News Column

Georgia Relies Heavily on Fed Money

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With Congress promising more federal spending cuts, some Georgia officials are facing up to a politically unpopular fact: the state has become more reliant on billions of dollars from Washington since the start of the Great Recession.

Federal funds made up about $10.4 billion of state agency spending in fiscal 2008, according to an Atlanta Journal-Constitution review of budget records. Four years later, that figure was more than $12 billion, in part because the state had some leftover federal stimulus money. But the total will likely approach or top $12 billion again in the upcoming year. That's roughly 31.6 percent of state spending, up from about 27 percent in 2008.

Some top lawmakers regularly gripe about federal spending and the state Senate passed a resolution last year backing a federal balanced budget amendment to the U.S. Constitution. But lawmakers have also urged Congress to spend more on everything from Georgia reservoir construction and commuter rail to medical training, and they have approved tax maneuvers to draw down nearly $800 million a year in extra federal funding for health and nursing care.

With federal sequestration cuts hitting earlier this year and more expected, at least two state committees have been set up to consider ways to rein in costs of Medicaid and other federally-funded health care programs or figure out how to fund them if the stream of money from Washington slows.

The state has been using federal money to fill budget holes created by shrinking state tax collections and the higher demand for state services like Medicaid.

Gov. Nathan Deal said that can't continue.

"We cannot be hypocritical at the state level," said Deal, a longtime former Congressman. "We cannot continue to bombard the people in Washington, telling them they need to cut spending, they need to reduce the burden on taxpayers in this country by reducing their expenditures, and then when something like sequestration occurs, be the first to complain we're not receiving as much federal money.

Sen. Josh McKoon, R-Columbus, sponsored legislation creating a Senate committee to study alternatives to federal funding for health care programs. He said he's worried the state has become too dependent on Washington.

"We are basically making assumptions every year in the budget that the federal government is going to continue to carry the state of Georgia," McKoon said. "As a conservative who wants to see Washington tighten its belt, it's prudent as policymakers to start asking what is our contingency plan if federal funding is significantly reduced.

Sujit M. CanagaRetna, senior fiscal analyst for the Atlanta-based Southern Legislative Conference, said federal funding of states shot up dramatically during the Recession because of stimulus money that paid for everything from health care to education and other programs. However, he said, the federal share of state budgets was going up even before the recession.

Part of the reason is that state agencies and budget officials have found more ways to draw down federal matching money or programs that qualify for federal help. The number of Georgians eligible for public services that are funded by the federal government has also grown. That was especially true during the recession.

While lawmakers have long criticized the federal government for running deficits, most don't criticize the things that the federal government helps to pay for at home, such as health insurance for children from low-income families, school nutrition programs, or extra law enforcement.

Some lawmakers take a pragmatic view of federal funding. "I think we have an obligation to look at federal spending and get for Georgia what Georgia sends up there (in taxes),"Georgia House Appropriations Chairman Terry England, R-Auburn, said.

The the state budget provides education for about 2 million students and health and nursing care for almost 1.8 million people. It funds road improvements and prisons, economic development initiatives and cancer research, business regulation and water and sewer projects.

Dozens of state agencies, from the state's insurance and utility regulators to the prisons, public safety, agriculture and law departments, use federal funding for programs.

But most of it goes for public health care, education and transportation.

Funding Medicaid, the state-federal health program for the poor and disabled, has been a chronic problem for the state.

Health care costs rise annually. The number of Georgians on Medicaid and PeachCare for Kids, the state's health insurance program for children from low-income families, has risen from 1.49 million at the beginning of 2008 to 1.79 million.

Federal matching money pays for a large chunk of the cost. The Department of Community Health, which administers the programs, spent about $5 billion in federal money in fiscal 2008. By 2012, that figure was $6.1 billion and will top $6 billion again next year. In addition, the separate, Department of Public Health, is budgeted to spend about $430 million in federal funding next year.

Lawmakers have used "provider fees" to get more matching money from the federal government. Nursing homes and hospitals are expected to pay $409 million in such fees during the upcoming budget year. In return, the debt-ridden federal government will return $791 million for the programs those facilities provide, according to the Office of Planning and Budget.

Without that federal money, the state would have faced a massive shortfall that could have caused some rural hospitals and nursing homes to close. Still, the renewal of the hospital fee this year was a sticky enough subject that the Legislature agreed to hand over the responsibility of renewing it to the community health agency. That way, lawmakers avoided voting on a measure that could be labeled a tax increase.

Deal has cited the persistent challenge of funding health care programs as a primary reason for refusing to expand Medicaid as part of the federal Affordable Care Act. At least 650,000 more Georgians would be added to the rolls, but Deal said the state's share of the cost -- a projected $4.5 billion over a decade -- would be too great.

Lawmakers are studying ways to reign in the costs of providing care to the Medicaid recipients the state already serves.

Cindy Zeldin, executive director of the nonprofit advocacy group Georgians for a Healthy Future, said she understands lawmakers' concerns.

But she said Georgia already has a lean Medicaid program, offering few optional services. "There really isn't much to cut," she said. "Medicaid is a critical program and we are already a state that spends very little on it and has pretty bad health care access and outcome indicators."

Federal spending on state education programs also jumped in recent years, from about $1.5 billion in fiscal 2008 to $2 billion in fiscal 2012. However, some school efforts took a hit from sequestration.

The state's technical college system spends about $70 million a year in federal money for programs such as job training and adult education. When state funding began dropping, the federal money, along with tuition increases, kept the agency from slashing staff and cutting services.

"If we didn't have those federal dollars, with the state funding going down, we'd have a hard time delivering programs," said Michael Light, a spokesman for the technical college system.

Alan Essig, a former state budget analyst and executive director of the Georgia Budget and Policy Institute, which supports higher social service spending, said the state would be in big trouble without the extra federal funding.

"The vast majority of the funds go directly to giving health care to those who wouldn't receive it otherwise, it goes to pay for classroom teachers who wouldn't be employed otherwise," he said. "We would have fewer citizens with health coverage, we would have less money going to hospitals, it would have meant fewer teachers, it would be less money for public safety and parks. It would have meant fewer jobs, fewer people receiving services, and it would have had a negative economic impact on the state."

Still, there are lawmakers like Rep. Jason Spencer, R-Woodbine, who filed legislation this year to form a joint committee to study the state's dependency on federal funding.

"We are becoming increasingly dependent on federal funding," Spencer said. "We are adopting policies that contribute to federal deficit spending. We need to come up with a game plan. What will we do when the federal government can no longer give funding to the states?

Spencer voted for the bill that allowed the continuation of the hospital fee that draws down extra federal funding for Medicaid. The lawmaker said he didn't want to "pull the rug out" from Medicaid without a plan to deal with the spending cut. He also had a local hospital that might close without the money.

"Pragmatism had to rule the day on this particular vote," he said.

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(c)2013 The Atlanta Journal-Constitution (Atlanta, Ga.)

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