With Congressional approval of additional FMAP (Medicaid) funds still in question, the state House Ways and Means Committee met today to explore the options available to balance the budget if the funds aren’t approved.

The state assumed an additional $480 million in such funds to help balance the budget this year. This is more than the $253 million ending fund balance meaning if the funds aren’t approved the state’s ending fund balance would be negative by more than $200 million.

According to a staff presentation the options are:

• the Legislature or Governor can call a special session. This choice provides the most flexibility to respond to the problem;

• the Governor can order across-the-board cuts; or

• the Governor can attempt targeted reductions, though this option is of questionable constitutionality. 

The legal issues identified with targeted reductions are: 

• Separation of powers questions (even with legislative consultation) – Limits and safeguards?

• Uncertainty for agencies that don’t report directly to the Governor.

• Absence of change to any statutory terms/requirements for a program or service.

• Risk of constitutional or other challenges.

Even if enhanced FMAP funds are ultimately approved by Congress, it is increasingly looking like it will be at a lower level than assumed by the state. According to CQ Politics:

“Senate Democrats are discussing with a pair of pivotal moderate Republicans a scaled-down version of a tax and benefits extension bill that they have so far failed to move.

The most significant change being discussed would shrink the cost of a $24.2 billion provision that extends extra federal Medicaid funds to struggling states. In a new version, which was circulating among lobbyists Tuesday morning but not released or confirmed by lawmakers and aides, the federal assistance first enacted in the 2009 stimulus law would be gradually phased down over the coming fiscal year.

Democrats have been insisting that the Medicaid money remain in the bill to aid vulnerable patients and help cushion the economy against potential layoffs in state governments. The House removed the money last month to cut the cost of the bill, but, under pressure, the Senate added it back.”

 

The high water mark expected for the state under this scenario according to staff is around $410 million (versus assumed $480 million) though it could continue to be negotiated down in Congress to reduce federal deficit costs. 

Using the $410 million assumption, the state’s ending fund balance would be reduced to around $180 million or less than 0.6 percent of budgeted spending. It would also be less than the $203 million drop in forecasted revenue just experienced by the state. This means a similar reduction in future forecasts would leave the state with a negative ending fund balance.

Jason Mercier is the director of the Center for Government Reform at the Washington Policy Center. He serves on the Executive Committee of the American Legislative Exchange Council’s Tax and Fiscal Policy Task Force and is a contributing editor of the Heartland Institute’s Budget & Tax News. Mercier also serves on the board of the Washington Coalition for Open Government and was an adviser to the 2002 Washington State Tax Structure Committee.