Failed Budget Bet Puts State In Fiscal Vise

July 6, 2010

Investigative Reports

Print Friendly, PDF & Email

The NerveAfter two years of the state’s general fund budget imploding to the tune of almost $2 billion, could a turnaround be in the works?

It just might be. And the General Assembly’s budget-writing committees – Senate Finance and House Ways and Means – likely will be sweating out the next six months hoping it’s true.

A high-stakes budget bet the committees made for the new fiscal year that began last week – crossing their fingers for $213.5 million in extra federal Medicaid funding for South Carolina – recently got smacked down at both the state and federal levels.

The result: The people served by some of the largest state agencies, and those departments, could be in store for even more pain than they have experienced amid the state revenue meltdown.

Not least of those agencies is the one that that administers the Medicaid program in these parts – the S.C. Department of Health and Human Services.

First the good news:

After the recession pummeled the state’s general fund from the $7 billion range a couple of years ago down to about $5 billion now, the Board of Economic Advisors says the picture is improving.

Under state law, the Board of Economic Advisors is responsible for projecting state revenue collections. The board’s forecasts must be followed when the state budget is drafted and, if necessary, cut during the year if revenues fall short of the board’s projections.

That has happened several times over the past couple of years, prompting criticism of the Board of Economic Advisors by Gov. Mark Sanford and some state lawmakers.

“I’m not going to get into the BEA,” Rep. Harry Ott of Calhoun, leader of the minority Democratic caucus in the House and a critic of the board, said in a phone interview with The Nerve last week. “My views on the BEA are well documented.”

But if the board is foreseeing things more accurately these days, better times lie ahead.

“I think the trajectory is pretty clearly upward now in this economy,” board Chairman John Rainey told The Nerve after a recent BEA meeting. “Unemployment is going down. Employment’s going up. Tax collections are going up. Things are looking better, and the numbers show that.”

The indicators point to an estimated $100 million surplus for the recently concluded 2009-10 budget year, board members said.

And if things stay the course, this month the board will revise upward its revenue projection for this year, Rainey said. He added that 2010-11 “could be a pleasant surprise – could be.”

Now the bad news:

The state is carrying an unconstitutional $98.2 million deficit from 2008-09.

“So we’ve got to repay that money,” Ott said.

No doubt – a balanced budget is mandatory under the S.C. Constitution, and the deficit was supposed to be paid off by June 30, according to state law.

Therefore, if the state does run a surplus for 2009-10 of $100 million or so, the deficit would more or less consume it.

Looking ahead this year again, the bag is equally mixed despite the positive economic indicators, partly because of the wager by the budget-writing panels.

In a section of this year’s spending plan called Part IV, they apportioned $213.5 million in additional federal Medicaid funding for the Palmetto State, contingent upon that money being approved at the federal level.

Known as enhanced Federal Medicaid Assistance Percentage, or FMAP, the funding originated in the stimulus as a way to help prop up state budgets. But it will run out at the end of this calendar year.

President Obama and most congressional Democrats support extending the FMAP boost for six months – until the close of the current fiscal year – but so far have been unable to make it happen.

Medicaid is a health care program for the needy funded jointly by the federal and state governments.

There are three major problems with Part IV of the state’s 2010-11 spending plan:

No. 1: It no longer exists.

Sanford vetoed the budget section and the House sustained his veto, so it holds.

“Balancing a budget based on merely the hope of congressional action is unwise in the best of times and simply unacceptable in today’s economic climate,” the governor said in explaining his veto.

No 2: Repeated efforts in Congress to pass a six-month extension of higher Medicaid funding for the states have failed, most recently the week after Sanford shot down Part IV.

“(U.S.) Senate Republicans and a lone Democrat, Ben Nelson of Nebraska, joined forces to filibuster the bill in a procedural vote on Thursday,” says a June 24 story in The New York Times. “Visibly frustrated, the majority leader, Harry Reid, Democrat of Nevada, said he would move on to other business next week because he saw little chance of winning over any Republican votes.”

Asked to comment on that development in Washington, D.C., Sanford spokesman Ben Fox credited S.C. House members who voted to uphold the governor’s Part IV veto.

“Still, this wish-list spending and bailout mentality by some in the Legislature must change if we are to responsibly address our state’s continued budget challenges and protect the taxpayer,” Fox said in an e-mail to The Nerve.

No. 3: Part IV contained critical funding for several state agencies, including three of the largest:

 

  • $170 million in Medicaid dollars for the Department of Health and Human Services;
  • $16.3 million for the Department of Mental Health; and
  • $9 million for the Department of Health and Environmental Control.

As those numbers indicate, the Part IV picture is most bleak for Medicaid recipients and the Health and Human Services agency that serves them.“If the FMAP extension does not come to pass it will be impossible for the agency to get through the budget year without declaring a deficit,” said HHS spokesman Jeff Stensland in an e-mail to The Nerve. “There are not enough optional programs to cut, and we are prevented from reducing provider rates (by our General Assembly) or reducing eligibility (by the feds).”

Referring to Part IV and other aspects of the 2010-11 budget, Ott says it contains some gaping holes that need to be filled.

Toward that end, he says, “I think there probably will be a supplemental appropriations bill in January when the General Assembly comes back into session.”

For that to happen, the budget committees indeed must hope the state revenue picture continues to improve – or keep crossing their fingers for more Medicaid funding from Washington.

Reach Ward at (803) 254-4411 or eric@scpolicycouncil.com.