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Medicaid, other costs threaten New York state and local budgets: report

By Hilary Russ

NEW YORK (Reuters) - Costs for Medicaid, education and employee retirement benefits are threatening to overwhelm state and local government budgets in New York, a report by a national task force issued on Tuesday found.

"Healthcare costs and retirement costs are rising a lot faster than revenue. And unless one sees something on the horizon that will change that essential dynamic, then that means we're not on a sustainable path," said former New York Lieutenant Governor Richard Ravitch in an interview.

The report, which can be found at www.statebudgetcrisis.org, was one in a series released by the nonpartisan State Budget Crisis Task Force, led by Ravitch and former Federal Reserve Chairman Paul Volcker.

By mid-2012, at least six New York cities and counties were in fiscal distress severe enough to see possible state intervention within the coming year, the report found.

The counties of Nassau and Suffolk on Long Island, and the cities of Yonkers and Syracuse, have all been struggling with significant budget stress.

New York is one of 15 states that forces its cities and counties to contribute to Medicaid funding.

Localities in New York are now paying $8.6 billion annually in Medicaid costs, or 16 percent of the total bill. The state pays another 39 percent and the federal government the remaining 45 percent, according to the report.

NEW YORK'S MASSIVE MEDICAID SPENDING

"New York's Medicaid program is by far the largest, most extensive, and most expensive in the country," the report said.

The Empire State spends more of its own money, as opposed to federal funds, on Medicaid than Florida, Texas and Pennsylvania combined, according to the report.

Spending per enrollee was $9,056 in 2009, or 69 percent higher than the national average of $5,337.

"For many years, New York created state health care programs and leveraged the new entitlements into Medicaid to get 50 percent federal matching funds," the report said.

Medical providers, labor unions and interest groups have also pushed for institutionalization of patients, which contributes to higher costs, the report said.

The state has taken significant steps to rein in Medicaid spending growth in fiscal 2012 and 2013, including placing a cap on the growth of state Medicaid spending. The cap is linked to the Consumer Price Index.

But it is unclear whether the changes will reduce the underlying health care costs themselves, or simply shift costs onto providers and possibly beneficiaries, the report said.

EDUCATION AND DEBT

New York's public education system for elementary and secondary school is also expensive. The average expenditure per pupil was $18,618 for the 2010-2011 school year, compared to $10,615 nationally, the report found.

Here, too, the state has capped growth on education aid, putting school districts on notice that they need to control costs, many of which are driven by pension and retiree health care costs that are hard to contain, according to the report.

But with a 2 percent property tax cap limiting how much revenue school districts can raise, the state also needs to make it easier for school districts to control personnel and other costs if it doesn't want to see service deteriorate, the report said.

Currently, only 5 percent of the state's outstanding debt is general obligation debt approved by voters.

But in order rebuild infrastructure after Superstorm Sandy, "the state may need to put infrastructure bonding before the electorate and make the case for broadly supported general obligation debt," the report said.

New York had about $287.3 billion of real long-term debt outstanding in 2009, second only to California, which had $372.5 billion, according to the report.

Retirement costs are also on the rise. Contributions from state and local governments to the New York State Common Retirement Fund are increasing by more than $3 billion annually, the report found.

(Editing by Leslie Gevirtz)

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