What You Should Be Reading: May 2026
Vladlena Klymova
June 4, 2026
Welcome back to “What You Should Be Reading,” a monthly blog series in which the Taxpayers Protection Alliance offers readers refuge from the exhausting, shock-inducing, hot-take-heavy news cycle and refreshes them with a few tall glasses of research on public policy.
This month’s edition includes a deeper look at data centers’ effects on electricity rates, a Medicaid “cost-saving initiative” that bloats costs, and the way that federal transfers to states undermine American federalism.
So, without further ado…
Energy and Environmental Economics, Inc. (E3): “Understanding the Drivers of Rising Electricity Rates and the Role of Data Centers”
Data centers are hardly disruptive to their local environments. They emit barely any air pollutants or any carbon dioxide, do not endanger surrounding wildlife or aquatic life in the water sources they use, produce no radioactive waste, pose no accident risk, and their water consumption is comparable to that of two golf courses. And yet, Americans are less willing to see these facilities appear in their local areas than they are willing to see nuclear power plants, Gallup finds. Pew Research shows that whether Americans live near data centers matters little in shaping their opinion of these facilities; individuals increasingly disfavor them per se, view negatively data centers’ presumed effect on the environment, quality of life, and, importantly, home energy costs.
A recent report from Energy and Environmental Economics, Inc. (E3) explores whether American households indeed subsidize data centers’ energy use as many believe. In short, the report found no empirical support for that belief. “E3’s review of the few quantitative analyses on this topic did not yield evidence that other utility customers are subsidizing data centers.”
Raw evidence alone, however, rarely persuades the public of the conclusion it supports. Media outlets tend to supply the facts and stories about data centers that inform the masses. And news stories about rising costs associated with data centers are proliferating––in wholesale markets, in wholesale capacity markets, in grid-operator regions such as PJM, and in utility service territories such as AES Indiana’s.
E3 argues: “Data centers, in part due to their size and visibility, have become an easy focal point in discussions of rising costs but the evidence suggests a more complex picture. Demand is increasing due to electrification, industrial reshoring, and data center expansion. While this growth has coincided with rising retail electricity rates in some regions, the relationship between load growth and electricity retail rates is complex and must be interpreted carefully.”
In addition to the causes of rising electricity rates being multifaceted, the electricity system itself is convoluted, varied across regions, and fragmented—with numerous regulators and operators responsible for different facets of energy generation, transmission, and distribution.
Such complexity might overwhelm ordinary Americans seeking to understand the extent to which data centers cause power bills to increase. The answer becomes clearer when considering that “states such as Texas and Virginia with the largest increases in load (largely driven by data centers) had the smallest rate increases, while states like California and New York saw the largest rate increases but a reduction in load,” as E3 summarizes it. Data center demand cannot be treated as the leading—let alone sole—cause of rising power bills when even basic correlational analysis fails to implicate it.
E3 explains, “Retail rate outcomes are influenced by broader supply-demand dynamics, market design choices, fuel cost volatility, generation retirements, inflation, and other utility investments (such as grid modernization, wildfire mitigation, policy compliance)—not load growth alone.”
Moreover, “large loads can help reduce rates by spreading fixed costs over their high usage…or by minimizing their impact on the grid, such as by curtailing their demand during periods of grid stress.” Illustratively, in 2024, Google paid the equivalent of 136,000 residential homes toward fixed costs in the South Carolina utility system where its data centers were located.
The Manhattan Institute: “Reining in Medicaid Managed Care”
When Medicaid was created to provide healthcare to needy Americans, states administered the program through a fee-for-service system, paying directly for each healthcare service provided. Yet in recent decades, state governments have increasingly subcontracted Medicaid healthcare services to managed care organizations (MCOs)—private insurers that manage networks of healthcare providers and administer what is known as Medicaid managed care (MMC) to Medicaid beneficiaries in exchange for a monthly per-enrollee payment. From 1992 to 2022, the share of Medicaid beneficiaries enrolled in MCOs increased from 9 percent to 77 percent; its share of total Medicaid spending reached 54 percent.
MMC was meant to save Medicaid money under the assumption that private insurers, guided by market forces, would manage healthcare delivered to Medicaid beneficiaries more efficiently. Policymakers anticipated that MCOs would be incentivized to innovate, offering better-quality plans.
