Medicaid Mandates Bust Budgets

Albany Times Union

New York, California are leading victims of revenue decline as economy dives
By DAN FREEDMAN, Washington bureau

WASHINGTON -- Soaring Medicaid costs, declining tax revenues and tough economic times forced governors to cut spending for fiscal 2004 -- the first overall decline in state expenditures in 20 years, two prominent state government associations reported Thursday. Hardest hit are New York and California, the states that spend the most on Medicaid and big losers when the stock market and high-tech industry collapsed.

"Unfortunately, the fiscal state of the states continues to be very dire," said Scott
Pattison, executive director of the National Association of State Budget Officers, which released its semiannual fiscal survey along with the National Governors Association. Expenditures of $460.3 billion by the 50 states represent a 0.1 percent cut over 2003 budget levels, the groups reported. Although not a large amount, it symbolizes the difficult choices states are being forced to make. With tax revenues down, governors are proposing tax increases amounting to $17.6 billion for next year, they said.

A total of 37 states -- including California, Michigan and Texas -- instituted cuts
after legislatures approved their 2003 budgets, the survey found. Hardest hit are states in the Northeast and far West -- particularly New York and
California, the survey found. The Southeast and Southwest are in somewhat better shape, with the Midwest and Plains states somewhere in between.

Pattison and Raymond Scheppach, executive director of the NGA, said the downturn of thestock market and the dot-com bust hurt the coasts more than the heartland, robbing states of tax revenues that soared in the boom times between 1995 and 2001. At the same time, New York and California spent a combined $55 billion on Medicaid, the state-federal health insurance program that serves 47 million impoverished people. State Medicaid spending rose 13.2 percent in 2002, just as the recession was leading to lower revenues for state treasuries. The survey attributed the spending rise to Medicaid enrollment increases and higher pharmaceutical costs.
Medicaid represents about 20 percent of all state spending.

Because it is an entitlement -- an obligatory expenditure under federal law -- states
have little control over the cost of Medicaid, Scheppach said. Scheppach denied that states failed to plan for the downturn when they were flush with cash in the 1990s boom and cut taxes by $33 billion. States were "very responsible in actually holding down the rate of growth in spending" during the 1990s, Scheppach said. State expenditures went up 8 percent in fiscal 2001, an amount that he characterized as relatively modest.

During boom times, states had salted away almost $50 billion in "rainy-day" funds, which are mostly gone.