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Tax Law

State Net Capitol Journal – June 18, 2012

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Budget & Taxes

STATES' MEDICAID COSTS RISING FASTER THAN SPENDING: The National Association of Budget Officers (NASBO) and National Governors Association's (NGA) most recent survey of state fiscal health is not particularly encouraging. Although the Spring 2012 update, released last week, indicates state revenues are finally returning to their pre-recession levels, budgetary spending levels are not. General fund revenues are projected to increase by 4.1 percent in fiscal year 2013, while general fund spending is expected to increase by just 2.2 percent.

"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 Scott Pattison, NASBO's executive director.

Medicaid Costs Rising

Medicaid, meanwhile, is continuing to eat up more and more of state's money. State Medicaid spending increased by 20 percent in FY 2012 - following a 23 percent jump in FY 2011 - while federal Medicaid spending dropped 8 percent, due to the expiration of the higher matching rates temporarily set by the American Recovery and Reinvestment Act (ARRA). Over the past decade, the growth of Medicaid spending has outpaced that of every other category of state spending, actually doubling the rate of states' biggest expenditure - at least for now - K-12 education.

"With the growth of Medicaid expenditures, spending priorities will again face competition for state budget dollars this fiscal year," said Dan Crippen, NGA's executive director. "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." (NATIONAL GOVERNORS ASSOCIATION, NATIONAL ASSOCIATION OF STATE BUDGET OFFICERS, WASHINGTON POST)

TX DOT'S $2B WINDFALL SPARKS CONTROVERSY: The extra $2 billion the Texas Department of Transportation announced in March it had discovered was welcome news in a state whose population is growing faster than its transportation system. But the news also reignited some old frustrations among lawmakers about TxDOT's accounting abilities.

"We're out of money, but the public is going to hear that y'all found $2 billion," state Rep. Joe Pickett (D) said at a House committee hearing on the subject. Rep. David Simpson (R) was reminded of the $1.1 billion the agency inadvertently counted twice in 2007, forcing it to abruptly pull the plug on some projects. "An agency that can miss a billion dollars and then find a billion dollars has got some problems," he said.

TxDOT's chief financial officer, James Bass, explained that the windfall was the result of a combination of good fiscal management and factors that were out of the agency's control. Most of the money, $750 million, is federal transportation funding the agency had conservatively not planned on receiving as a result of Congressional gridlock.

"The ability to forecast what Congress is going to do is not really a science," Bass said.

The rest of the money was from transportation projects coming in lower than budgeted and the refinancing of debt at lower interest rates.

The department's budget was increased by nearly $3 billion, to $19.8 billion, last year, and according to a recent state report, the state will have to invest billions more each year to maintain its current transportation system. But Rep. Pickett already knows what one of the arguments against giving more money to TxDot will be.

"Maybe if they shake a few more trees, they'll find another $2 billion," he said. "That's what I'm going to hear." (NEW YORK TIMES)

BUDGETS IN BRIEF: VIRGINIA Gov. Bob McDonnell (R) signed off on the $85 billion two-year budget (HB 1301) approved by lawmakers with two exceptions. He vetoed an amendment that would have blocked certain surplus revenue funds from being spent on transportation, which he said was "directly at odds with legislation passed during the regular session," and he declared a provision restricting the governor's power to distribute money from the Federal Action Contingency Trust fund a violation of the Constitution's division of powers between the legislative and executive branches (RICHMOND TIMES-DISPATCH). • An Alameda County, CALIFORNIA court ruled this month that about 13,000 government employees are owed roughly $10.5 million in back pay because they were excessively furloughed last year. State officials are "evaluating the ruling and are likely to appeal," according to Lynelle Jolley, spokeswoman for the Department of Personnel Administration (SACRAMENTO BEE). • Also in CALIFORNIA, Democratic legislative leaders released a budget proposal last week that rejects $1 billion in cuts Gov. Jerry Brown (D) has called for to close the state's $15.6 billion deficit. The Dems hadn't reached a deal with Brown, but they faced a Friday (6/15) deadline to approve a budget or forfeit their pay (SACRAMENTO BEE). • OHIO tax collections in May came in 2.7 percent above projections, bringing the state's total surplus 11 months into the fiscal year to nearly $400 million. Most of that surplus is expected to be transferred to the state's rainy-day fund at the end of the year, on June 30 (COLUMBUS DISPATCH). • PENNSYLVANIA lawmakers approved and Gov. Tom Corbett (R) signed legislation (SB 1310) that will allow the state to borrow up to $4.5 billion over 10 years at a low interest rate to pay off the $3.8 billion in unemployment benefits it has borrowed from the federal government since the start of the recession. Supporters have compared the plan to a mortgage refinancing that will not incur additional debt for the state. "We'll save money," said House Majority Leader Mike Turzai (R) (MORNING CALL [LEHIGH VALLEY], STATE NET). • ILLINOIS Gov. Pat Quinn (D) signed a package of bills last week slashing $1.6 billion from the state's Medicaid program and increasing the tax on cigarettes by $1-per-pack to help pay for the struggling health care program for the poor. The bill numbers are HB 5007, SB 2194, SB 2840, SB 3261 and SB 3397 (CHICAGO TRIBUNE, SOUTHERN ILLINOISIAN, STATE NET).

- Compiled by KOREY CLARK

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