Government Spending

Fiscal Reality Hits Home for State Budgets

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There's a telling line in a new report on state budgets: "With the expiration of federal funding support provided by the American Recovery and Reinvestment Act of 2009 (ARRA)" — a.k.a. the stimulus —  "states continue to realign spending plans with fiscal reality." And the fiscal reality is that states are weighed down by unaffordable obligations that are wrecking their budgets.

Chief among those obligations is Medicaid. The National Association of State Budget Officers recently released a survey of state budgets, and, as with previous reports, Medicaid spending remains one of the biggest ticket items: Accounting for 23.6 percent of total state budgets, the jointly run health program for the poor and disabled represents the largest portion of total state spending. It's the second largest general fund expenditure, chewing up about 17 percent of general fund spending. Thanks in part to last year's expiration of temporarily increased federal Medicaid funding provided by the stimulus, state spending on the program increased by 20.4 percent in the 2012 fiscal year. States are working to reduce spending on the program, and a much slower growth rate rate of about 3.9 percent is expected in 2013, but as the report notes, even the reduced growth rate is still expected to outpace general fund expenditure growth.

This explains a lot about why states are cutting back. As Dan Crippen, director of the National Governor's Association, told The Washington Post, "With the growth of Medicaid expenditures, spending priorities will again face competition for state budget dollars this fiscal year." It's the out of control growth of health spending obligations, primarily Medicaid, that's weighing down these budgets and forcing states to make spending reductions elsewhere.

The report notes that total state tax revenues are on track to be above pre-recession levels next year, with general fund revenues close behind, which makes it hard to say that states budgets are somehow suffering from too little tax income. Instead, they're stuck carrying the spiraling cost of pensions, education costs, and health care obligations born out of less frugal eras. The fiscal padding provided by the stimulus just put off these decisions a little while longer, and let states avoid making tough choices, and more stimulus would have done the same while adding even more to the total federal debt burden. But eventually, fiscal reality was bound to catch up.

NEXT: What David Brooks Missed

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  1. “Fiscal Reality Hits Home for State Budgets”
    Not in California it doesn’t. The proposed budget here is ‘balanced’ by presuming tax hikes are going to pass.
    I’ll bet most people budget based on a raise they might get in the future, don’t they?

    1. Well, actually…

  2. So basically this austerity stuff is finally paying off and we can start spending like NFL rookies again right?

    1. Only if we tax NFL rookies 90% of their salaries!

  3. But eventually, fiscal reality was bound to catch up.

    Only because rich, greedy fat-cats won’t loosen up the purse strings a bit and start paying their fair share.

  4. By the way, please tell me I’m not the only one that finds that picture somewhat(extremely) erotic?

    1. Yeah, mom jeans are teh hot.

    2. She’s probably old enough now to be your grandmother.

      1. Like I said, extremely erotic.

    3. If you like your women masked and holding an electrical device, sure.

  5. It’s the out of control growth of health spending obligations, primarily Medicaid, that’s weighing down these budgets and forcing states to make spending reductions elsewhere.

    Clearly, then, what we need is national healthcare legislation that ensures everyone has medical insurance – a “mandate” for medical care coverage, if you will. That would fix this “issue”.

    Oh, wait…

  6. The fiscal padding provided by the stimulus just put off these decisions a little while longer, and let states avoid making tough choices

    Never-ending stimulus, anyone? I say that if our grandchildren can conceive of a world where the government isn’t just printing money and setting it on fire 24/7, we’ve failed to do our jobs.

    1. What’s interesting is that some states did make “tough choices” (see Wisconsin, New Jersey, etc.) and they are obviously doing better now thanks to said “tough choices”.

      Even Michigan is trying lately, attempting to close the public-school employee retirement program to newly hired teachers and move them into a 401(k)-style plan. Sadly, this will probably get neutered before it goes live, but it goes to show you that the “tough choices” are neither “tough” nor really a “choice”. They are more like “obvious necessities to stave off ruinous financial obligations”.

  7. whatever happened to “virtual reality?” It certainly was the buzzword oh, so many years ago.

    I remember reading some (awful) book where the files were stored inside of a “virtual reality” server which required a near adventure to retrieve them. Hey, how about a few points ‘n’ clicks instead?

    1. Still happening. Soon, you will be commenting from the Wasteland.

    2. You mean, Neuromancer? Father of the word cyberspace and the defining vision for the future of the Internet before the Google era? Not to mention providing the basis for the backdrop for Shadowrun (without the mutations and Mayan calendar stuff).

    3. While it will probably be reserved for games and the like rather than information processing, I’ve heard some news lately about head mounted displays; aside from Google, John Carmack and Valve have some interest in hardware and software vaguely related to VR type setups.

    1. He was a Goodfella.

  8. Just read the ad hoc pension advisory committee report for my “city” that was released late last year:

    1. advise a COLA
    2. advise no change to defined contribution from current defined benefit model
    3. advise subsidy increase for health plan

    there was a NOTE in the executive summary that “Alexandria is not one of those public employers whose employee pension plans are in financial jeopardy and driving the jurisdiction towards bankruptcy.”

    not yet.

    1. “Alexandria is not one of those public employers whose employee pension plans are in financial jeopardy and driving the jurisdiction towards bankruptcy.”

      Although they seem to be trying.

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