May, 2010Colorado and the nation are slowly beginning to recover from the most wrenching economic recession since the Great Depression. However, even as the economy recovers, revenues to fund public services such as Medicaid are not likely to return to pre-recession levels any time soon.
Given the severity of the downturn, it is not surprising that state General Fund revenues, the tax dollars used to pay for health care, K-12 education, higher education and other state services, dropped substantially.
As revenues dropped, policymakers were forced to cut spending, tap cash funds and rely on federal stimulus dollars provided by the American Recovery and Reinvestment Act (ARRA) to balance the budget. In fact, ARRA funds were critically important in helping the state keep pace with the growing Medicaid caseloads resulting from the downturn. The number of Coloradans on Medicaid grew from just under 400,000 in January 2008 to about 500,000 today, and Colorado used over $750 million in ARRA funds to help offset the state costs of meeting this increased demand.
However, the percentage of Medicaid costs picked up by the federal government is expected to revert to the pre-recession split in fiscal year 2011-12 even though Medicaid caseloads are projected to remain above 500,000. This means the state will have to find revenues to replace these federal funds.
Generally, states expect to make cuts during a downturn and then, as revenues grow along with the recovering economy, the cuts can be restored. However, Colorado's ability to absorb the loss of additional federal funds for Medicaid, meet the projected growth in caseloads and restore cuts made during the downturn will be constrained by the slow growth in revenues. Even as the economy recovers over the next two years, revenues are not expected to reach pre-recession levels.
The amount of General Funds available in fiscal year 2011-12 is projected to fall $554 million below the prerecession level of fiscal year 2007-08. In fact, revenues are projected to be only $224 million higher than they were five years earlier in fiscal year 2005-06. This is before adjusting for inflation and the costs of providing services.
The Health Care Affordability Act, passed in 2009 and approved by the Centers for Medicare and Medicaid Services in early April, is projected to generate an additional $600 million in state funds that can be used to draw down a matching $600 million in federal Medicaid funds. However, these funds are intended to cover the costs of expanding coverage of uninsured Coloradans and improve hospital reimbursement rates. They will not help fund the costs of covering our existing Medicaid population.
Public systems such as health services for the poor, public schools, roads and bridges and affordable colleges help underpin our economy and quality of life. However, Colorado is not projected to generate sufficient revenues to even meet current levels of service, let alone future demands. Clearly, as a state we need to decide what we want in terms of public services and at what level we are willing to support them.