WASHINGTON — The housing crisis? So last year.
Instead, the health care debate, coupled with lawmakers’ lack of ability to overhaul budgetary concerns in cash-strapped states, could threaten to slow down the recession’s recovery cycle.
Released Wednesday, Pew Center on the States research report “Beyond California: States in Fiscal Peril” uses California as a lens for poor financial performance and identified nine other states that most reflect its storied budget crisis: Arizona, Florida, Illinois, Michigan, Nevada, New Jersey, Oregon, Rhode Island and Wisconsin all made the cut.
As the proposed health care reform bill continues to court contention from all sides on its way to the Senate, states in crisis are waiting to see what relief, if any, health reform would bring to their budgets.
University of Florida economist David Denslow said the Sunshine State, which is losing residents for the first time since World War II, must grapple with the possibility of health care reform – or worse, no reform at all – as the debate continues on Capitol Hill.
“If you don’t do anything, and you can take that possibility, most of the states are going to be in trouble because of Medicaid,” Denslow said. “This is particularly true in Florida, where we are going to see that share of the population going way up.”
In 2007, more than $4.5 billion in Medicaid spending came from Florida’s general fund, according to Kaiser Family Foundation data. California spent $13.4 billion from its own general fund on Medicaid.
While waiting on relief, state lawmakers remain in limbo until reform passes on the national level, said Susan Urahn, the Pew study’s managing director.
“States will really simply be trying to figure out how they can raise revenue,” Urahn said, “how they’re going to deal with things like Medicaid because of health care reform … waiting on solutions at the national level because we just don’t quite know how bad it will be.”
The problem? Lawmakers in several poorly performing states have limited ability to rework budgets and raise revenue. Seven of the 10 states named by Pew require supermajority, usually two-thirds, in both houses of the state legislature to pass tax reform or budget bills – this will call for bipartisan reform, even as mid-term elections loom closer.
“States have a limited basket of solutions that they can choose from,” Urahn said, “in part because they’re required to balance their budgets each year and in part because the political pressures are what they are.”
For instance, Oregon lawmakers recently proposed $1 billion in new taxes to generate revenue, but it will be up to the voters to decide on the measure in January. Michigan must learn to deal with a “new norm” of reduced resources, Urahn said, which could take decades for the state to recover from the breakdown of its bread-and-butter auto industry.
Back in Florida, a state struggling with an expensive constitutional mandate to reduce classroom sizes, finding the funds to close the gap in a projected $5.9 budget shortfall in 2010 will be no easy feat. Education and other expenditures, Denslow said, fight along with Medicaid and Medicare programs for their share of the Florida state budget.
California’s economic shortcomings could cause states near and far to struggle just by association. Three states on the list, Nevada, Oregon and Arizona, neighbor the most prominent offender in the Pew statistics; researchers suggest California, which has the eighth-largest economy in the world – and the nation’s largest Medicaid program – could hamper regional recovery, or perhaps even put a damper on what happens nationally as the the nation struggles out of recession.
“It’s hard to imagine what happens in California doesn’t matter well beyond California’s borders,” Urahn said.