Bottom Line: Not a Lot of Extra Money in State Budget Forecasts


The Indiana State Budget Committee listened to three separate forecasts recently regarding Medicaid, the economy and revenue; together these will set the stage for debates in the coming session over the next state biennium budget.

Medicaid Forecast
The day started with the Medicaid presentation by Michael A. Gargano, secretary of the Family and Social Services Administration (FSSA) and Robert M. Damler, an actuary with the firm of Milliman, Inc., a financial and health care consultant on contract to the FSSA. The duo outlined the various projections relative to Medicaid expenditure obligations anticipated over the next two years. While predicting Medicaid expenses is particularly difficult this year due to the unknowns of the Affordable Care Act (ACA), the forecast nevertheless attempts to estimate the potential liabilities of the state by making a series of assumptions regarding: the implementation of programs, reimbursement amounts, the impact of new provisions, additional federal actions, long-term trends, and ultimately, the increase in Medicaid recipients and the state’s financial obligations.

Their forecast projects the general fund monies needed to provide Medicaid assistance will grow by 17.1% in fiscal year (FY) 2014 and 8.7% in FY2015. That translates to almost $450 million over the biennium. Fortunately, however, the appropriations for Medicaid have exceeded the actual expenditures in FY2012 and are expected to do so again in FY2013 (by $264 million and $234 million, respectively). The over appropriation in FY2013 will help offset the FY2014 increase some, but overall dollar obligations will nevertheless grow significantly. If you compare the appropriated amounts in the last budget with the projections of what will be needed for Medicaid in the next two years, you still end up with a difference of $428 million (The math: FY12 appropriation = $1716M, FY13 appropriation = $1882M, projected FY14 = $1929M, FY15 = projected $2097M; 1716 +1882= 3598; 1929 + 2097 = 4026; 4026-3598 = 428) Keep this additional $428 million dollars in mind when we consider the general fund revenue projections below.

Economic Forecast
This presentation was given by James Diffley, chief regional economist for IHS Global Insight. Diffley gave the big picture on the U.S. and Indiana economic outlooks. His overview considered the effects of global and domestic uncertainties on exports and business capital spending, housing and vehicle markets, consumer spending, employment and income levels, potential tax changes and the chance of recession if we go over the “fiscal cliff.” In short, IHS is predicting a continuation of modest/slow growth. Indiana is situated well, but remains vulnerable to all the outside factors.

Revenue Forecast
The main attraction of the day was the general fund revenue forecast for fiscal years 2013-2015. This forecast is based on the underlying economic projections of IHS Global Insight but gets down to the nitty-gritty of how much money the budget-makers will have to work with as they put together and debate the details of the next budget. These projections are arrived at by consensus of a bipartisan and non-partisan committee of fiscal analysts who look very closely at all state revenue sources. They meet regularly, apply sophisticated models, track a multitude of factors, receive counsel from numerous advisors, academics and other sources, and have in recent years proven very accurate.

The report took into account recent legislative changes and such things as how alterations to the gaming laws in surrounding states will likely lead to even further reduction in Indiana’s gaming revenues. The bottom line of the revenue forecast committee: Total general revenues are projected to increase by a very modest 2.2% for FY2014 and then another 2.9% in FY2015. In dollar terms, that is $14.65 billion in FY2014 and $15.08 billion in FY2015. The collections for FY2013 were $14.33 billion. The projections represent a slight increase of $320 million for the first year of the new budget and another $430 million in the second year – a mere $750 million over the biennium.

Now let’s go back to the additional $428 million needed simply to meet the projected increase in Medicaid: $750 million minus $428 million leaves only $322 million (a little over 2% of the annual budget) to pay for all other desired budget and fiscal priorities that have been put forth. These include restoring over $350 million in K-12 education cuts, an approximately $100 million pre-school program, several hundred million in stymied university capital projects, billions in long-term road maintenance and other infrastructure needs, as well as the incoming Governor’s proposal to cut individual income taxes by well over $500 million. Clearly, there’s not enough money to go around – let’s see what gets done!

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