*UPDATE: This post now includes more details and additional comments from Gillam.
House Speaker Jeremy Gillam and Joint Budget House Chairman Lane Jean have sent out documents to all House members detailing budget cuts if the legislature refuses to re-authorize Medicaid expansion.
Both the House and the Senate passed “Arkansas Works” — the governor’s plan to continue the state’s private option Medicaid expansion — by overwhelming majorities last week, but a rump group of Tea Party Republicans are threatening to shut down the entire Medicaid program unless the private option is stripped out of the appropriation.
If they succeed in killing the Medicaid expansion, it would eliminate various savings and revenues and lead to at least a $142.7 million hole in the budget.
Gillam, who supports “Arkansas Works,” today is offering members a look at a budget without the policy. Gillam e-mailed two documents to members, calling them a “snapshot” of what the budget would look like with the necessary $142.7 million in cuts as compared to the governor’s proposed FY 2017 budget. The first document details the full fiscal-year 2017 budget without “Arkansas Works.” Every agency is hit with a 3-to-5 percent cut. Gillam also included a second document, which offers more details on the $30 million in cuts to the Public School Fund that the non-Arkansas-Works budget would impose without running into legal trouble on the state’s adequacy requirements. (The $142.7 million total is inclusive of the $30 million in education.)
“We tried to target 3 percent across the board pretty much everywhere,” Gillam said. Some of the cuts within DHS and the Department of Corrections were slightly smaller. “If there was room for more targeted and responsible reductions, we tried to make that accommodation,” Gillam said. “But for the most part it was about 3 percent across the board. We’ve been as fair and balanced in this approach as we possibly could have been.”
The millions in cuts hit everyone: libraries, foster care, pre-k, prisons, every single higher education institution across the state, every single state department from Environmental Quality to Agriculture to Parks and Tourism to Workforce Services, county aid, county jail reimbursement, state police, the School for the Blind, the School for the Deaf, municipal aid, school health, and on and on.
It would be up to each agency to determine how to apply the line item cuts. The governor today offered a more detailed look at how the cuts might impact one particular agency, the Division of Children and Family Services, which handles foster care in the state.
Gillam released the separate budget breakdown for education because of the state’s legal constraints. According to the Arkansas Supreme Court’s landmark decision in the Lake View school funding case, the state is constitutionally required to fund an “adequate and equitable” education before it funds anything else whatsoever in the budget; therefore, items deemed necessary for the adequacy of public schools are untouchable for the purposes of cuts.
“When you just say there’s going to be a $30 million reduction [in the Public School Fund], even those that are really adept at the adequacy funding are still not going to know where that money is actually coming from,” Gillam explained. “I wanted to include that so when people are asking questions, they’ll know it’s coming from Arkansas Better Chance grants [pre-k], National Board Certified Teaching program, all those things. Members and the citizens as a whole can have a better understanding of where these cuts would happen.”
The $30 million in cuts to the Public School Fund represent a 1.5 percent cut to the total Fund budget, slightly smaller than other agencies because of adequacy requirements. However, some of the individual line items within the Public School Fund are slashed dramatically or altogether, including the Arkansas School Recognition Program; programs for college and career readiness for at risk students; the Coordinated School Health Program; the National Board of Professional Teaching Standards; funding for literacy, math, and science specialists and professional development and technical assistance in those areas; Education Renewal Zones; and more.
Gillam said that it was important to provide members with real information about where the cuts would come if Medicaid expansion is repealed:
We have a lot of members that are asking questions whenever they hear something at a press conference about there being $100 million plus shortfall. They’re saying, ‘how would that actually be applied? Does it affect my district? Does it affect my area of the state?’ They’re asking a lot of those questions. I thought that it would be responsible for us to look at how this would actually be put into practice. The members needed to make these decisions in real time with real information, as opposed to some abstract, in-a-vacuum hypothetical. This will give them a very realistic snapshot of how these cuts could be applied, and how we think they could be replied responsibly.
