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Zack Hutchins
Director of Communications

May 10, 2005

Study: New York increased Medicaid spending despite sharp decline in tax revenue during recent economic slowdown

New York State increased spending on Medicaid and other programs more than most states in fiscal 2003, according to a new report examining how states responded to tough fiscal challenges brought on by the 2001 economic slowdown and the 9/11 terrorist attacks.

The Nelson A. Rockefeller Institute of Government's new state fiscal brief studied revenue and expenditures in 2002 and 2003, when most states began to experience the effects of the economic slowdown, the report said.

New York State saw a 5.5 percent decline in real, or inflation-adjusted, per capita tax revenue between 2002 and 2003, the Rockefeller Institute’s research shows. Despite that drop, state general expenditure payments to medical vendors rose by 16.3 percent, the Institute noted. New York’s Medicaid spending increase was the eighth largest during that period on a percentage basis.

State payments to medical vendors encompasses most state spending on the Medicaid program, but excludes local spending and some administrative expenses in the program.

Nationwide, “spending on medical vendor payments was up 7.4 percent in real per capita terms (adjusted for inflation and population growth), which was enough to drive overall real per capita state government spending 0.9 percent higher than in 2002, despite slight declines in other areas,” the Institute said. “This suggests that Medicaid spending may have ‘crowded out’ other state expenditures.

New York State general expenditure spending, excluding Medical Vendor payments, increased by 1 percent on a real per capita basis between 2002 and 2003.

Between 2002 and 2003 states nationwide saw a drop of 7.5 percent in real per capita tax revenue, the Institute said. Despite that drop, state general expenditures nationwide increased 4.9 percent during the same period. “Even after adjusting for inflation and population growth, real per capita expenditures were up 0.9 percent, which may seem surprising given the severity of the tax revenue decline,” the Institute noted.

The study also showed that while states nationwide increased charges and by an average of 2.4 percent, New York increased fees and charges by 6 percent.