More states eye Medicaid cuts, tax hikes

DALLAS, March 20 (UPI) -- Cash-strapped states are still eyeing cuts in Medicaid spending and even education to avoid budget deficits, but some are also reluctantly turning to tax increases to preserve vital services, a government watchdog agency reported Thursday.

Medicaid remains a common target of budget cutters, the Center on Budget and Policy Priorities said, but K-12 education, usually the "sacred cow" of governors and state legislators, is also on the table in some states facing revenue shortfalls as they enter fiscal 2004.

"One thing that is very telling about how much trouble the states are in is that they are cutting K-12 education," said Iris Lav, deputy director of the Washington-based, non-partisan research center.

At least 11 states are implementing or planning mid-year K-12 reductions for the 2002-03 school year. In Oregon, for example, more than 50 school districts will shorten the 2002-03 school year by several days to several weeks. In Portland, the school year will be shortened by 24 days this year.

More states are also targeting Medicaid programs, the center said. At least 22 states are looking at cuts that would affect the health care of 1.7 million people. This is up from January when the center said that 11 states were eyeing Medicaid cuts affecting about 1 million low-income people.

In California, the center said, Gov. Gray Davis has proposed eliminating Medicaid coverage for more than 500,000 people, primarily working-age parents with incomes below the poverty line. In addition, payment rates to most health care providers would be cut by 15 percent.

The Medicaid cuts adopted or under consideration would curtail health benefits like prescription drugs and dental, vision, home health care or mental health services. Some states might also require beneficiaries to pay higher co-payments for services.

States have closed about $76 billion in budget deficits in fiscal 2003 but now face more than $70 billion in red ink in the new fiscal year, according to the National Conference of State Legislatures. Some state governments are facing the largest budget gaps since World War II.

Also, more states are turning to tax increases to avoid deep cuts in essential services like Medicaid and education. Modest tax increase proposals by the governors of Arkansas, Delaware, Idaho and Nevada might avoid cuts in their Medicaid programs.

Both Democratic and Republican governors are reluctant to hike taxes. But governors in Connecticut, Massachusetts and Wyoming have signed tax increases to balance their budgets for fiscal 2003 and 2004. Another 19 governors have proposed tax increases, according to the center.

Lav said the total of about $100 billion in tax increases and spending cuts hurts the economy because it removes some demand, and the federal government needs to step up to the plate.

"The only thing that can really stop that is for the federal government to come in and help the states because the federal government can run deficits," she said. "The federal government is more than willing to run deficits to make tax cuts but not to help the states."

Lav said the requirements of homeland security and unfunded federal mandates have put additional fiscal pressure on states when they are facing record revenue shortfalls. Most states have constitutional requirements that their budgets be balanced.