Medicaid, which for several years was the fastest-growing line item in state budgets, has been supplanted by K-12 education, a recent report shows.
For the first time in six years, states have managed to slow the escalating costs of Medicaid, a mandated federal-state health-care program for the poor and people with disabilities, and concentrate on increasing funding for public schools, according to the report, issued this month by the National Conference of State Legislatures.
Further information on the “State Budget and Tax Actions 2006: Preliminary Report” is available from the National Council of State Legislatures.
But economic experts attending the NCSL’s annual conference, held Aug. 15-18 in Nashville, Tenn., where the report was released, said the good times also come with some fiscal red flags.
William Fox, an economics professor at the University of Tennessee, said states are falling into the trap of creating new programs and expanding others based on currently robust revenues that will eventually start dwindling. “I see states basing public policy on what’s happening now,” he said. “States need to look long term.”
In its yearly survey of the 50 states, the Denver-based NCSL found that public school funding is budgeted to jump 7.9 percent for fiscal 2007, which began July 1 in all but four states. Medicaid spending is expected to grow by 6.3 percent during the same period, according to the report.
K-12 education continues to be the biggest beneficiary of the rising revenue flowing into state coffers and being used to raise teacher salaries, provide local property-tax relief, and finance other education-related costs. Higher-than-anticipated revenue over the past two years meant states had extra money to spend for the 2007 budget year.
‘Considerable Uncertainty’
At least 24 states boosted funding for public schools, and 25 states put more money into emergency funds. Twelve states increased K-12 spending by at least 10 percent, with Texas, Wyoming, and Alabama leading the pack. Responding to a court order, Texas approved a property-tax and education-reform package that resulted in a 27.7 percent increase in public school funding, according to the report, which was written by Corina Eckl and Bert Waisanen, both of the NCSL’s fiscal-affairs program. Wyoming raised K-12 spending by 14.5 percent, and Alabama by 14 percent, above the previous fiscal year’s levels.
The spending increases may not last for long. As early as 2008, some states are projecting budget deficits, according to the 13-page report. “Despite the good situation right now,” it says, “legislative fiscal directors in many states remain concerned that state spending growth will outpace ongoing revenue growth over the longer term.”
At the end of the current fiscal year, the states’ combined general-fund balances are expected to drop by 29 percent—from $57.1 billion to $40.3 billion. Arkansas and Michigan, for instance, are predicting they’ll end their budget years with zero balances in their general funds.
There is “considerable uncertainty” about tax collections by the states in 2007 and beyond, according to the report.
John E. Peterson, a professor in the school of public policy at George Mason University, in Fairfax, Va., said in an interview at the NCSL conference that Medicaid and education are constantly jockeying for position in state budgets. He also said that public support for putting more and more money into education appears to be waning.
In addition, he said, even though Medicaid growth has slowed, it will continue to grow at an estimated 8 percent a year—further limiting money that’s available for other programs, such as education.
“State finances are now highly reliant on continuing good times,” said Mr. Peterson, who added that those good times will inevitably end.
