Historical Empiricism and the Schleicher Trilemma

Guest Blogger

For the Balkinization symposium on David Schleicher, In a Bad State: Responding to State and Local Budget Crises (Oxford University Press, 2023).

Vince Buccola

The principal object of David Schleicher’s slim, new book, In a Bad State, is to set out a conceptual schema for mapping policy options with respect to state and local financial distress. The Schleicher Trilemma states that no policy response can simultaneously vindicate each of three commonsense values that (national) political actors are apt to hold, and the book is devoted to elaborating this core insight. There is much more to the work, of course. As anyone who knows Schleicher even a bit will expect, the book’s 171 pages (sans notes) brim with fascinating data and anecdotes. (Schleicher aficionados will, however, be disappointed not to find an index entry for “Stillman, Whit.”) By word count, much of the book (pp. 33–117) is historical. Schleicher offers a fresh account of each major wave of state and local financial distress in the United States, from the aftermath of the Revolutionary War through Covid-19. The historical vignettes alone more than justify the cover price. In the context of the book’s analytical purpose, though, they serve didactic and argumentative functions, on one hand to illustrate the Trilemma through real-world application and on the other to verify the causal relationships it posits.

The Schleicher Trilemma turns on a mismatch between policy levers and policy goals. In Schleicher’s typology, there are three generic strategies national policy can pursue in relation to local (in which category I’ll include state) government financial distress. The national government can (1) bail out the local government and its creditors; (2) encourage the local government to default on its creditors; or (3) force the local government to pursue an austerity path—raising taxes, cutting spending—to pay its creditors. And there are three generic political values at stake. National policy makers will want to (A) reduce moral hazard (for future leaders of, and lenders to, local governments); (B) encourage future lending to local governments (to further infrastructure investment); and (C) avoid social fallout from local collapse of services or tax hikes. The rub is that each policy attitude sacrifices one of the values. The choices are A(2,3), B(1,3), or C(1,2).

It is a tremendous heuristic. Like all great heuristics, it manages simultaneously to encompass the wide universe of relevant possibility and to be, for lack of a better word, true. One doesn’t need to indulge game-theoretic axioms or harbor an unrealistic notion of rational expectations to see that the trade-offs Schleicher posits are inevitable. Grasping them is fundamental for those interested in the connection between national policy and state and local investment, and I therefore predict that In a Bad State will long prove a starting point in policy analysis of local financial distress in the same way that Modigliani-Miller is still the beginning of interesting questions in corporate finance.

Balkinization Symposium on David Schleicher, In a Bad State: Responding to State and Local Budget Crises

JB

This week at Balkinization we are hosting a symposium on David Schleicher's new book, In a Bad State: Responding to State and Local Budget Crises (Oxford University Press, 2023).

We have assembled a terrific group of commentators, including Vincent Buccola (Penn-Wharton), Sheila Foster (Georgetown), Clay Gillette (NYU), Rick Hills (NYU), Noah Kazis (Michigan), Amy Monahan (Minnesota), Daniel Rodriguez (Northwestern), Miriam Seifter (Wisconsin), and Christopher Tyson (National Community Stabilization Trust).

At the conclusion, David will respond to the commentators.

Losing Big

David Super

     President Biden got owned.  Nominally, he got owned by Speaker Kevin McCarthy.  In reality, he got owned by Rep. Matt Gaetz.  Rep. Gaetz had a clear, well-developed long-term strategy that he followed with great discipline.  The Administration had only a set of half-formed, often contradictory, impulses that it followed haphazardly, rarely thinking even one move ahead.  It likely thinks it won several news cycles and is hard at work trying to win another.  Rep. Gaetz set out to win on substance, and the wailing and moaning we are now hearing from the Freedom Caucus is precisely what they ought to do to lock in their huge substantive victories and set the stage for more.  Surely the Members that are paying attention know that they won.  But by withholding their votes, they can force even more Democrats to vote for this deal.

     The details have yet to emerge, but from media accounts it appears the President agreed to a substantial nominal-dollar cut in non-defense discretionary spending for next fiscal year.  When roughly five percent inflation is considered, this will be a deep reduction in the capacity of the federal government to perform its basic functions.  For the following year, nominal non-defense discretionary spending would rise one percent, which after the effects of inflation will mean several additional percentage points of real cuts in its ability to do its job. 

