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Home / Focus / Banking & Finance March 2008 / Uneasy economy: State budget cuts to hit poor, working class

Uneasy economy: State budget cuts to hit poor, working class

Financially strapped states are looking to take away government health insurance and benefits from millions of Americans already struggling with a souring economy.
An Associated Press review of the budgets in all 50 states reveals coverage would be eliminated for hundreds of thousands of poor children, disabled and the elderly. More than 10 million people would lose dental care, access to specialists, name-brand prescription drugs or other benefits. About 20 million could see their care jeopardized by further cuts to doctors’ reimbursements.
Health care is a choice target as governors and legislators confront the worst deficits they’ve faced in a decade or more, but that’s not their only target: They’re also considering cuts in aid to schools and universities, shrinking state work forces and even releasing prisoners before their sentences are completed.
Safety-net programs for the elderly, disabled and out-of-work also could be cut, even as the demand for those services is on the rise.
Few states seriously
considering tax increases
Despite the dire conditions, only a handful of states are seriously considering general tax increases or even modest hikes on the wealthy to close the gaps. Lawmakers say they fear such actions would only further stress the economy.
Instead, states are looking to increase lottery ticket sales, promote Indian gambling or further raise taxes on cigarettes and alcohol. Those taxes disproportionately hit the pocketbooks of the same poor and working-class that would be hurt by the spending cuts, studies show.
Nearly two dozen states are grappling with deep cuts and tax proposals to close shortfalls totaling more than $34 billion. That includes California, where lawmakers have made emergency cuts and authorized billions in bond sales to halve a deficit once projected at $16 billion through June 2009. Another dozen states are bracing for falling revenue.
In California alone, lawmakers already have cut more than $1 billion in payments to physicians caring for 6.5 million people who rely on the state for health care. The move will push untold numbers from doctors’ offices to overcrowded clinics and emergency rooms.
“We’re at the edge. If the same economic news continues, we’re going to see cuts as deep as in the last recession, or worse,” said Cindy Mann, executive director of the Center for Children and Families at Georgetown University.
“The juxtaposition is that every presidential candidate will now tell you that addressing health care coverage is first and foremost on people’s minds. But the first line of defense has to be not letting us go backwards.”
Unlike the federal government, which can spend more than the revenue it takes in, almost all states are bound by their constitutions to maintain balanced budgets.
Residents of Sun Belt states that had enjoyed a boom in housing construction and rising real estate prices will be particularly hard hit. The same is true for residents in states with significant financial-service industries. Those states face their largest deficits since the recession following 2001. Some are in their worst fiscal shape in decades.
Arizona must cut about $1.2 billion, or 11 percent of state spending. Florida already has cut $1 billion and is looking to shave another $2 billion from its
$70 billion budget.
Wall Street firms, once geysers of tax revenue for New York, are slumping from tight credit and the sub-prime mortgage crisis, both contributing to the state’s $4.1 billion shortfall. Nearly $1 billion from Medicaid and other health care programs could be cut to help close the gap.
Budget pains far from universal
The budget pain is not spread equally from state to state, or even region to region.
Some states — especially Alaska, New Mexico, Wyoming and others rich in oil and gas reserves — are booming. In Wyoming, for example, a state savings fund from tax revenue from energy production will overflow with a projected $4 billion by 2010.
Farm states, by and large, also are doing well. Growing worldwide demand for grains and an expected ethanol boom have pushed corn and soybean prices to record highs, prompting a buying spree by farmers in South Dakota, Nebraska, Kansas and Iowa.
Still, those states remain susceptible to falling consumer confidence, inflation and other economic pressures if the downturn intensifies, said Arturo Perez, a financial analyst with the National Conference of State Legislatures. But for now, they are relatively safe; they never had a housing boom, so they’ve been spared the housing bust that has stalled economies elsewhere.
“As one of our analysts in Kansas said, ‘The reasons we don’t have the hangover now is we missed the party,” Perez said.
Clearly, the party is over elsewhere.
