Medicaid and Bureaucrat Pensions Creating Budget Crisis for States


Thursday March 29th, 2018   •   Posted by Craig Eyermann at 6:46am PDT   •  

X Marks the Spot: Budget Crisis! It is getting to be crunch time for state legislators looking to establish the budgets for their state governments across the U.S. With most states following a fiscal year that starts on July 1 and runs through June 30 of the following year, the clock is ticking down for determining how each will spend the tax money and other revenue that they will collect over the next year.

Unfortunately, each U.S. state government’s budget is coming to be dominated by two line items over which state legislators have very little influence. The Wall Street Journal‘s Cezary Podkul and Heather Gillers report:

As state and local officials prepare their next budgets, many are finding that spending decisions have already been made for them by two must-fund line items that barely mattered when baby boomers such as Mr. Leavitt were growing up: Medicaid, the state-federal health insurance program for the poor and disabled, and public-employee health and retirement costs.

These days, they consume about one out of every five tax dollars collected by state and local governments. That is the highest share since Medicaid was created in 1965. Postretirement health benefits, which are harder to quantify, add to that burden and have cumulatively cost states more than $100 billion since 2008, according to government financial disclosures compiled by Merritt Research Services.

Those costs are outpacing growth in tax revenue year after year. In 2016, state and local governments collected about $136 billion more in taxes than they did in 2008, adjusting for inflation. Two-thirds of those additional dollars went to fund pensions and Medicaid, according to a Wall Street Journal analysis of Commerce Department spending data.

“The more we stare at the data, the more we realize all roads lead back to Medicaid and pensions,” says Dan White, a director at Moody’s Analytics who has studied the issue.

The resulting revenue squeeze is making it harder for governments to pay for core services such as education, infrastructure, police and fire protection.

Until Medicaid is reformed and state and local government employee pensions are reined in to fiscally sustainable levels, an increasing number of states can expect to experience a budget crisis that will cause core services to be cut in 2018 and beyond.




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