     But it gets worse:  a lot worse.  Media accounts say that veterans’ health care, one of the larger accounts within that category, will be protected.  That means that everything else will have to absorb proportionately deeper cuts to make up for those not going to veterans’ health care.  Numerous other government functions (e.g., Border Patrol, protective details for high officials, utilities for federal buildings) will not be cut, forcing still-bigger cuts in what remains. 

     In addition, if Congress and the President do not agree upon all twelve annual appropriations bills by January 1, the agreement apparently would impose a year-long continuing resolution (CR) with a one-percent across-the-board nominal cut.  This will give Republicans – who can effortlessly hold back one or more bills – enormous leverage in negotiating the content of those appropriations bills.  So not only will the levels be far below those needed to maintain government functions, but the money that is spent will almost certainly be badly misallocated.  It remains to be seen how these pieces fit together, but even the best-case scenario is pretty grim. 

     This result has enormous long-term significance.  First, and most obviously, each year’s appropriations discussions start with the prior year’s spending level.  Merely restoring a program to its now-current level of effectiveness will require the President and Congress to go far above that baseline and invite the label “big spenders.”  Many programs still have not recovered from the “sequestration” cuts President Obama agreed to over a decade ago. 

     More insidiously, underfunding government programs will cause them to function less well.  National parks will close off areas for lack of resources for operations and maintenance.  People will miss flights as TSA lines lengthen, or those flights will get cancelled when air traffic control is overstretched.  People will get sick when contaminated meat gets past USDA inspectors even more overwhelmed than they are today.  The FDA will hold up approvals of anticipated drugs for lack of examiners to review applications.  All this will support the Republican narrative that government is incompetent and “deserves” more funding cuts. 

     Beyond that, the Biden Administration passively accepted – at times even reinforced – Republicans’ profoundly tendentious framings of the issues.  Rather than working to gain public acceptance of the legal theories that could end debt limit hostage-taking once and for all, the Administration planted stories about how it was having trouble taking seriously “out there” theories and the President himself pledged not to use them (and thus obliterating his negotiating leverage). 

     People who would never be foolish enough to say that de-indexing the Internal Revenue Code was not a tax increase are nonetheless accepting the inflation-denialist demand to discuss spending programs only in nominal dollar terms. 

     The Administration ceded without serious contest the mantle of “fiscal conservatives” to Members of Congress proposing huge unfunded business tax cuts that would swamp the effects of these spending cuts.  The approach of Presidents Ronald Reagan and George W. Bush was to ram through large unfunded tax cuts and then later “discover” a “fiscal emergency” that “required shared sacrifice” to address.  Today’s Republicans believe they can get away with pursuing these contradictory agendas simultaneously.  And the Biden Administration is telling them they are right.

     Perhaps most insidiously, the Administration continually accepted Republicans’ characterization of eligibility purges from basic assistance programs as “work requirements.”  None of the Republicans’ main proposals for the Temporary Assistance for Needy Families (TANF) block grant had anything to do with putting anyone to work:  they simply sought to increase the quotas for families that states must purge from their already-shrunken assistance programs in order to avoid creating the work programs states almost unanimously are unwilling to operate. 

     And the so-called SNAP “work requirement” would cut off food assistance after just three months to low-income people between ages 50 and 55 who cannot prove that they are working at least half-time every month.  Minimally skilled people in this age range, which the Social Security Administration describes as “closely approaching advanced age,” commonly see their employment prospects dwindle as they are unable to compete with younger people at hard physical labor.  They may make ends meet with several jobs, often with volatile hours.  If they cannot collect adequate verification of all those hours each month, or if their total hours ever dip below half-time, they are cut off.  Nothing in current law or the Republicans’ proposal requires states to give individuals in need the opportunity to work for continued benefits.  And despite generous financial incentives to offer work slots, only a handful of states even purport to do so.  Yet when most reporters hear about “work requirements,” they assume that only the willfully idle are affected.  And the Biden Administration has made little effort to educate them otherwise – making its capitulation all but inevitable.

     President Biden had a front-row seat for the Obama Administration’s short-sighted, strategically clueless approach to Republican debt-limit extortion.  Apparently he learned very little from it.  He had plenty of time to raise the debt limit on a budget reconciliation bill after the election, needing no Republican votes.  All candidates for Chair of the House Budget Committee last fall were publicly promising debt limit extortion to radically transform the federal government. 

     Failing to raise the debt limit in December might have made sense as part of a plan to invoke the 14^th Amendment or to employ one of the several available technical means of avoiding it.  Unfortunately, the Administration had no plan.  This is the result.  The President should tip his hat to Matt Gaetz.

