Medicaid Drives Biggest State Spending Boost in Decades

States have increased their spending in every major area but two, according to a new NASBO report.
by | November 19, 2015

States increased their spending in fiscal year 2015 by the biggest margin in more than 20 years, but most of the increase was thanks to huge leaps in Medicaid spending under the first full year of the Affordable Care Act (ACA).

Spending increased last fiscal year, which ended on June 30 for most states, by 7.8 percent, according to new estimates from the National Association of State Budget Officers (NASBO). It's the biggest boost since 1992 and was thanks to a 15.1 percent increase in Medicaid spending, much of that paid for via federal Medicaid funds. Illinois, Michigan, Kentucky, Nevada and Oregon saw more than 30 percent increases in federal funding because they expanded Medicaid under the ACA.

But 2015 was also a year where states were putting up more of their own money again. General Fund spending, money the state collects generally via its taxes and fees, increased by an estimated 4.9 percent -- the highest increase since the recession. It still falls below the historic average of 5.5. percent annual spending increases, but NASBO Director of State Fiscal Studies Brian Sigritz said it is unlikely states will be able to get back to that average spending level in the foreseeable future. He expects that recent spending hikes (last year saw a 3.9 spending increase) will be standard going forward.

The low interest rate environment has also played a role in muting spending growth, he added.

“In some ways states are getting a little bit more bang for their buck because inflation has been so low,” Sigritz said.

Still, all is not great for state fiscal health. On average, state revenues aren’t keeping pace with spending; NASBO estimates General Fund revenues will increase by just 3.8 percent. That is likely because some states are still having trouble balancing their budgets, as a handful transferred money from special funds or dipped into savings to close 2015 in the black, said Sigritz.

NASBO released the new data Thursday in its annual State Expenditure Report, which details state-by-state data on the seven main program areas of state spending: elementary and secondary education, higher education, public assistance, Medicaid, corrections, transportation and “all other” types of spending. The report also has data on state general fund revenue. The report contains actual data from fiscal 2013, fiscal 2014 and estimated fiscal 2015 data.

This year states also increased their education funding -- by a lot. Funding for elementary and secondary education spending grew 5.1 percent compared with 3.3 percent a year earlier. Higher education funding saw a 6 percent boost, compared with 4.2 percent a year ago.

Spending increases in most major categories were larger than last year, with the exception of transportation. That is because federal transportation funding dollars declined by 2 percent. Recently, states have stated taking control of transportation funding on their own; many have raised gas taxes and other taxes to boost their own transportation funds. Over the past two years, state transportation funds have increased by more than 9 percent each year.

The only spending category to see an actual decline was public assistance, which is largely due to fewer people qualifying for food stamps.