Governor warns on rising Medicaid costs, wants money for reserves

Gov. Asa Hutchinson presented his balanced budget to Arkansas lawmakers on Wednesday (March 4) declaring that he wants to put more money in reserves to strengthen the state’s financial position and prepare for potential unexpected challenges.

“We live in uncertain times,” the governor told the Joint Budget Committee on the capitol grounds. “Our budget should reflect this reality.”

Citing everything from trade wars to coronavirus to potential federal funding cuts in the future, Hutchinson revealed a $5.893 billion state budget, an increase from the $5.737 billion budget from the previous year.

His balanced budget accounted for a $54 million surplus, which includes moving $40.5 million to a restricted reserve fund and $13.5 million for the highway transfer fund. The restricted reserve fund is part of the governor and legislature’s effort to plan for a potential economic downturn. The governor said he didn’t want to put a dollar figure on how large that fund should be before moving it downward on his priority list.

“I’m not going to set a specific number at this time,” Hutchinson said, noting that the reserve is needed to improve the state’s bond rating and improve its “prudent” fiscal management. “This is new for us, and it takes awhile for us to build that up.”

But Joint Budget Committee co-chair Sen. Larry Teague, D-Nashville, said he had a dollar figure in mind although too much money would make it difficult for taxpayers to justify.

“So in my mind, we ought to have a billion dollars of reserve and I’m all for getting there. But on the other hand, there are state needs,” Teague said. “I hope we put a big chunk in there… I think people understand they need a little reserve in their lives and state government is very similar. When you start getting up to a big number, it’s going to be harder to sell, I bet.”

Notable highlights of the governor’s balanced budget proposal included:

• An increase in funding for K-12 education, but not all of the increase will come from general revenue. Hutchinson said growth in the Educational Adequacy Trust Fund would allow for less reliance on general revenue for an increase in public education funding.
• Higher education funding would grow a modest $6 million based on a new funding formula that accounts for retention and graduation rates.
• A raise for county jail reimbursements from $30 per day per inmate to $32 per day. County jails house some state inmates in overcrowding situations and are compensated for the housing.
• $2.6 million in new funding for 175 new beds for low-level offenders and low-risk parole violators. The new beds would be at facilities in Texarkana and West Memphis.
• A 4.98% increase in Medicaid funding. Some of this increase would be applied to provider reimbursement rates and for possible expenses related to minimum wage increases within the system.

Hutchison warned that the traditional fee-for-service Medicaid program – not the Medicaid expansion program – was likely to see increases in costs. He would only predict that higher costs were coming, but declined to provide an exact figure.

“I wouldn’t put a dollar figure on it because we’re still going through the reviews of the reimbursement rates,” he said. “We knew last year that there was going to have to be some increased funding in the out years for Medicaid. This was just my way of alerting them to this issue.”

Medicaid and other programs that run through the complex and diverse Department of Human Services will be a big focus of scrutiny from legislators in the April fiscal session. The agency has been undergoing a number of executive- and legislative-driven reviews and reforms. Sen. Teague said he expected the DHS budget to be the biggest puzzle piece for lawmakers.

“I don’t understand everything that DHS is doing over there,” said Teague, who added that he thought the initial budget presented by the executive branch seemed “reasonable.”

“I told the governor this morning that I’ve always supported him except when he was wrong,” Teague joked. He said he was pleased that there were no real surprises in the governor’s financial projections.

The state is sitting on a $170 million surplus. The governor wants to move some of that money into the long-term reserve fund, but there will be pressure to utilize some of the money for workforce development, broadband in rural areas, and a rainy day fund for immediate emergencies such as the floods that devastated farmlands and infrastructure last year.

The fiscal session begins on April 8th at noon. Pre-session budget hearings continue for the next two weeks.