Kentucky plugs budget hole with Medicaid money

From the Lexington Herald-Leader:

FRANKFORT, ky. — The state was in the black for the fiscal year that ended June 30, but only because it received a loan from the Medicaid program, which had additional money from the federal stimulus program. Now state officials are trying to determine how much money state agencies will have to cut from this year's budget, which began July 1.

For the fiscal year that just ended, the state was $55.7 million short in General Fund dollars and nearly $37 million short in Road Fund money — which pays for transportation projects.

To balance the General Fund shortfall — which funds the bulk of state government — Kentucky used unspent General Fund money that was allocated to its Medicaid program. Medicaid, an insurance program for the poor and the disabled, is paid with federal and state dollars. In general, the state picks up about 30 percent of the tab and the federal government pays 70 percent. However, the federal government retroactively increased its share of Medicaid dollars this year to nearly 80 percent of the cost.

That means the state had additional state money in that program that could be used to cover the shortfall, said Mary Lassiter, the state budget director. Moving money from Medicaid to the General Fund will not affect the Medicaid program. It is fully funded for the coming fiscal year, Lassiter said.

But some people in the social-services sector questioned whether it was wise to borrow money from a program that is likely to need those dollars in the future.

Steve Shannon, director of the Kentucky Association of Regional Mental Health- Mental Retardation Programs, which represents community mental health centers, said the increase in the federal share of the Medicaid program is supposed to sunset in December 2010. Yet the number of people eligible for Medicaid will probably remain the same while the state's portion of the bill will increase, Shannon said.

"Then what are we going to do?" he said. "Where do we find money to plug that shortfall?"

The shortfall in the state's Road Fund was plugged using savings from restructuring debt and other cost-cutting measures such as restricting travel and cutting other expenses at the Transportation Cabinet, Lassiter said.

"We're not cutting any projects," Lassiter said of saving measures at the Transportation Cabinet.

The state had to balance its books from the last fiscal year before it could determine how how much to cut from this year's budget. If the state had to use money set aside for this year's budget, there could have been additional cuts in programs, Lassiter said.

Gov. Steve Beshear had originally proposed plugging a potential $1 billion shortfall for this fiscal year with $741 million in federal stimulus dollars and a 2.6 percent cut to most state agencies, with a few exceptions. The exceptions included the state Medicaid programs and the main funding formula for K-12 education.

But in a special legislative session in June, the General Assembly approved a budget-reduction plan that included $45 million in spending that was not in Beshear's original proposal. Some of that $45 million included an income-tax credit for active-duty military personnel and an increase in the budgets for public defenders and prosecutors. Legislators also approved a tax credit of as much as $25 million for people who buy newly built homes.

The additional spending means that the cuts to agencies are likely to be deeper than 2.6 percent, Beshear has said.

Over the past 18 months, state agencies have cut more than $600 million as the state repeatedly adjusted its budget to account for falling revenues. "This is the fifth budget reduction in 19 months," Lassiter said.

Lassiter said Monday that the state has asked all agencies to show how a 3 percent and a 4 percent cut would effect the delivery of services. Those plans are due this week.

The agency proposals will be reviewed and discussed with Beshear, Lassiter said. But it probably will be several weeks before agencies are told how much to cut.

There is some good news. The state didn't need to use any funds set aside for this year's budget to balance last year's books. Also, the state still has more than $300 million in federal stimulus dollars to use in the next fiscal year, which begins July 1, 2010, Lassiter said.