In Downturn, Medicaid Takes Up More of State Budgets, Analysis Finds

That is one of the changes that the lingering economic downturn and the changing American economy have wrought on state finances, according to an analysis of state spending over the last few years released Tuesday by the National Association of State Budget Officers.

The increased spending on Medicaid, the state and federal health program for the poor, was driven by steadily rising medical costs, an infusion of money from the federal stimulus bill and a significant rise in the number of people who became poor enough to qualify for the program as the downturn wore on. The Medicaid program accounted for 21.9 percent of all state expenditures in 2009, 22.3 percent in 2010, and is estimated to account for 23.6 percent in 2011, the report found.

At the same time the share spent on elementary and secondary education has declined, dropping to 20.1 percent in 2011 from 21.5 percent of all state expenditures in 2009.

Education used to make up a bigger share of state spending: when the association first began compiling the report in 1987, elementary and secondary education made up the biggest share of state spending, and higher education the second biggest share. Medicaid surpassed higher education as the second biggest state program in 1990, and in 2003 it became largest state program for the first time. Since then it has vied with schools for the biggest share of state spending, but for the past three years it has been in the lead, with an increasing margin.

The report said that after the recession hit, spending from state funds declined in 2009 and 2010, but federal aid from the stimulus package allowed states to continue to increase overall spending. But a summary warned that the uncertain economy, the likelihood of reduced federal aid, the expected costs from the health care overhaul and continuing pressure to pay for pensions and health care for retired workers means that “states are likely to face austere budgets for at least the next several years and will continue to make difficult spending decisions.”

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