     @DavidASuper1

An Old-Fashioned Filibuster

Gerard N. Magliocca

Long ago, a Senate filibuster involved talking marathons by a Senator or by a small group. We don't see this anymore because of modern cloture practice. But there are circumstances in which this tactic could still happen. Imagine it was the final day of a Congress and a Senator wanted to block a bill. She could take the floor and just talk until that Congress was forced to adjourn sine die. This did happen, most famously on the eve of World War I when some isolationist Senators talked a military bill to death at the end of the lame-duck session. (This filibuster spurred the creation of the first cloture rule.)

Unfortunately, the debt ceiling creates a similar scenario in the middle of this Congress. Even if a budget deal is made and passes the House of Representatives, a small group of Senators could just hold a talking marathon starting on May 31 or June 1 and keep that up until they get whatever concessions they want. This is why waiting until the last minute to work out the details of vital legislation is a risky business. 

Justice Thomas and the January 6th Cases

Gerard N. Magliocca

Last year, Ginni Thomas was questioned by the January 6th Committee about her involvement with some groups that sought to challenge the presidential election result in 2020. As a result, some argue that Justice Thomas should recuse himself from any cases that flow directly from the events of January 6th, 2021. Up until now, though, this was an academic question.

Not anymore. Couy Griffin, the New Mexico County Commissioner who was disqualified from office for violating Section Three of the Fourteenth Amendment on January 6th, has filed a certiorari petition. Leave aside whether the petition has merit (It doesn't). The more interesting question is whether Justice Thomas will participate in the disposition of Griffin's petition. This will tell us whether he intends to recuse from any or all such cases in the future.   

LevinsonFest on Constitutional Crises-- Collected Posts

Guest Blogger

Republicans’ “Work Requirements” are Really Just Benefit Cut-offs for the Most Vulnerable

David Super

     With each passing day, it appears more likely that House Republicans will seek to provoke the first crisis (of likely several) in the budget negotiations over what they call “work requirements” for anti-poverty programs.  This certainly has nothing to do with deficit reduction:  the amount their proposals would save is only barely enough to pay for the deficit increases caused by their proposal to strip the IRS of enforcement resources – and would pale compared with the cost of their plans to extend expiring provisions of the Trump tax cuts. 

     But these proposals also are not about work.  Instead, the “work requirements” proposal involves taking benefits away from desperately poor people without regard to willingness (or, often, ability) to work.  That much of the news media largely gives Republicans a free pass in rebranding an eligibility purge as a “work requirement” is a testament to its disinterest in policy history or the well-being of the lowest-income members of our society – as well as perhaps a longing to pretend we are still fighting the battles of yesteryear, when our politics seemed a bit saner.

     Much of the criticism the purported “work requirements” have received appropriately focuses on Medicaid and the Supplemental Nutrition Assistance Program (SNAP, formerly food stamps), the two largest programs Republicans are targeting.  Yet the phoniness of “work requirements” is even more apparent in the case of the Temporary Assistance for Needy Families (TANF) block grant that replaced the Aid to Families with Dependent Children (AFDC) program in the 1996 welfare law. 

     With President Clinton and Members of Congress from both parties insisting that the point of the 1996 welfare law was moving idle recipients from welfare to work, reporters and voters could certainly be forgiven for assuming that was so.  In fact, 100% of the law’s budgetary savings came from deep cuts in food stamps (little of which had anything to do with work), denying subsistence benefits to immigrants legally in this country, and terminating disability benefits to children. 

     The 1996 law’s highest-profile provision – and one over which neither President Clinton nor many congressional Democrats raised significant objections – was ending AFDC’s individual entitlement to monthly assistance checks for very low-income families with children and sending the money saved to states as the TANF block grant.  States did not have to spend TANF funds on cash assistance to low-income families.  Former NFL quarterback Brett Favre has been in the headlines lately for having received millions of TANF funds from Mississippi for giving inspirational speeches.  (His possible legal exposure seems to come not from receiving TANF funds for that purpose but rather from failing to bother to give those speeches.)

     Any money states did spend on cash assistance to families (or its close equivalents) was subject to a work participation rate.  For one-parent families, at least half of the parents had to be engaged in countable work activities for thirty hours per week.  For two-parent families, at least 90% had to have at least one parent engaged in countable work activities at least 35 hours per week.  If a state failed to meet these work participation rate, it lost a portion of its TANF block grant and – much worse – was subject to an embarrassing public sanction that would inevitably be understood as allowing idleness. 

