Even though voters chose last year to raid a state trust fund for $437 million to shore up the state budget, one of the state’s economic prognosticators says it will take a bit of luck to make it through fiscal 2013 without running out of money.
Things don’t look much better for the 2014 budget — the one lawmakers will begin debating next month.
“You’re basically dealing with an impossible situation,” said Keivan Deravi, an economist at Auburn University at Montgomery.
Every year, Deravi predicts how much revenue the state will have in the upcoming fiscal year — a prediction he sends to the governor’s office, for use in budget calculations.
His numbers are just one piece of a puzzle that’s coming together in Montgomery this month, as state agencies begin to put in their budget requests for the 2014 fiscal year. Beginning in February, lawmakers will debate that budget, which will govern the state’s spending from October of this year through September 2014.
That process went bust last year, with lawmakers approving a $1.7 billion General Fund budget that included money the state didn’t already have in hand. Legislators also approved a constitutional amendment that would take $437 million from the Alabama Trust Fund and add it to the budget, $146 million at a time, for the coming three years. Then lawmakers sat on pins and needles waiting for the amendment to pass.
Even with that money now in hand, Deravi said, paying the bills through the end of 2013 will be a close-run thing.
“The sun, the moon and the stars have to line up just right,” he said. “The economic projections have to be very accurate, spending must be under control and taxes have to show some life.”
And in 2014, he said, state agencies will surely want more money than in 2013. But it’s not clear that more money will be there.
A fixed income
Alabama runs its government on two budgets, and those two budgets lead very different lives.
The Education Trust Fund, which funds the state’s schools, gets its money from sales and income taxes. When the economy improves, its fortunes improve. When the economy tanks, it has to scrimp and save — just like an average, working person supporting a family.
The General Fund, which pays for non-education agencies, lives more like a retiree. Much of its money comes from interest on state trust funds, revenues from oil and gas contracts and other sources that, for the most part, aren’t directly tied to the performance of the economy. That portfolio doesn’t grow much, and when it does grow or shrink, it doesn’t do so steadily.
Like many retirees, the General Fund has medical bills. The state’s portion of Medicaid, the federal-and-state program that provides medical care for most people below the poverty line, is paid out of the General Fund.
In recent years, the cost of Medicaid has shot up like the price of milk. In 2010, the program cost the state just more than $300 million. In the 2013 budget, the state set aside $603 million for the program. It happened because of the decline of federal stimulus funds and because the post-recession economy has swelled the Medicaid rolls from about 750,000 clients to more than 900,000.
That’s the “impossible situation” Deravi mentioned. Medicaid and a growing prison population are things the state has to pay for, but they’re paid from a fund Deravi describes as “inelastic.”
Gov. Robert Bentley tried to attack the problem last year by appointing a Medicaid Advisory Commission to reform Medicaid with an eye toward trimming costs. State health officer Don Williamson said that whatever reforms are adopted, they aren’t likely to save the state money in 2014.
“When we have reforms, they’ll be put into place for 2014,” he said. “We won’t see savings until the next year.”
Williamson has already said the reforms won’t provide $100 million in annual savings, and could save far less than that. In November, he announced that a change in federal funding rules would add $30 million in unexpected costs to the Medicaid agency in 2014.
Deravi said General Fund revenues for 2014 may be only $40 million to $50 million more than the money available in 2013. A surprise in the Medicaid numbers, he said, could upset the budget-writing process yet again.
“In 2013, the budget is so tight that we cannot even wiggle,” he said. “2014 is not going to give you much of a break.”
Williamson wouldn’t say what Medicaid’s total budget request for 2014 would be, saying it’s something the agency is discussing with the governor.
Tough time all around
Lots of state officials have been talking to lots of governors about Medicaid lately.
“It’s just a tough time all around,” said Rachel Morgan, a former Anniston resident who analyzes health policy for the National Conference of State Legislatures.
Morgan said several states have had Medicaid-related budget crises since the recession. Some have tried Medicaid reform to trim costs, she said, but the core of the problem is growth in the number of people who need the program.
“This is probably going to continue until the economy recovers,” she said.
Gov. Robert Bentley opted out of a provision in the federal Affordable Care Act that would have expanded Medicaid eligibility to thousands of additional Alabamians. But Morgan said federal law still requires the state to set up a new system for determining eligibility.
Medicaid spokeswoman Robin Rawls said the new system will likely give some Alabama residents — people who are already eligible for Medicaid but don’t know it — a chance to find out they’re eligible. She said the “woodwork effect,” as it’s known, would add enrollees to Alabama’s system.
Rawls said the agency expected the woodwork effect to cost “less than $10 million” in the 2014 fiscal year.
Budget experts sometimes mention prisons along with Medicaid as a service that states are obligated to provide. Alabama’s prison population has doubled in the last 20 years, with a corresponding rise in prison costs. The Star’s efforts to reach the Department of Corrections for an estimate of its budget needs in 2014 were unsuccessful.
Williamson agrees that a growing economy would wipe out the Medicaid problem quicker than just about anything.
“If we had as many jobs in in the state as we had in 2007, we’d save $140 million,” Williamson said.
Ever since the recession, state leaders have talked wistfully about the notion of a robust economy riding to the rescue. Few really expect that to happen soon.
Ahmad Ijaz, an economist for the University of Alabama’s Center for Business and Economic Research, said total state revenues are likely to grow a little less than they did last year.
“At least it’s growth,” he said. “It’s not bad news at all.”
But massive numbers of Medicaid patients aren’t likely to move out of poverty soon. Ijaz said there are about 1.9 million people working in Alabama today — down from 2.1 million in 2007. The state added about 12,000 jobs in 2012, he said. That’s far below the growth rate before the 2008 crash, when Alabama scored 40,000 to 50,000 new jobs per year.
Still, Alabama’s new jobs are solid. Ijaz said the car manufacturing sector figured heavily in Alabama’s numbers — while many other states are adding part-time or low-wage jobs.
Ijaz said hiring could pick up in 2014, and with luck, the state could be back to 2007 levels of employment by 2016.
For state officials, that could be just in time. The $437 million budget patch approved by voters last year will run out at the end of fiscal 2015. By then, the state will need to either cut costs or find some way to bring in more revenue.
Ijaz is hopeful the economy would grow enough to provide s much of that revenue. But like everyone else, he isn’t making promises.
“I’m trying to be optimistic,” he said.
Capitol & statewide correspondent: 256-294-4193. On Twitter @TLockette_Star.