It gives them a chance to make an important decision. If you’re in northeast Arkansas, now you look at it and say, okay, ASU gets cut $1.7 million. That’s a real factor for members in northeast Arkansas that they have to deal with. That’s separate from the two hospitals up there and the losses they’re going to take, which is completely separate from our budget. They can look at that and see this is what’s really going to happen in my district so it’s not just some hypothetical. We’re able to give them a real sense of what this would mean in their districts. I think that’s our job up here is to arm members with that kind of information so that they understand that this is real, that we’re not just making these numbers up. Because I’ve heard a few senators that made that comment, that we’re not really going to make these cuts. We’ve done our best to be responsible with this but we want them to all understand: No, this is real. If you take this money out of the budget, there’s going to have to be reductions in services.
As Gillam himself admitted, the total $142.7 million figure is likely understating the budget hole. The state’s consultant, the Stephen Group, found that the net impact to general revenues of ending the private option would be $206 million. That includes a little more than $60 million in state tax revenues that the state would accrue from the $1.6 billion in federal spending. That spending ends up being subjected to state taxes – for example, income taxes on providers, property taxes on new hospital facilities, sales taxes on new equipment and supplies, etc. This portion of the private option accounting has occasionally been subject to controversy but the truth is that there is no way that feds can put billions into the Arkansas health care system without it being subject to state taxes which raise revenues for the state coffers. (Note: this is not dynamic scoring — it makes no assumptions of economic growth despite the billions pouring into the state, merely estimating the inevitable state tax collections on federal spending.) In any case, the Department of Finance and Administration will not include this figure in scoring as a matter of policy, and the governor himself prefers not to, so it is excluded from the budget hole that Gillam’s alternative budget addresses. Suffice to say that on top of the cuts proposed in the budget, the state would risk collecting tens of millions less in revenues if it ends the PO.
“All I can work off as far as a proposed Revenue Stabilization Act is the static numbers that we’re dealing with, the numbers that nobody can argue with,” Gillam said. That includes the additional costs to the state from certain populations moving to the traditional Medicaid program (pricier for the state because the feds only give a 70 percent match, as opposed to picking up nearly all the cost of private option beneficiaries); additional direct state payments for uncompensated care to institutions such as prisons and UAMS; and the loss of premium taxes collected on the private insurance plans sold as part of the private option. Here’s more on how the numbers work.
“I could only take those numbers that everybody agreed upon and went from there,” Gillam said. But Gillam pointed out that the state could face a bigger hit, not just from the loss of tax revenues described above, but also from the potential disaster in uncompensated care costs facing hospitals in the state. That doesn’t directly impact the budget, but rural hospitals may end up coming to the legislature desperate for help. “That’s still a hit to the state,” Gillam said. “Those are things that will affect the state, and the overall health of the state. They may come to us and say we’ve got to stay open, you’ve got to help us.”
Noting that Rep. Charlie Collins had argued that the total hit to the state, factoring in the tax revenue losses as well the impact on hospitals in the state, was more than $300 million, Gillam said: “He’s not wrong. When he talks about those other dynamics, he’s right about that, he’s dead on. But I can’t reflect that in the budget.”
I asked Gillam how things were looking in the House, where funding for the Medical Services appropriation needs five more votes to meet the supermajority threshold after the chamber passed “Arkansas Works” 70-30. Gillam said that he was optimistic.
“The House members are always very data-driven,” Gillam said. “This is something that they will look at very closely because they want to make the best decisions for their districts. A good chunk of the folks that voted against Arkansas Works, and I think they’ve signaled this — they are looking at this appropriation not as a policy vote but as an actual agency appropriation that fits within the overall construct of a state budget. They want to vote for something responsible. They’re going to look at this through that prism. House members are looking at this through the prism of ‘what’s the effect on my district and what’s the effect on the state?'”
Support for special health care reporting made possible by the Arkansas Public Policy Panel.