Last Thursday Capitol Weekly wrote a story about now approved budget prosed by Gov. Schwarzenegger and passed by the state legislator. The plan has received negative reviews across the board but especially from educations, unions, and advocates of health care who do not agree with the 10% across the board cuts. Of particular concern though are the expectations for how the Medi-Cal program will have to run its business in the next fiscal year.
The total cuts on Medi-Cal reimbursement account for $602.4 million out of the entire $15.2 billion deficit; however, pharmacy bears more than a third of these cuts at $232 million, factoring in rebates…Pharmacies will be losing money on nearly every Medi-Cal prescription they fill. This certainly isn’t a viable business model.
Some pharmacies may be forced to reduce staffing and business hours, or even to close their doors altogether. Such outcomes would create further access issues for patients in need.
And when it comes down to it, this move won't even be saving the state money;
With more than 6.5 million Medi-Cal beneficiaries in California, it would seem enacting cuts to all providers would equate to a significant savings to the state. However, these cuts will have the opposite effect. If patients lose access to prescription drugs, they will become sicker, and will need more expensive forms of medical treatment. Many patients may end up in emergency rooms that are already stretched beyond capacity. These emergency room visits will cost the state and California taxpayers significant money by further inflating the budget deficit.
Unfortunately for California cutting the budget is one of the only options for stabilizing the budget when economic times get hard, leaving program like Medi-Cal susceptible to deep cuts. This is because unlike other states, California does not have a statewide rainy day fund. Cities oftentimes do, which is what helped save the jobs of 500 public school teachers in San Francisco. However even for states who do have access to money put aside for poor economic times, inaction from the federal government is making the choice of when to tap into these funds increasingly difficult.
An Associated Press article from last Monday highlights a perilous choice for states feeling the effects of the nations economic downturn. At stake are state employee jobs, healthcare and school budgets, and essential services, all of which are at risk if the federal government does not take action to help the states.
The article entitled States debate whether to dip into their rainy day funds discusses the two sides of the debate on how to deal with growing budget shortfalls; to raid the rainy day fund, or cut services and spending.
The calculation involves deciding if it is better to raid the fund for fiscal emergencies now or to wait, in case the economic slowdown worsens and the need for revenue becomes more desperate.
States from Virginia to Arizona and everywhere in between are beginning to reach a crisis point in their budget problems where they must choose between tapping their rainy day funds or cutting critical portions of their budget. The rainy day funds are obviously meant for this kind of economic climate, however dreary forecasts from the National Conference of State Legislatures are making the decision of when to use the funds much more difficult.
In April, the NCSL said the finances of many states have deteriorated so badly that they appear to be in a recession, regardless of whether that is true for the nation as a whole.
Such dire news is one reason some states are holding off on raiding their reserves.
"They're worried that, as bad as it might be, it might get worse," said Scott Pattison, executive director of the National Association of State Budget Officers.
The document mentioned in the article is the NCSL's State Budget Update for April 2008. The press release on the update describes the health of state budgets as very uneven and getting worse.
In November, seven states and Puerto Rico reported shortfalls. That number rose to 16 states and Puerto Rico by mid-April. Collectively, these gaps totaled at least $11.7 billion.
The situation is worse for FY 2009: Budget gaps have emerged in 23 states and Puerto Rico, and collectively they exceed $26 billion
What is most disheartening about this story is that the states are choosing between two flawed solutions. Simply raiding the rainy day fund is not the answer when no one is able to determine what "rock bottom" for this economic downturn will be. It does not take very long for rainy day funds to dry out, and the AP article shows that the funds are quickly depleting after hitting a high in 2006.
(in 2006) states reported $69 billion in their reserves, including rainy day funds, or 12 percent of total revenue. That figure will drop to about $46 billion, or 7 percent, by June 30, the end of the business year for most states, according to the NASBO.
…Arizona lawmakers dealt with a $1.2 billion shortfall for this fiscal year, which ends in most states on June 30, by spending more than two-thirds of the state's rainy day reserve.
The rainy day funds will not be full forever and must be preserved if more difficult times are on the horizon. This leaves states with the painful option of cutting services, jobs, and other essential parts of their budgets. In Ohio, where the government is facing a $700 million shortfall they were forced to cut 2,700 state government jobs and close two mental health hospitals. In Tennessee the $468 million in budget cuts are coming from cutting 2,000 state government jobs, reducing the higher education budget by $55 million, and slashing $80 million from the TennCare program that pays medical expenses for people who have fallen into poverty because of massive medical bills. These cuts are having a real effect on the people in these states. According to the Columbus Dispatch story, Cambridge Mayor Tom Orr stated;
It's going to be painful … you can't even begin to measure the ripple effect.
And in the Tennessean Story;
Gordon Bonnyman, head of the Tennessee Justice Center and a longtime TennCare critic, said the cuts will be "tragic" for the population of catastrophically ill Tennesseans who rely on it.
The states are being forced into these painful decision due to a failure by the federal government to provide the proper aid in this time of economic hardship, and the ones who lose in this case are people like you and me.
So what is the federal government doing? As I posted previously, it has taken the position that bailing out corporations in trouble is more important than helping the states and localities who face similar financial crunches, which does not bode well for California which isfacing an estimated $22 billion shortfall for FY 2009. This figure represents 21.3% of the FY2008 General Fund, the highest in the nation. The federal government has also steamrolled the states by enacting a stimulus package that, according to another CBPP study will only make matters worse by further cutting the revenue that the AP, Columbus Dispatch, and Tennessean stories all say is one of the main reasons that states are feeling such a financial crunch.
The federal economic stimulus package enacted on February 13 not only cuts federal taxes, but also threatens to reduce many states corporate and personal income tax revenue this year and next year.
The potential revenue loss comes at a particularly problematic time for states, because about half the states are already facing budget shortfalls for the current year, the upcoming year, or both; more states will be in trouble if the economic downturn worsens.
And what will the federal government do in the future? It certainly doesn’t seem like it will relieve the pressure states are feeling from soaring retiree healthcare costs and the burdens of the housing crisis. An effort to drive down the cost of medicare prescriptions drugs failed to make its way through Congress when the Medicare Fair Prescription Drug Price Act of 2007 failed to get off Capital Hill – that bill would have allowed the federal government to negotiate with drug companies for lower prescription drug prices.
And this statement made by Secretary Paulson before the National Association of Business Economists shows that help for homeowners is also not on the way.
We know that speculation increased in recent years; a resulting increase in foreclosures is to be expected and does not warrant any relief. People who speculated and bought investment properties in hot markets should take their losses just like day traders who speculated and bought soaring tech stocks in 2000.
As more and more people are effected by these state budget shortfalls I am left with one question. How disastrous does the crisis need to get before the Federal Government steps in with meaningful help?
