Off the Charts Blog | Center on Budget and Policy Priorities

With states in the third year of a fiscal crisis sparked by their steepest revenue decline on record, we’ve updated our analysis of state budget shortfalls for the current (2011) and coming (2012) fiscal years. Here are the highlights:

• To balance their budgets for fiscal year 2011 (which began July 1 in most states), states had to address $125 billion in shortfalls. Since the start of the recession, they have closed about $425 billion in shortfalls.
• Thirty-nine states are estimating $112 billion in shortfalls for 2012. We estimate that, once all states have prepared estimates, the total shortfall for 2012 will reach about $140 billion.
• While federal aid in the 2009 Recovery Act (and, to a smaller degree, in the August 2010 jobs bill) has lessened state cuts in services and tax increases over the past few years, that help is running out. About $60 billion remains to help with states’ 2011 fiscal problems, and by 2012 only $6 billion will remain.

Recent Census data show that state revenues are stabilizing, as we noted earlier, but they remain far below pre-recession levels — and well below levels needed simply to maintain current public services.

The longer the fiscal crisis continues, the more damaging the potential cuts to public services, since states have already made the less painful cuts. That’s just one of several reasons why most states have rejected a cuts-only strategy in favor of a balanced approach that includes more revenue.

Several thousand impoverished elderly or disabled refugees who fled persecution in such troubled places as Afghanistan, Somalia, the former Yugoslavia, and Cuba lost their badly needed Supplemental Security Income (SSI) benefits last week. Thousands more will lose their SSI eligibility over the coming year.  A last-minute push in Congress to preserve these modest benefits failed before lawmakers left town to campaign for re-election; restoring those benefits should be high on lawmakers’ to-do list when they return to work in mid-November.

SSI provides aged, blind, and disabled people who have little or no income with modest monthly checks to help them meet basic needs.  Noncitizens who entered the United States after August 1996 generally can’t get SSI, but Congress has allowed very poor refugees — many of whom faced violence or torture in their home country and often arrive here with little more than the clothes on their back — to receive SSI benefits for a certain period to give them time to become citizens.

Two years ago, Congress overwhelmingly approved a law temporarily lengthening the SSI eligibility period for refugees from seven years to nine.  On October 1, the first group of up to 5,600 beneficiaries hit the nine-year limit and were cut off.  Another 5,600 may be cut off over the next 13 months as they bump up against the limit.

The assumption that elderly and disabled refugees can readily become citizens and thereby retain SSI eligibility has turned out to be mistaken, for several reasons.  Refugees generally may not even apply for citizenship until they have been in the country for five years — longer for asylees — and the application fees of $595 to $675 represent a huge amount for people living below the poverty line.

Applicants must also pass tests in English and civics — a steep hurdle for people who often had limited education in their home country and are elderly or seriously disabled.  And to become citizens, these individuals must navigate a confusing bureaucracy, often without help from an attorney or friend who is knowledgeable on these matters.

People whose benefits were due to expire on October 1 include:

• A blind man, age 77, who spent 14 years as a political prisoner in Cuba and who did not know that he would have to seek citizenship in order to keep his SSI.
• An elderly man from Ethiopia who received asylum in 2001 and applied for a green card promptly but didn’t receive it for six years and thus can’t apply for citizenship until 2011.  “I am 79 years old, so I can’t work,” he pleads.
• A 101-year-old woman who was granted political asylum after fleeing Cuba and now suffers from cognitive degeneration.
• An elderly couple who arrived from Sudan ten years ago as political asylees; they experienced long delays in obtaining green cards because of their difficulties with English and thus are not yet eligible to apply for citizenship.
• A man from Azerbaijan who was granted asylum in 2000, suffers from schizophrenia, and won’t be eligible to apply for citizenship until 2014.

“I don’t want to complain against the United States because this country has helped me immensely, but the reality is that I may be homeless,” says one refugee threatened with loss of benefits.   There’s no good reason for letting these extremely vulnerable people face destitution.

The Wall Street Journal reported last week that McDonald’s was considering eliminating health coverage for some of its hourly employees because the company’s health plan couldn’t comply with health reform’s requirement that it spend a certain percentage of its premiums on medical care rather than overhead or profits.

Although McDonald’s quickly denied the report, the incident brought new attention to the “mini-med” health plans that many low-wage workers have access to (if they have job-based coverage at all).  The plans’ inadequate coverage underscores the importance of the benefit standards that the Affordable Care Act will apply to the health insurance market starting in 2014.

The McDonald’s plan charges premiums of $728 per year while capping medical payments at only $2,000 per year, according to the Wall Street Journal. (The company also offers a more generous plan that charges $1,680 annually and caps payments at $10,000.)

As Jonathan Cohn of The New Republic points out, “to call that ‘insurance’ is to distort the definition.”  Two thousand dollars wouldn’t begin to cover the cost of a hospital stay or the treatments needed for a serious illness, and would fall short of covering treatments like prescription drugs and doctor’s visits to treat many common chronic conditions.

