Earlier this month, the Office of Economic and Demographic Research (EDR) for the State of Florida released their long term-budget outlook. To say the picture is bleak would be an understatement. The EDR report concludes spending will outpace revenue by $923 million this year, and projects the discrepancy to swell to $2.3 billion by Budget Year 2011-2012. Floridians would be right to ask how the problem can more than double in such a short period of time. The answer won’t be surprising to those familiar with budget issues: Medicaid is a major contributor.

For the current fiscal year, Florida’s Medicaid program is already running at a $224 million deficit. More than a quarter of the states $66.5 billion budget goes to the program. For comparison, annual expenditures for Medicaid already exceed undergraduate education funding. To make matters worse, the leading House and Senate health care reform bills currently in Congress would up the threshold for Medicaid eligibility.
For Florida, this would translate into a near fifty percent increase in the amount of citizens receiving Medicaid (according to the Florida Agency for Health Care Administration). The fact that states are prohibited from deficit spending compounds the issue. It is clear that something has to change, and action should be taken now before the problem worsens.
The state’s budget situation cannot handle the ballooning of Medicaid costs. To deal with its past overspending, Florida politicians went back on their word and used dubious tax increases in an attempt to generate revenue. Both cigarette taxes and unemployment taxes have seen increases within the past year. These increases clearly have not solved the problem, and Floridians themselves realize this.
Instead of resorting to more ineffective tax hikes once Medicaid becomes a major problem, the state legislature and governor should act now to prevent crippling deficit projections from becoming a reality. One option would be to open up the Outer Continental Shelf for oil exploration. Florida representative Dean Cannon urged such a measure earlier this year. Such a plan would create new funding without raising taxes. Another possibility would be to securitize the Tobacco Settlement Trust Funds that states received from tobacco companies. Since 2001, securitization has helped at least six states rectify overspending problems amounting to over $9 billion by acquiring a large sum of cash in lieu of raising taxes.
Regardless of what form new revenue streams take, now is the time for creative solutions to Florida’s budget problems. Any time is a bad time to increase taxes, but especially doing so during a recession and times of high unemployment.