     States concluded that the 90% two-parent rate was utterly unmeetable because of the narrowness of the permissible activities, the administrative difficulties of tracking people in their first months receiving aid, and inevitable months when a parent failed to accrue the required hours due to injury, illness, or transportation breakdowns.  States saw the 50% one-parent rate as extremely difficult to meet for similar reasons and because of the staggering cost of the child care required.    

     The law, however, offered states an out.  Their required work participation rates would drop one percentage point for every percentage point their caseloads declined.  Thus, a state terminating assistance to half the families that had previously received it would have no work participation rate at all for the remaining one-parent families and would have a more manageable 40% rate for two-parent families.  It actually became more advantageous for states simply to cut off aid to a family than to get the family into work activities. 

     Across the political spectrum, states concluded it was too expensive and administratively burdensome to run the kinds of large work programs that most people assumed the 1996 law would create.  (A rare  exception was New York Mayor Rudy Giuliani, who made welfare recipients pick up trash from city parks without gloves while sharply reducing Parks Department employment.)  Instead, states focused on the caseload reduction credit, purged families en masse from their cash assistance programs, and met their work participation rates despite having very few recipients engaged in countable work activities for the required number of hours.  Many states had zero work participation rates for one-parent families.  Those that had some residual work participation rate often filled it not by giving work opportunities to recipients but by making token cash payments to non-recipients who were already working the required number of hours. 

     After initially cheering the precipitous decline in families getting aid, Republicans began attacking states for having so few people counted as working.  Even though the caseload reduction credit was their idea in a law they had written and passed, Republicans decried it as a loophole and again demanded tougher “work requirements.”  Predictably, these demands for “work requirements” ended the same way similar demands had a decade earlier. 

     A Republican Congress amended the TANF statute in 2006 to deny states any credit for caseload reductions up to that point in calculating their work participation rates.  It also prohibited some methods states had used to get aid to desperate families outside of the work participation rate structure. 

     States again had a choice between operating rigorous, tightly constrained work programs for cash assistance recipients or re-purging their already-shrunken rolls.  And again, across the political spectrum, states opted to pursue new caseload reduction credits and removed more desperately needy families from cash assistance. 

     When the Great Recession sharply increased the number of families needing aid, this strategy precluded states from meeting that need.  Indeed, states felt they could least afford to start substantial work programs with their budgets buckling as tax revenues declined.  President Obama’s 2009 stimulus package temporarily suspended the work participation rates and gave states extra funds to operate public job creation programs.  By this time, however, many states were fully committed to their caseload reduction strategies and unwilling or unable to turn back.  Thus, despite huge increases in need, about half the states saw their cash assistance caseloads stagnate or decline.  When the work participation rate suspension and job creation funding expired in a still-weak economy, the rest of the states turned again to the caseload reduction credit.  Very few of the genuine work programs the stimulus law had funded survived its expiration. 

     Having played the “tougher work requirements” card twice with very little pushback, House Republicans unsurprisingly are eager to go for the hat trick.  Their debt limit bill would again force states to purge their cash assistance programs – which at this point serve few but the most desperate families – to claim caseload reduction credits.  It also would eliminate the modest flexibility states have under the current law to provide cash aid to people who cannot work due to illness, injury, homelessness, the need to hide from an abusive partner, lack of transportation, or residence in an isolated rural area without accessible jobs. 

     Prior purges have made cash assistance unavailable to vast numbers of extremely poor families with no alternative.  The number of families receiving cash assistance in 1996 was about two-thirds the number of families in poverty that year.  By 2020, the number of families receiving cash assistance was just 21% of the number of families in poverty.  Most of those that remain face severe obstacles to work.   

States that declined to operate work programs for the far more work-capable recipients of the 1990s or 2000s are certainly not going to do so for the extremely difficult- and expensive-to-serve families that now get cash assistance. 

     Some states might well determine that providing cash assistance to parents with children is no longer viable.  This likely would result in significant numbers of children being removed from their parents and placed into foster care (where a federal entitlement to cash assistance remains).  This deeply anti-family policy is stunningly hypocritical for the party that claims to be the champion of traditional families.  More importantly, it would spell tragedy for countless parents and children while swamping states’ already overburdened foster care systems. 

     President Biden’s initial response to House Republicans’ demand for “work requirements” was that he voted for the 1996 welfare law, and its strong work requirements remain on the books.  He should not fall for the “work requirements” trick a third time. 

     @DavidASuper1