Where We Stand: States in Crisis

While the nation’s economic woes continue to make headlines and Congress and the Obama administration wrestle with our financial troubles, 46 states and the District of Columbia are facing steep budget shortfalls, over the next 30 months, that total more than $350 billion.

With unemployment, foreclosures and the need for services all increasing, states are faced with reducing their workforces and scaling back the very programs designed to help the most vulnerable people during tough times like these. At the same time, states must continue to fund certain major services, like public schools. And unlike the federal government, they cannot run budget deficits when the economy is bad—they must cut services, raise taxes or use reserve funds to balance their budgets.

A number of states are cutting Medicaid and the State Children’s Health Insurance Program (SCHIP), which will limit low-income children’s and families’ access to health care. Others are significantly increasing the costs to beneficiaries. These programs don’t matter just to enrollees—they benefit the entire community, especially hospitals and other providers that need adequate Medicaid payments in order to make services available to all patients.

The economic stimulus package passed by Congress and signed by the president will provide up to $87 billion in additional Medicaid funding for states. The legislation requires states to protect Medicaid eligibility standards and mandatory services like nursing home care, but it will allow them to cut so-called optional benefits. But for the more than 2 million people who rely on them, these benefits are not optional at all. They include home- and community-based care services, respite care, personal care, rehabilitation, the Program of All-Inclusive Care for the Elderly (PACE) and hospice care.

AARP is working hard on these issues with state governments. We also are letting our members know about the problems, and the possible solutions and tradeoffs each state faces. We have created a State Budget Crisis Team to coordinate federal and state budget advocacy efforts and to analyze proposals regarding state-by-state program cuts and revenue increases. This helps us apply the lessons learned from one state’s experience to other states.

In California, for example, Gov. Arnold Schwarzenegger and the legislature closed a nearly $42 billion budget shortfall by cutting spending, increasing taxes and borrowing. Lawmakers authorized a ballot initiative to go before voters for a constitutional amendment to institute a “budget cap” to limit spending. We know from our experience in Colorado and other states that budget caps greatly restrict the ability of state governments to meet public needs. As we learned in Colorado, a budget cap harms education, health care, senior services, transportation, public safety and other state services.

There are no easy answers, and we know from past recessions that state budgets recover at a slower rate than the national economy. Options often boil down to finding those that do the least harm. We are committed to working with states to find solutions so that people in need will continue to receive the vital services they depend on during these difficult times.