red tape losses,” but once again, there is a cost. Indiana also extended postpartum eligibility.
The most recent data available from Kaiser Family Foundation puts Indiana near the middle of the pack when it comes to per-enrollee spending for Medicaid and 39th when comparing how much of the general fund is made up of Medicaid spending. But without more recent data, it’s challenging to know how Indiana compares today to other states.
What’s the solution?
Finding a way to stop costs from increasing is complicated because, typically, activists and lawmakers are pushing for an increase in Medicaid access or reimbursement rates — both of which might help Hoosiers but could drive up costs more. Already, Indiana requires those making over a certain income level to make a monthly contribution to their health care.
Some lawmakers pointed to one solution: fix Hoosiers’ dismal health outcomes in hopes that it will reduce the need for care among those using Medicaid. Valparaiso Republican Sen. Ed Charbonneau, who championed a revamp of the public health system in Senate Bill 4, hopes his bill will help.
“This may be a way to bend the curve just a little bit, because unless we prevent people from getting sick … it’s going to get worse,” Charbonneau said. “We can’t keep it up.”
Beyond that, Indiana could strengthen eligibility requirements or lower Medicaid reimbursement rates, both of which would likely be unpopular.
Starting this year, FSSA is undergoing regular Medicaid reimbursement rate reviews. That means costs to the state could go up or down depending on what rates the agency lands on.
Could those reviews cause problems?
They could. This year, for example, lawmakers are coming up with a uniform reimbursement rate for Applied Behavior Analysis therapy. That means some providers could experience cuts.
Indiana ACT for Families, which aims to protect access to care for children with Autism Spectrum Disorder, actively pleaded with lawmakers and the Holcomb administration during the legislative session not to cut funding.
“The outcome of this review has existential repercussions for the children we serve,” the organization wrote in an April letter to lawmakers. “A sudden and steep funding cut would make it extremely difficult for some providers to continue operations and would reduce availability of quality ABA therapy that is critical to the children and families that we serve.
Meanwhile, other Medicaid recipients spent the legislative session pleading with lawmakers to increase reimbursement rates. The Indiana Hospital Association, for example, said Indiana’s current rate only covers about 53% of costs.
Indiana is poised to share the first batch of proposed Medicaid reimbursement rates within the next few weeks, Holtkamp said. The state will look at others, such as hospital reimbursement rates, during the next budget cycle.
Aside from that, Mishawaka Republican Sen. Ryan Mishler, the chief budget architect on the Senate side, has made it clear that he wants to be very picky when it comes to legislation that would increase Medicaid costs.
“We still have a lot of bills out there where members want to keep expanding it and adding more people to the program, and that’s something we have to take a look at is how much do we really want to keep expanding? Because once we do it’s ongoing,” Mishler said during the legislative session. “We just have to figure out the growth of the Medicaid.”
Contact Kaitlin Lange on Twitter @kaitlin_lange or at [email protected].
‘We needed to try something creative’; Here’s why lawmakers are allowing Indy to create a new downtown tax
In the final days of the legislative session, state lawmakers quietly provided the city of Indianapolis with a gift: Mayor Joe Hogsett and the City-County Council gained the power to create a special taxing district in the downtown area.
It is a victory for boosters of Mile Square who have been advocating for a similar district designation for at least five years to pay to improve public spaces, attract new businesses and hold special events. But their efforts failed in 2018, in large part, because of strong opposition from the Indiana Apartment Association that killed a petition drive to create a district.
Now, however, Indianapolis leaders can create the district if they want. No petition signatures are required. That’s because lawmakers created a special carve-out within state law for Indianapolis.
Many observers of the Indiana General Assembly were surprised by the move. The language, inserted into the final version of the state budget bill, was never publicly discussed. Not only that, the Republican supermajority agreed to help local Democrats in a year in which Hogsett is running for reelection against a well-funded Republican candidate. Most years, Indianapolis Democrats are playing defense against bills that would weaken their authority.
The eleventh-hour deal was made possible by the rare bipartisan acknowledgment that the downtown area needs help — not only from the city, but from the state, too.
And while it is true that the creation of a new taxing district could support several quality-of-life improvements and economic initiatives, they are not the main reason the language appeared in the state budget bill.
How the language ended up in the budget bill
The special taxing district language may have emerged in the final moments of this year’s legislative session, but it stems from years of conversations about homelessness.
In 2019, the Indy Chamber led a delegation of local business and government leaders to San Antonio, where they visited a low-barrier homeless shelter. People on the trip envisioned something similar for Indianapolis: a compassionate way to address homelessness by helping people who are unable or unwilling to use faith-based shelters. (One common barrier cited by policymakers, for example, is requiring a commitment to sobriety.)
Since the start of the pandemic, according to an Indiana University Public Policy Institute report, the homeless population has generally grown. They have concentrated in the city’s downtown, advocates say, because that’s where many public services are available.
“The pandemic made it feel like an even more significant, maybe crisis level, situation that we’re still dealing with,” said Taylor Hughes, vice president of policy and strategy at the Indy Chamber. “Coupled with the reality that there aren’t as many people downtown for work reasons … That makes the visibility of the challenge stand out that much more.”
In response this year, a bipartisan group of Marion County lawmakers, the Hogsett administration, the Indy Chamber and others asked state lawmakers to financially support the creation of a new shelter in Indianapolis. Those efforts followed several months of meetings on the topic in a task force co-chaired by appointees from the governor and mayor.
Gov. Eric Holcomb’s office and legislative leaders were supportive of a significant capital investment, according to several people interviewed by State Affairs, but they were also concerned: Could Indianapolis find a way to sustain funding for operations in the future?
