Governors meet to discuss post-recession state economies

The National Governors Association (NGA) met this weekend in Washington, D.C. to discuss the changing landscape of state economies. In the challenging fiscal climate of the “post-recession” era, leaders warned that changes to Medicaid and declining revenue streams would further delay economic recovery in the states.

According a joint survey released by the NGA and the National Association of State Budget Officers (NASBO), states have made record spending cuts to deal with the largest reductions in tax collections ever recorded. The Fiscal Survey of the States report, updated last week, indicated a 5.4 percent decline in general fund spending in 2010 budgets to help combat four consecutive quarters of declining revenues. In 2010 seventeen states cut up to 5 percent of their budget, with another twenty-one states cutting more than 5 percent, the report showed. And over the next two budget cycles, the report estimates that states’ combined budget gap could be as high as $134 billion.

“State revenues continue to deteriorate, as most states are witnessing monthly totals lower than their recent forecasts, which have been revised downward,” Vermont Governor Jim Douglas, chairman of the NGA, said during Saturday’s opening remarks.

Economists and fiscal observers have warned for months about a recovery lag, expected to last two years or more for some states. The NGA Winter Conference was set to a backdrop that confirmed what those experts predicted. “States foresee fiscal year 2011, which starts for most states July 1, 2010, to be the most difficult to date, and few see fiscal year 2012 much better,” the NGA / NASBO report concluded.

Most of the discussion Saturday was focused on the interdependence of healthcare and the economy. Despite widespread disagreement on the best path forward with healthcare reform, attendees agreed on the need for more efficient, cost effective healthcare delivery.

“Health care costs are on track to bankrupt our families, businesses, states and our country if we do not reform our health care system,” Gov. Douglas said. “My Chair’s initiative focuses on helping governors lead the way in improving the quality of our system, providing more insurance coverage and addressing key cost drivers to ensure we have a system that is affordable, accessible and accountable.”

Perhaps best framed by the group’s chairman and vice chairman, Gov. Douglas and West Virginia Gov. Joe Manchin III, fall on opposite sides of the national healthcare debate. Gov. Manchin argued for flexibility, criticizing proposals that would mandate insurance benefits by the federal government.

If national health reform that mandates coverage or government-sponsored plans is divisive among governors from different parties, the question of expansion through Medicaid is less so. Conservative and liberal governors from Mississippi’s Haley Barbour and New York’s David Paterson have both criticized plans to expand Medicaid at a time when many states are borrowing millions of dollars to payout Medicaid as it is.

The fiscal update said that Medicaid spending for fiscal year 2009 was $335 billion – an increase of 7.8 percent over the previous year. And it cited a study done by the Kaiser Commission indicating that 3.3 million more people were enrolled in Medicaid in June 2009 compared to the previous year, the largest one-year increase since the program started.

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