“But private management fits awkwardly within Medicaid,” Chris Pope of the Manhattan Institute argues in a recent report. He explains: “As the benefit is financed almost exclusively by public funds, plans have no incentive to compete for enrollees by reducing premiums. Nor can they charge higher premiums in return for providing better-quality coverage.” Furthermore, “Medicaid benefits tend to be highly standardized by law, which leaves little opportunity for desirable innovation by insurers.”
As a result, MMC not only failed to deliver cost savings to the states but also increased Medicaid’s administrative costs, diverting more funds from patient care. Even more troubling, Pope points out, “procuring services indirectly through MCOs [has added] a further layer of complexity to arrangements. This is heightened by the reluctance of insurers to disclose the details of what they regard as proprietary provider payment arrangements.” The opaque nature of MMC has become “valued by states precisely because it makes fiscal shenanigans difficult to identify.” With the adoption of MMC, Medicaid expenses grew, as did the federal share of Medicaid funds; fraud was allowed to fester; and wasteful Medicaid spending soared, partly owing to instances of states paying monthly rates to MCOs for patients who are deceased, ineligible, unaware of their own Medicaid coverage, or covered by Medicaid in another state.
MMC exemplifies how government efforts to provide services through a hybrid system that is neither fully public nor truly free market create a pernicious arrangement in which the private sector pursues self-interest while being insulated from the forces of competition. Policymakers cannot hope to benefit much from the operations of private businesses exempted from market discipline and given unrestrained access to taxpayer dollars. Instead, private firms will seek rents, avoid accountability, and exploit the many vulnerabilities of government-funded programs at taxpayers’ expense.
The American Institute of Economic Research: “How Federal Transfers Undermine Freedom”
In 2025, the federal government transferred more than $1.2 trillion—17.3 percent of total outlays, or 4 percent of GDP—in grants-in-aid to state and local governments. The money helped to fund states’ healthcare and transportation, education and social services, and even community development, a fundamentally local function. In total, states received roughly $668 billion in Medicaid matching grants and $55 billion in highway formula grants. The federal government spent roughly $40 billion to assist state residents with rent. Almost $10 billion in federal grants went to “improve” local communities, roughly $14 billion went to states to provide low-income families with childcare subsidies, $3.4 billion to combat homelessness, and $2.3 billion to local law enforcement.
With hundreds of grant programs, the federal government has invited—sometimes forced—itself into nearly myriad areas of social policy, for so long and to such an extent that many now regard it as a normal form of governance in the United States. It was never meant to be. The American nation was conceived as a federal republic.
In his recent explainer, Thomas Savidge at the American Institute of Economic Research argues: “Ideally, the relationship between the federal government and the states would be close to what legal scholar Michael Greve calls ‘Competitive Federalism.’” States would have the authority and independence to compete based on some degree of political and economic policies set within their borders and on which the federal government would not encroach. However, Savidge explains, “[t]ransfers enable the federal government to exert influence over state and local policy beyond what direct legislation—or indeed the Constitution—allows.”
As a result, what the law would not authorize the federal government to demand of the states, federal money could purchase through the states’ “voluntary” submission. Since 1990, the federal share of state budgets ballooned and now accounts for 33 percent of state spending. But federal money comes with federal priorities and mandates attached. Worse, federal funds introduce bad incentives for the states, weakening their discipline with respect to budgeting.
However, the federal government—unlike most state governments—does not constrain itself by balancing its books. Its increasingly precarious fiscal standing could soon lead to the meaningful reduction in the federal share of state budgets. Meanwhile, states’ capacity to absorb the loss of a big part of their revenue has deteriorated. Many states’ pension liabilities are unfunded, taxes are already onerous, and spending on politically sensitive services is exorbitant.
“Making the extent of state federal dependence on federal funds clear to the public, and the dangers of such dependence, can help states break free from federal funds,” Savidge exhorts readers. But the extent to which Americans have shown themselves willing to forfeit the current benefit levels for the sake of sustained fiscal sustainability should temper any optimistic projections.
Note: TPA highlights research projects that contribute meaningfully to important public-policy discussions. TPA does not necessarily endorse the policy recommendations the featured authors make.