Moreover, even before reaching the annual cap on insurer payments (after which workers would have to pay all of their medical costs on their own), workers would still have to pay 30 percent of the cost of any days in the hospital that the insurer would help pay for and $50 per brand-name prescription.  A low-wage worker enrolled in this plan who gets sick could end up having to choose between financial ruin and forgoing needed care.

Fortunately, the Affordable Care Act will make it easier for consumers — as well as small employers — to find decent, affordable coverage.  Starting in 2014, all plans provided within the new health insurance exchanges, as well as new plans in the individual and small-group markets outside the exchanges, will have to meet minimum benefit standards.  Specifically, they will have to:

• cover a list of essential benefits, such as hospital and physician services and prescription drugs;
• limit the annual out-of-pocket costs that enrollees would have to pay for covered services; and
• provide coverage that overall meets a minimum level of comprehensiveness (defined as plans with an actuarial value of at least 60 percent, meaning they would pay 60 percent of the medical expenses for covered health services for a typical population).

In addition, people with incomes below 400 percent of the poverty line, or about $88,000 for a family of four, will qualify for tax credits to help pay the premiums for coverage (with a 70 percent actuarial value) purchased through the exchanges.  People below 250 percent of the poverty line will also get additional help with their cost-sharing charges.

As David Leonhardt writes in today’s New York Times, “In 2014 . . . the choice for McDonald’s workers will no longer be between a bad policy and no policy.  Through the exchanges, they will be able to buy a real health insurance plan — one that covers cancer, heart attacks, surgeries, M.R.I.’s and hospital stays.”  So for low-wage workers, many of whom now have no access to quality, affordable health insurance, 2014 can’t come soon enough.

In a new paper and podcast I’ve tried to correct some of the misinformation that critics of Social Security have been spreading about the program.

Here are the facts.  Social Security is a well-run, fiscally responsible program.  People earn retirement, survivors, and disability benefits by making payroll tax contributions during their working years.  Those taxes and other revenues are deposited in the Social Security trust funds, and all benefits and administrative expenses are paid out of the trust funds.  The amount that Social Security can spend is limited by its payroll tax income plus the balance in the trust funds.

The Social Security trustees — the official body charged with evaluating the program’s long-term finances — project that Social Security can pay 100 percent of promised benefits through 2037 and about three-quarters of scheduled benefits after that, even if Congress makes no changes in the program.  Relatively modest changes would put the program on a sound financial footing for 75 years and beyond.

Nonetheless, some critics are attempting to undermine confidence in Social Security with wild and blatantly false accusations.  They allege that the trust funds have been “raided” or disparage the trust funds as “funny money” or mere “IOUs.”  Some even label Social Security a “Ponzi scheme” after the notorious 1920s swindler Charles Ponzi.  All of these claims are nonsense.

Every year since 1984, Social Security has collected more in payroll taxes and other income than it pays in benefits and other expenses.  (The authors of the 1983 Social Security reform law did this on purpose in order to help pre-fund some of the costs of the baby boomers’ retirement.)  These surpluses are invested in U.S. Treasury securities that are every bit as sound as the U.S. government securities held by investors around the globe; investors regard these securities as among the world’s very safest investments.

Investing the trust funds in Treasury securities is perfectly appropriate.  The federal government borrows funds from Social Security to help finance its ongoing operations in the same way that consumers and businesses borrow money deposited in a bank to finance their spending.  In neither case does this represent a “raid” on the funds.  The bank depositor will get his or her money back when needed, and so will the Social Security trust funds.

As far back as 1938, independent advisors to Social Security firmly endorsed the investment of Social Security surpluses in Treasury securities, saying that it does “not involve any misuse of these moneys or endanger the safety of these funds.”

Moreover, Social Security is the “polar opposite of a Ponzi scheme,” says the man who quite literally wrote the book about Ponzi’s famous scam, Boston University professor Mitchell Zuckoff.  The Social Security Administration’s historian has a piece on this topic as well.

Unlike the frauds of Ponzi — and, more recently, Bernard Madoff — Social Security does not promise unrealistically large financial returns and does not require unsustainable increases in the number of participants to remain solvent.  Instead, for the past 75 years it has provided a foundation that workers can build on for retirement as well as social insurance protection to families whose breadwinner dies and workers who become disabled.

Today, the Center’s Executive Director, Robert Greenstein, joins Nobel laureate and New York Times columnist Paul Krugman, former Chairman of the President’s Council of Economic Advisers Martin Feldstein, former Congressional Budget Office Director Robert Reischauer, and 18 other prominent economists and budget experts who are speaking at a conference that we’re co-hosting with The Century Foundation, Demos, and the Economic Policy Institute.

They’ll be talking about deficit reduction, health reform, recession and recovery, and national security, among other topics.

Moderators include Jackie Calmes of the New York Times, Ezra Klein of the Washington Post, Robert Kuttner of the American Prospect, and Stan Collender of Qorvis Communications.

Join us virtually and view the live webcast from 8:30am – 4:30pm. The live stream of this event has ended. We will post the video from the conference shortly.