So let me get this straight. Most of the States are in deep financial trouble. Obamacare, which was sold to the American people as a budget neutral plan to fix our healthcare system, will dump tens of millions more Americans into the Medicaid system. This will destroy the crumbling state budgets just as the unfunded government pension crisis really gets going. This is not scare mongering. It’s math.
State budget crisis seen lasting
By Matt Michaels of Medill News Service
WASHINGTON (MarketWatch) — Even if the U.S. economy rebounds from the meltdown of 2008, leading budget experts said Tuesday that the financial crises facing many states will continue indefinitely.
The State Budget Crisis Task Force — an independent group led by former Federal Reserve Chairman Paul Volcker and former New York Lieutenant Gov. Richard Ravitch — said rising Medicaid costs, expected federal budget cuts, underfunded pensions, volatile tax revenue and encumbering laws will prevent states from developing a sustainable budget unless significant changes are made.
One the biggest issues the findings highlighted is the growing discrepancy between Medicaid spending and tax revenue. The report found that Medicaid spending is the single largest spending category in most state budgets and grows at an average rate of 7.2%, while state revenue grow at a rate of just 3.9%. If that trend continues over the next five years, the report said the gap between the two would widen by $23 billion.
“We are digging a very, very serious hole for ourselves,” Ravitch said at a presentation at the Newseum.
He said that social service programs have already felt the impact of the increasing gap because more than 650,000 state employees have been laid off since 2008.
But the recently upheld Patient Protection and Affordable Care Act could increase the gap even more. The report said that Medicaid costs would increase by 8.1% between 2012 and 2020 if the health-care reforms in the law are implemented and by 6.6% if they were not.
Another significant finding by the task force is the impact a federal deficit reduction would have on states.
According to Pete Peterson, the secretary of commerce under President Richard Nixon and a contributor to the task force, federal aid accounts for one-third of a state’s budget. So if the federal government decided to cut state grants by 10%, the report said bigger states such as California and New York would lose more than $6 billion annually.
“If the federal government inevitably reduces these payments, the states are going to have to get their own fiscal house in order to continue making their critical investments,” Peterson said.
Other highlights of the report included the mounting pension and tax revenue issues in many large states. In California, Illinois, New Jersey, New York, Texas and Virginia — the six states the report focused on — pension liabilities are underfunded by more than $385 billion, and retiree health benefit promises by more than $500 billion, the report said.
Also, between 2008 and 2010, state tax revenues declined by more than 12% is greater than any decline in any previous recession.
Alice Rivlin, the founding director of the Congressional Budget Office and member of the task force board, said the goal of the report was not to provide solutions to the problems, but rather make people more aware of the gravity of the issues.
“We’ve got to get people thinking about what the solutions are,” Rivlin said. “Not just at the federal level, but at the state and local level as well.”