DC, can you spare a dime? States turn to Washington for fiscal help
The nation’s governors and legislatures used summer 2002 to sound the alarm about the worsening fiscal condition in most states, brought on by increasing costs for Medicaid, and to plead for more federal help. The pleas were met with mixed signals. After the Bush administration indicated help was not likely to come from Washington, DC, the U.S. Senate adopted a measure to send more money to the states.
A report released at the annual meeting of the National Conference of State Legislatures (NCSL) demonstrated the widespread fiscal problems confronting states:
- Twelve states reported FY 2002 budget gaps of more than 10% of their general funds.
- State ending balances fell nearly 42% from FY 2001 to FY 2002.
- Aggregate "rainy-day fund" balances have fallen from $16.5 billion in FY 2001 to $10.8 billion at the end of FY 2002.
- Twenty-six states collected less revenue in FY 2002 than they did in the previous year.
- Twenty-nine states have implemented targeted or across-the-board cuts.
- Nineteen states drew on rainy-day funds to compensate for higher expenses and reduced tax income.
"Fiscal 2003 is shaping up to be even more of a challenge than 2002," says NCSL executive director William Pound.
"Though many legislatures have already addressed their fiscal 2003 budget gaps, budget cuts, tax increases, and rainy-day funds are not out of the question," he says.
Estimates for FY 2003 show that the aggregate budget gap will continue to widen to $57.9 billion.
Attendees at the recent National Governors Association (NGA) meeting said that state spending on Medicaid increased 13% last year and now accounts for about 20% of total state spending. The governors said the increase in Medicaid costs was primarily due to the growing number of senior citizens who are dually eligible for Medicare and Medicaid. States are now responsible for a portion of dually eligible seniors’ health expenses, which had been completely covered by the federal government. It is estimated that the 7 million dually eligible seniors are responsible for 35% of the cost of Medicaid.
"We’ve reached deep into our reservoir of options," says Michigan Republican Gov. John Engler. "We set aside a lot of money in rainy-day funds. Now we are drawing that reserve down. Well, in many cases, that was enough to get maybe a couple of fiscal years. The rainy-day funds were never designed to go for five budget cycles."
A glimmer of hope for the states came on the floor of the U.S. Senate when a measure that would send nearly $9 billion in fiscal relief to states for Medicaid and social services programs was approved on a 75-24 vote. The measure would temporarily increase the federal share of Medicaid by $6 billion through a hold-harmless provision for states that experience a drop in their Federal Medical Assistance Percentage (FMAP) and a 1.35% across-the-board increase for each state, with a 2.7% FMAP increase for each territory. The amendment also would provide an additional $3 billion in temporary social service block grants to be administered through Title XX.
"Many states continue to face budget shortfalls and face the prospect of instituting significant cuts in health care and social services to curb expenditures," NGA chairman and Kentucky Gov. Paul Patton said after the Senate vote. "Adoption of this amendment is an important first step in helping states maintain service levels during the continuing fiscal crisis."
The $9 billion would flow directly into Medicaid budgets and the flexible Social Services Block Grants that provide critical services such as long-term care for the elderly and assistance for the disabled. Fiscal relief also would allow states to reduce proposed cuts in state budgets to other programs, including education.
"As it stands, states can no longer afford Medicaid," said NGA vice chairman and Idaho Gov. Dirk Kempthorne. "With the program’s growth rate approaching 25% over the past two years and representing more than 20% of state budgets, it was imperative for the Senate to recognize that states needed significant assistance. Passage of this amendment ensures that many low-income families will be protected from drastic cuts in the programs that provide for their health care and social service needs."
But the ultimate fate of the assistance is far from certain, given that a key Bush administration executive traveled to the NGA meeting to tell the governors that the administration does not support the Senate action.
"We can’t always give you more money," said Centers for Medicare & Medicaid Services administrator Tom Scully. "I know that’s frustrating. But we are trying to help you make the money go as far as you can."
Mr. Scully said that rather than look to Congress for help, given that the federal government is running a $165 billion deficit, governors should instead focus their efforts on proposals to create a prescription-drug program for the elderly. "It’s probably the single biggest thing we could do in the federal budget that would take pressure off the states. This is bigger than almost anything else you’re talking about."
But Christopher Jennings, a health care consultant who was a health police advisor to former president Bill Clinton, told the governors they should continue to push for Medicaid relief because there is no guarantee that a prescription drug plan would pass. "If you rely solely on a drug benefit for the financial relief you hope to get, you may be putting too many eggs in one basket."
[Contact the NGA at (202) 624-5300 and NCSL at (202) 624-8667. Download the NCSL’s 2002 State Budget and Tax Actions from www.ncsl.org/programs/press/2002/pr020724a.htm.]
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