Lack of federal Medicaid funds means deep budget cuts

LANSING — As Congress continues to battle over whether to extend additional federal Medicaid funds to states, Michigan lawmakers are making plans to deal with what will translate to be an unexpected $500 million gap in the next fiscal year’s budget.

The $500 million would be part of a $24.2 billion dollar bill to extend the extra federal aid to states for Medicaid that was included in last year’s stimulus bill, but the extension legislation has languished in the U.S. Senate. Both the legislature and Gov. Granholm adopted their current budget proposals assuming that money would be in place, which seemed a foregone conclusion a couple months ago, and Granholm spent last week pounding the halls of Congress lobbying for the money.

The unexpected hit to the budget would pump the budget deficit back to about $1.8 billion lawmakers say. That amount would have to be cut from the budget, or additional revenues must be raised through new taxes, in order to balance the state’s fiscal year 2010-2011 budget. The state constitution mandates a balanced budget be in place by midnight on Oct. 1 — the beginning of the fiscal year for the state.

Lawmakers from both sides of the aisle say that without the money, the state is in trouble.

State Sen. Tom George (R-Texas Township) says he expects that state agencies would face budget cuts of between 15 and 20 percent across the board.

“Everybody’s going to be getting less,” the Republican gubernatorial candidate said. And House Democrats agree.

In the event the feds fail to dole out the Medicaid funds, Rep. Joan Bauer (D-Lansing) says those cuts are going to be too deep and new revenue must be raised to prevent them.

“I think the budgets cuts, with the way things look now, are going to be devastating,” said Bauer, who serves on the House Appropriations Committee. “We need to increase the revenue.”

Rep. Mark Meadows (D-East Lansing), who chairs the House Judiciary Committee, says he was told by state officials the stalled Medicaid funding and the possibility of it not coming through was “the worst possible news.”

“We have to set all brand new budget priorities,” Meadows says. “If that money is not there, we have a much larger budget hole. And mostly the social welfare budgets will take huge hits.”

Rep. Barb Byrum (D-Onondaga) used the same word Bauer used — “devastating” — and said she just doesn’t know what’s left to trim. “We have been cutting and cutting and cutting,” she said.

The roadblock to raising new revenue, as always, is the Republican-controlled Senate, and George says he does not expect the Senate will approve any new revenue streams even to prevent a portion of the nearly $2 billion in cuts that would be needed.

“If the federal government doesn’t extend that (Medicaid payments), you have to ask why is that? It’s because public officials are hearing from constituents about concerns about public debt — they don’t want it. So elected officials are responding to that,” said George. “We can raise taxes or we can cut funding. The question is which one of the two is the public more willing to swallow?”

George says new revenue is not the answer, instead it will be hard cuts. And he said House Democrats may look for revenue, but will have a hard time selling it.

“We passed the K-12 budget, so they’ve been held harmless,” said George. “If we are going to raise taxes it will be for Medicaid, not the schools. I don’t think the public or my colleagues would support that. It’s a harder argument to make.”

It looks like the same old battle lines are being drawn for this year’s budget fight between the Democrats, who want to raise revenue to avoid at least some of those cuts, and the Republicans, who want a cuts-only budget. Sen. Gilda Jacobs (D-Huntington Woods) has said she believes losing the federal cash will result in a budget shutdown, but other lawmakers are more hopeful.

“It’s going to be ugly,” says Meadows, “but no, it’s not going to lead to a shut down.”

Meadows says he expects the lawmakers will pass budgets, then in November and December pass supplemental budget bills. In the alternative he says the legislature will pass continuation budgets while lawmakers hammer out a budget deal.

“I don’t know that we’ll have a shut down,” says Bauer. “I would urge the top leaders — the house speaker, the senate majority Leader and the governor — to sit down and figure out a way to at least plug that [Medicaid funding] hole.”

“I don’t think so,” says Byrum on the chances for another state shut down over a budget crisis. “At least I hope not.”