Fiscal Fitness: How States Cope

Governors say their budgets have improved over last year’s, but they still see trouble ahead

Although many governors are feeling more upbeat about their states’ economy than they did last year, they still see major problems ahead, particularly in health care. They have asked congressional leaders to not make it worse by including Medicaid cuts in the FY 2005 budget.

The governors spoke out on Medicaid during the winter meeting of the National Governors Association (NGA) and sent a letter to the chairman and ranking minority member of the Senate Budget Committee asking that Medicaid be spared from any federal cuts.

"States are currently emerging from the most severe budget crisis since World War II, and nearly every state has already enacted difficult cuts to its Medicaid program, including both eligibility levels and provider payments," the letter said. "Federal funding reductions would force states to implement even deeper cuts by restricting eligibility, eliminating or reducing critical health benefits, and cutting or freezing provider reimbursement rates. As a result, Medicaid funding cuts could add millions more to the ranks of the uninsured and would harm our nation’s health care safety net."

The governors’ view of the economy and the problems their states face was included in an NGA summary of 45 state-of-the-state addresses distributed by the association’s Center for Best Practices.

Reports more upbeat

Compared to 2003, the summary said, the majority of governors in their addresses for 2004 were much more upbeat about current economic conditions and the state budgetary outlook. While last year some 86% of governors described huge budget gaps that loomed, outlined dire service cutbacks that were needed, or otherwise referred to a severe budget crisis that their states were experiencing, this year, the vast majority of governors described a more optimistic economic climate, including modest job growth that has occurred in the past year.

While saying that economic conditions had improved somewhat, the governors cautioned that their state budgets and economic outlook were far from rosy. Rather, most said their states still are facing spending cuts to eliminate budget gaps.

In the 2004 speeches, 89% of governors said their state’s economic picture is improving, while 79% said budget conditions remained very tight and would require difficult spending choices. The governors of California, Connecticut, Iowa, and West Virginia described more dire fiscal circumstances, while the governors of Colorado, North Dakota, and Wyoming said their state budgets were either strong or expecting a surplus.

Even more than last year, governors singled out increased health care costs as a key factor that must be addressed to accomplish these goals:

  1. control state spending by limiting Medicaid costs, cover the uninsured, and provide health benefits to government employees and teachers;
  2. improve the business climate by limiting the high costs of providing health insurance coverage to employees;
  3. improve the well-being of state residents by making prescription drugs and health insurance more affordable.

The report noted that nearly every governor made some reference to health care and many emphasized the twin needs of expanding basic health insurance coverage and bringing down health care costs for individuals, businesses, and states. Comments in the state-of-the-state speeches covered a wide range of issues:

  • 42% of governors addressed the need to expand health insurance coverage for the uninsured.
  • 40% proposed or supported initiatives related to children’s health including immunization, dental care, health insurance coverage, mental illness, and childhood diseases.
  • 40% emphasized the need for or discussed plans under way to limit costs of prescription drugs for seniors and others through discount programs (nine states), opportunities to buy prescription drugs from Canada (four states), or other means.
  • 36% discussed the importance of long-term care for the elderly and the disabled, particularly the need to increase options for home- and community-based care.
  • 33% discussed the need to have an impact on specific health conditions such as mental health, substance abuse, cancer, tobacco use, obesity, hepatitis C, diabetes, and West Nile virus.
  • 33% proposed or said they supported efforts to curtail spiraling costs of Medicaid.

Meanwhile, representatives of seven hospital organizations wrote members of Congress urging that Medicaid not be cut in the upcoming budget.

The letter from the American Hospital Association, Association of American Medical Colleges, Catholic Hospital Association of the United States, Federation of American Hospitals, National Association of Children’s Hospitals, National Association of Public Hospitals and Health Systems, and VHA Inc. not only called for no cuts to Medicaid, but also asked for an extension of the $10 billion in temporary state fiscal relief provided last year through increases to the federal match. That relief is due to expire June 30.

Download the complete summary of state-of-the-state addresses and find more information at More information on the hospital position is available from the American Hospital Association at