WASHINGTON—States will continue to face significant fiscal challenges with Medicaid continuing to outpace overall general fund expenditures. According to the The Fiscal Survey of States, released today by the National Governors Association (NGA) and the National Association of State Budget Officers (NASBO), state budgets reflect a national economy in which growth continues to be slow.

Medicaid is the single largest portion of total state spending, estimated to account for 24 percent in fiscal 2011, the last year for which data is available. State funds directed towards Medicaid increased dramatically in fiscal 2012, while federal spending rapidly declined because of the expiration of the enhanced federal matching rates temporarily authorized by American Recovery and Reinvestment Act of 2009 (ARRA).

State spending on Medicaid increased by 20 percent in fiscal 2012 (following a 23 percent increase in fiscal 2011) while federal spending declined by 8 percent. Although overall governors’ proposed budgets for fiscal 2013 project a 4 percent rate of growth in state Medicaid spending, Medicaid continues to outpace overall general fund expenditure growth in governors’ recommended budgets. Over the past 10 years, the growth in state spending on Medicaid has exceeded the growth in all other categories of spending, and has been twice as much as the growth in education spending.

“With the growth of Medicaid expenditures, spending priorities will again face competition for state budget dollars this fiscal year,” said NGA Executive Director Dan Crippen. “States have undertaken numerous actions to contain Medicaid costs, including reducing provider payments, cutting prescription drug benefits, limiting benefits, reforming delivery systems, expanding managed care and enhancing program integrity efforts. These efforts alone, however, cannot stop the growth of Medicaid.”

Budgets continue to be squeezed by constrained revenues, increased expenditure pressures, reductions in federal funding and the need to replenish reserves and provide resources for critical areas that were cut during the recession. Because of the severity of the economic contraction, as well as the lag time between tax collections and changes in the national economy, states have been slow to recover from the recession. The fiscal fallout from the unprecedented budgetary declines in fiscal 2009 and 2010 put states well below historical growth trends in general fund spending and revenue.

“Despite some improvement in state budgets since the depths of the recession, state budget growth is still significantly below average – growing at less than half the average growth of the past few decades,” according to NASBO Executive Director Scott Pattison.

General fund revenues are projected to increase by $27 billion, or 4 percent, and additional recommended spending is projected to increase by $15 billion, or 2 percent, suggesting that states remain cautious about the strength of the national economic recovery. Fiscal trends indicate that while aggregate state revenues will be about their pre-recession levels in fiscal 2012, total budgetary spending will not yet surpass pre–recession levels.

Governors recommended general fund spending of $683 billion in fiscal 2013, which is 2 percent over fiscal 2012 compared to a 3 percent increase over fiscal 2011. Governors proposed nearly $7 billion in new net taxes and fees for fiscal 2013. States have also relied on balances, including “rainy day funds,” to respond to unforeseen fiscal circumstances. Governors’ recommended total balance levels for fiscal 2013 are $53 billion with two states representing 52 percent of those levels.

 

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Founded in 1908, the National Governors Association (NGA) is the collective voice of the nation’s governors and one of Washington, D.C.’s most respected public policy organizations. Its members are the governors of the 55 states, territories and commonwealths. NGA provides governors and their senior staff members with services that range from representing states on Capitol Hill and before the Administration on key federal issues to developing and implementing innovative solutions to public policy challenges through the NGA Center for Best Practices. For more information, visit www.nga.org.

Founded in 1945, the National Association of State Budget Officers (NASBO) is the instrument through which the states collectively advance stage budget practices. The major functions of the organization consist of research, policy development, education, training, and technical assistance. These are achieved primarily thought NASBO’s publications, membership meetings, and training sessions. Association membership is composed of the heads of state finance departments, the states’ chief budget officers, and their deputies. All other state budget office staff are associate members. NASBO is an independent professional and education association and is also a self-governing affiliate of the National Governors Association. For more information, visit www.nasbo.org