So a small group of people, led by Indianapolis Republican Sen. Kyle Walker, dusted off some legislative language that had been floating around since at least 2021. That language enables Indianapolis to create a new downtown tax district, which the budget bill identified as an economic enhancement district.
That’s not to be confused with an economic improvement district, which is difficult to implement because it requires a large number of property owners to sign a petition.
The new language, however, skirts some of the red tape — and opposition — that typically appears when new taxing districts are created.
In the final days of the legislative session, budget writers agreed to insert the language into the budget bill as an option for Indianapolis. And then they added a line item to support the capital expenses for a homeless shelter.
The line item in the budget does not specifically mention Indianapolis. It does, however, allocate $20 million — which just so happens to be the amount advocates were seeking. Combined with the $12 million in city dollars that Hogsett has already set aside, the two pools of cash would cover the $32 million in expected capital costs outlined in a feasibility study.
The line item in the state budget, though, comes with a twist: It is structured as a grant program. That way, if Indianapolis stakeholders fail to identify a funding stream for ongoing operations of the homeless shelter — such as the new downtown taxing district — then the state would not necessarily be required to write a check.
Following a bill-signing ceremony for mental health legislation earlier this week, Gov. Holcomb told reporters he supports a state investment into a low-barrier homeless shelter.
“If nothing else, I’m supportive of local communities who are very transparent about their motives. And how can we then be a good partner?” Holcomb said. “How can we both put skin in the game? How can we both turn the cards face up? … On this front, it’s overdue. So yes, I’m not just pleased but proud to take a crack at this with them but understanding that there is local responsibility here.”
Which senators championed the language?
Budget negotiations every two years typically contain extensive back-and-forth between the two chambers of the Indiana General Assembly. This year, it was important to the Senate to see both the funding of the homeless shelter and the option for Indianapolis to create the new district.
Walker, who represents parts of Marion and Hamilton counties, stepped forward as the main voice championing the deal.
“The economic enhancement district, along with the low barrier shelter, certainly will go a long way to giving Indianapolis the tools to make downtown Indianapolis more attractive and also provide valuable services to the homeless community,” Walker told State Affairs. “I worked on it pretty extensively in the final days of the session.”
Walker had several conversations with other lawmakers, budget writers, legislative leadership and the governor’s office.
The language garnered broad support in the Senate, but it still required a bipartisan battle in the frenzied final days of the session. Once the Indiana Apartment Association became aware, according to those interviewed by State Affairs, the group moved quickly to lobby lawmakers to strip the language from the bill.
“That person had one job, which was to get this language out of the budget,” Sen. Andrea Hunley, D-Indianapolis, told State Affairs. “And so this was not easy to get through. There were definitely forces that were working against it.”
Hunley, who represents the downtown area, described a similar battle in 2018. She was not yet a state senator, but she and her family lived in the Mile Square and went door-to-door collecting signatures on a petition that sought to create the economic improvement district.
“At that time, the apartment lobby stopped it, which was incredibly frustrating,” Hunley told State Affairs. “So we knew that we needed to try something creative.”
Lynne Petersen, president of the powerful Indiana Apartment Association, did not return a call this week from State Affairs. But in an op-ed published by the Indianapolis Business Journal, Petersen criticized the concept: “Imagine our surprise when we learned the Indiana General Assembly granted the Indianapolis City-County Council the authority to levy an additional tax assessment onto businesses and residences downtown to fund some services that presumably property tax dollars already fund.”
Senator cites wide support for district concept
Walker acknowledged the concerns raised by the Indiana Apartment Association, but he emphasized that “the vast majority of businesses and property owners” within the Mile Square are supportive of the creation of a new district. And Walker said he wanted to ensure the legislation contained both guardrails and flexibility.
The guardrails include the creation of an oversight board with representation from downtown property owners as well as appointees from the governor, legislative leadership, mayor and City-County Council leadership.
As for the flexibility? The district can levy taxes in such a way that the costs are proportionate to the benefits, Walker said. The taxing amounts can be different based on the types of properties, too: Maybe residential properties pay one amount, for example, but large commercial properties pay another.
Walker also noted: State lawmakers are not requiring any of it. The legislation, Walker said, simply gives Indianapolis one more option to help the downtown. The ultimate decision is up to local leadership.
“It’s a tool, and it could be a very beneficial tool, but not without a tremendous amount of input from stakeholders,” Walker said.
Mayor Hogsett has not publicly endorsed the creation of a downtown taxing district. His administration could theoretically decide instead to set aside money in each year’s city budget to fund the new shelter, but those interviewed by State Affairs shared a fear that it would lead to a decline in public safety spending at a time when Indianapolis is already struggling with homicides, gun violence and a perception that the city is unsafe.
Late last year, however, Hogsett directed $3.5 million in American Rescue Plan dollars to help the downtown area. The money is paying for police overtime, security cameras, cleaning crews and homelessness outreach. Dan Parker, who serves as Hogsett’s chief of staff, suggested the taxing district could provide funding when the federal money runs out.
“If folks want to see it continue into the future, this is one mechanism now available to keep it going,” Parker told State Affairs. “But there needs to be support built for that, and that’s the hard work that needs to be done over the coming months.”
Downtown Indy Inc CEO Taylor Schaffer, Hogsett’s former chief of staff, celebrated the proposed taxing district’s potential for Indianapolis, which is the largest city without a dedicated fund for its central business district.
“Those types of sustainable funds really help to come alongside city services and private investment to ensure that a downtown can be responsive and nimble,” Schaffer said, “but also have the level of operations that make sense for that area.”
Contact Ryan Martin on Twitter, Facebook, Instagram, LinkedIn, or at [email protected].