February 12, 2013

Prospect Of Medicaid Expansion Appears To Have Turned Missouri’s Credit Outlook Negative

Is federal spending “free money”? Of course not — as I have said many times, we are the federal government, which means one way or another, we will have to pay the bill it racks up. But can federal over-spending actually affect state finances negatively on its own? It sure can. Behold:

Moody’s Investors Service has changed the rating outlook to negative from stable on nine state and local governments, including the State of Missouri, and two state housing finance agency programs, in conjunction with an updated analysis of which Aaa-rated issuers have indirect linkages to the federal government.

KBIA, Columbia’s NPR affiliate, had a very interesting story this weekend that more closely examined Moody’s decision. In a story that quotes Show-Me’s own Joe Haslag, the reason for the change in outlook is pretty clear: Medicaid. Indeed, the Medicaid expansion under the Affordable Care Act will cost Missouri (us) nearly $3 billion over the next decade, and that does not include the cost to the federal government (again, also us.) How will we pay for all of this spending? Those plans do not appear to be forthcoming, unless “rack up a bunch of debt” constitutes a plan these days.

And increasingly, Missouri legislators are getting more vocal about their concerns regarding Medicaid:

“We’re faced right now with making a pretty darn big decision on Medicaid, and that is if we’re going to basically hitch our wagon a lot tighter to the federal government,” said Senate Appropriations Committee Chairman Kurt Schaefer, R-Columbia. “What does that mean for long-term economic stability for the state of Missouri?

“It appears to me that what got us the negative outlook, we are simply going to double down on that now if we do Medicaid expansion,” Schaeffer [sic] added.

Schaefer and Moody’s are correct in questioning the financial position of the state in the context of potentially massive new state spending that is heavily reliant on federal dollars. We should all be so concerned.

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