Gov. Pat McCrory is ordering state agencies to reduce their spending to help cover an overrun in the state Medicaid budget estimated at up to $262 million even as he noted that the state has enough money to cover the costs.
Critics of McCrorys positions on Medicaid said the governor is manufacturing a crisis to justify his decision not to expand the government health insurance program by about 500,000 people.
McCrory told his budget office Friday to transfer available state funds to pay Medicaid costs and asked agencies to stop giving raises and to limit purchases, travel and other expenses.
The budget for Medicaid the governments health insurance program for the poor, elderly and disabled has to cover about 1.5 million people in the state and has always been hard to predict.
Last years Medicaid budget shortfall amounted to $418.2 million in state money.
The current overrun includes $132 million owed to the federal government a bill that the state should have paid last year and estimated overspending this year of between $70 million and $130 million in state funds.
But the states finances are in good condition compared with recent years, and the state already has enough money to cover the estimated extra costs.
Legislators set aside $20.9 million in case Medicaid went over budget. Additionally, the budget has $213 million that the legislature did not commit to any purpose but intended to be used, if needed, to pay Medicaid bills. Tax collections are expected to total about $100 million more than anticipated, and state agencies were already expected to spend about $125 million less than budgeted. Theres also an additional $200 million in a rainy day fund.
Avoiding scramble later
The administration is also looking within the state Department of Health and Human Services budget to help cover the Medicaid overrun, said state Budget Director Art Pope. With all those sources of money, McCrory decided not to use his emergency powers to order cuts. But by asking agencies to limit spending now, the state can avoid a mad scramble to deal with the Medicaid shortfall at the end of the budget year in June, Pope said.
Were starting four months earlier to make up for those expenses already incurred and to make sure we have something left at the end of the fiscal year, he said.
A trigger for McCrorys decision was the growing gap over the past few months between the budget and actual payments to health care providers, Pope said. I think were doing exactly what needs to be done, he said.
The McCrory directive is different from an emergency order. McCrory can tell agencies under his control, such as the departments of administration or transportation, what to do, but can only request departments headed by independently elected officials to do the same. In an emergency, the governor can cut budgets, freeze hiring and stop building construction and repairs for all state departments.
McCrory said in a statement that the state needs to stop old budget practices that produce ongoing shortfalls.
It is time to solve this mess, not kick the can down the road and manipulate the budget as was done in the past. It stops now, he said.
State Rep. Nelson Dollar, a Cary Republican and House budget writer, said the legislature will have to pass bills giving McCrory permission to use money from the unappropriated $213 million, the rainy day fund or the extra money from tax collections. He attributed the higher-than-expected expenses to the bad flu season and higher drug costs.
The announcement about belt-tightening and finding money to keep up with Medicaid expenses is all part of an effort to make sure budget writers have money to work with as they begin planning for next year, Dollar said.
We feel good about the position were in, Dollar said. We feel well be fine in terms of cash flow.
McCrorys first budget coming
The announcement comes as McCrory and his staff have examined state needs and expenses in preparation for the governors first budget later this month.
McCrory has repeatedly said there is no new money and some are bracing for more cuts.
UNC President Tom Ross told UNC-Chapel Hill faculty Friday that hes not optimistic about the universitys budget outlook.
The university system just adopted a five-year strategic plan and crafted a budget request to begin to implement it. But in conversations with McCrory and legislative leaders, Ross said hed been told that its doubtful the UNC system will see new money for the plan. The budget probably wont even be flat, Ross said.
What were hearing is that were going to see further cuts, and I dont know the extent of those, Ross said. McCrory has cited Medicaid budget overruns as one of the reasons he decided not to support the Medicaid expansion under the federal Affordable Care Act.
But Adam Searing, director of the N.C. Health Access Coalition, said McCrory is using a relatively small overrun in the $13 billion Medicaid budget to cover up a bad decision not to give more people health insurance, with the federal government picking up all the costs of new enrollees for the first three years.
The state pays about $3 billion of the Medicaid bill and the federal government picks up the rest. The Health Access Coalition is a project of the N.C. Justice Center that advocates for health care for low-income and working-class people. Searing was a vocal supporter of Medicaid expansion.
In a program so large, its hard to predict the Medicaid budget to the penny, Searing said, and the state deals with Medicaid budgets that are off-target every year.
This is a manufactured crisis, Searing said. The unfortunate thing is the targets are individual state employees, and he says youre not going to get a raise. Theres no reason to take it out on them. I wonder whether McCrorys Cabinet secretaries who got giant raises, are they going to give back that money? Are they going to take that back?
McCrory spokeswoman Kim Genardo said Searing is wrong.
Were not manufacturing a crisis, she said. Its real. Its there.
Dana Cope, executive director of the State Employees Association of North Carolina, said his staff didnt find anything in McCrorys announcement that would make much difference for state employees or agencies because the administration of former Gov. Bev Perdue had already limited raises and cut back on state travel.
Were a little perplexed at what this memo is, Cope said.
Cope also questioned the need to announce a freeze on raises when the state has a budget surplus and is giving nearly $100 million in incentives to MetLife to bring jobs to Cary and Charlotte.
The revenue seems to be available to handle the Medicaid dollars without budgeting the Medicaid deficit on the backs of state employees and people trying to provide essential services to the taxpayers, he said.
Staff writer Jane Stancill contributed.