For two weeks in a special session, Kentucky legislators have been debating what to do about the Medicaid budget shortfall. The Governor proposed borrowing money from next year’s budget, not only to plug the budget hole but also so the commonwealth can reap more federal funding with the higher Federal Medical Assistance Percentage (FMAP) before the higher match rate from stimulus funds runs out in June of this year.
There are two problems with this approach.
For starters, borrowing money from next year’s budget to fill a gap this year is a bad business move for anyone. Most Kentucky businesses and residents, like state government, have experienced the hardships of the economic recession. As a result, we’ve made due with less. We’ve trimmed our budgets, cut out excess spending, and worked to find more ways to save. Scaling back is not easy and often it’s unpleasant, but it’s reality. The commonwealth should take the same approach.
But beyond that, increased federal funding does more harm than good for state budgets. Yesterday, the Texas Public Policy Foundation released a paper analyzing just how damaging increased federal funds are to states. Increased funds not only lead to greater control of state programs by the federal government, but they also bloat spending to unreasonable and unnecessary levels.
By expanding programs with one-time funds that will run out, we are laying the groundwork for an economic disaster in the commonwealth.