Budget Shortfall Forces Spitzer To Scramble

Confronted by an unexpected budget shortfall, Governor Spitzer is proposing to further raise taxes on private health insurers and to scale back the growth of Medicaid patient reimbursement rates for hospitals and nursing homes, budget officials said yesterday.

A weakening in the economy has forced the Spitzer administration to lower its revenue estimate for the upcoming fiscal year by $384 million.

The revised forecast punched a new hole in the governor's proposed 2008–09 executive budget, which the administration delivered to lawmakers last month.

Mr. Spitzer is expected today to propose several measures for closing the gap in the 21-day budget amendments, which historically have been used by governors for making technical changes to executive budgets. It's unusual for them to alter spending and revenue projections by such a significant amount.

Administration officials said the adjustment to general fund revenues was the result of declining employment and wage growth, lower-than-expected corporate profits, and the anticipation that Wall Street bonuses will be flat in December. "These changes acknowledge that we've seen a continued deterioration in the economy," a spokesman for the budget division, Jeffrey Gordon, said in a statement. "Adapting our financial plan to reflect the worsening economic climate facing the state is the only responsible and prudent course of action."

To re-balance the budget, Mr. Spitzer is proposing to further increase a tax on health plans based on the number of lives they cover.

Under the governor's revised plan, the annual covered lives assessment will go up by $50 million, to $1.04 billion. He had already called for an increase of $140 million.

The increased assessment is on top of a $247 million tax hike on HMOs in the governor's original budget.

The administration aims to save $18 million by shaving a little more off of the Medicaid trend factor, the scheduled inflationary increases to reimbursements that hospitals and nursing homes receive for treating Medicaid patients.

The amended budget calls for a 35% reduction in the trend factor, which originally was to be cut by 25%.

The governor is also seeking to recover $36 million through belt-tightening of state agencies and $25 million from unallocated money in the state's Environmental Protection Fund. While estimated revenues dropped, so did spending forecasts, which obviated the need for more serious cuts. The administration is projecting to spend $150 million less on health care than previously estimated, largely due to decreased usage of Medicaid. To close the gap, the administration is also shifting $80 million in public pension costs to the current fiscal year, Mr. Gordon said.