Under plans approved or working their way through nearly a third of the nation’s state legislatures, coverage will be eliminated for hundreds of thousands of poor children, disabled and the elderly, as well as the mentally ill and even pregnant mothers.
In Arizona, primary care funding for community clinics would be cut by a third, or roughly 41,000 patient visits a year. In Hawaii, care for Alzheimer’s patients would be cut.
In South Carolina, 70,000 poor children could be denied regular checkups and more than 5,000 would lose meal deliveries as the state considers cutting nearly 5 percent from its current-year budget.
In Ohio, the state’s job and family services agency faces cuts. In Rhode Island, one in 10 elderly patients eligible for nursing home care could be pushed to cheaper settings, forced to rely on visiting nurses or family members for care.
California might be first
The depth of the cuts to come might first be seen in California.
Gov. Arnold Schwarzenegger and the state’s Democratic-controlled Legislature last month approved emergency cuts and new borrowing to get California’s $16 billion shortfall down to
$8 billion by the start of the new fiscal year in July.
To close the remaining gap, Schwarzenegger has proposed 10 percent cuts to health care, education and almost every state department.
His medical cuts mark a dramatic turnaround from his failed attempt to create universal health care in California just last year.
He would eliminate dental care for
3 million and restrict access to specialists for 6 million. That includes podiatry care, which is crucial for diabetes patients to detect infections and avoid amputations.
Schwarzenegger’s plan also ends reimbursements for poor patients recovering from cancer and other ailments who require incontinence creams and washes.
“If you have money, you get health care. If you’re poor or homeless, you’re left to die,” said Sharon Richardson, who sat bundled up in the lobby of the Los Angeles Free Clinic recently, waiting to be seen for persistent back pain from a bus accident.
Richardson is one of more than 85,000 with little or no insurance who rely on the clinic each year.
Doctors there will be paid less for treating Medicaid patients under cuts lawmakers approved last month. The clinic also risks losing state funding for months this summer when California delays paying its bills to prevent a cash shortage.
Mike Genest, Schwarzenegger’s finance director, said the state has no option but to make significant cuts to health care, the state’s second-largest cost behind education.
“We need to cut billions; we can’t ignore the big areas where we do our spending,” Genest said, stressing the governor’s across-the-board approach. “We didn’t want to favor parts of the budget that you would think of as Republican favorites or Democratic favorites … for fairness.”
The middle class in California and elsewhere will not be far behind in feeling
pain.
Lawmakers reject
tax increases on rich
At the same time they are considering cuts, lawmakers are resisting broad tax increases or closing loopholes on businesses and the well-to-do to help cover the gaps.
In California, for example, Republican lawmakers blocked a measure last month to require buyers of luxury yachts, private planes and motor homes to pay state sales tax. Currently, they can avoid it by purchasing and keeping the property out of California for three months. Closing the loophole would have brought an estimated $21 million to the state.
Very recently, a Democratic proposal to raise $1.2 billion by increasing taxes on companies that extract oil in California failed in the state Assembly.
Alabama lawmakers recently rejected tax increases on companies operating natural gas wells along the state’s coast, revenue that would have gone to cover increased Medicaid and prison costs.
Other governors who are trying to buck the trend are finding it hard. Illinois Gov. Rod Blagojevich is proposing to expand health care programs with about $1 billion in new payroll taxes, but he’s facing stiff resistance. And in New York, state Senate Republicans are opposing a plan to generate $1.9 billion by closing corporate tax loopholes.
To avoid draconian budget cuts, some states are seeking creative solutions. Arizona Gov. Janet Napolitano, a Democrat, has proposed adding automated speeding ticket cameras to state freeways to raise $90 million.
Diane Rowland, executive director of the nonprofit Kaiser Family Foundation’s Commission on Medicaid and the Uninsured, said the current downturn could be particularly painful because there has been very little time since the last downturn for states to restore funding to benefits they cut.
Last time “they took out all the ways to make it more cost-effective,” Rowland said. “Now, the only place to cut is at the core.”
Associated Press Writer Solvej Schou in Los Angeles contributed to this report.?

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