NCPA - National Center for Policy Analysis


January 4, 2005

For the first time, Medicaid costs exceeded elementary and secondary education costs in states' 2004 budgets, according to the National Governors Association.

While financial situations of cash-strapped states are improving, the healthy 5 percent "cushion" that states should ideally have at the end of the year shrunk in some cases.

  • States ended the fiscal year of 2004 with $25.3 billion in balances, the equivalent of 4.8 percent of state spending, which is an improvement over last year's $16.4 billion, only 3.2 percent of state spending.
  • Twenty-three states reported end-of-year balances of 5 percent or more, an increase from just twelve in 2003.
  • Tax revenues have stabilized since 2001, primarily as a result of higher cigarette and tobacco taxes which accounted for $888 million in sales tax revenues.

However, the Governors Association also noted that Medicaid and other health care costs surpassed elementary and secondary education costs, and is expected to increase to about 12.1 percent of state budgets for 2005.

The soaring expenditures were partly due to the mid-year expiration of federal "stimulus" funds designed to help states through economic hard times. The funds amounted to about $20 billion dollars.

Source: News Release, "Spending Pressures Continue Despite Revenue Growth," National Governors Association, December 16, 2004.


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