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July 18, 2012

Task force warns states of fiscal crisis

Former Federal Reserve Chairman Paul Volcker helped create the task force to examine fiscal threats in six states. (UPI/Andrew Harrer/Pool)

WASHINGTON (UPI) -- A report of the State Budget Crisis Task Force released Tuesday says states must take a number of steps to avoid fiscal crisis.

"If these problems are not addressed soon, they are likely to worsen," the report said. "The problems affect the national interest and require the attention of national policymakers. I

The task force was created in June 2011 by former New York Lt. Gov. Richard Ravitch and former Federal Reserve Chairman Paul Volcker to examine threats to near and long-term fiscal sustainability in six U.S. states: California, Illinois, New Jersey, New York, Texas and Virginia.

The report said the task force concluded major threats to fiscal sustainability for the states included Medicaid spending, which is crowding out other needs; federal deficit reductions; underfunded public employee retirements; narrowing tax bases and fiscal stress on local governments.

Federal and state governments should work together to control healthcare costs and Medicaid costs, the report said.

"State costs for existing Medicaid programs are likely to continue to grow faster than state revenues; many states already consider these costs unaffordable unless they scale back other essential functions or substantially raise taxes," the report said. "Now that the Supreme Court has validated most of the Affordable Care Act, states that implement eligibility expansions will incur additional annual costs over the next eight years that could range from zero to 5 percent of baseline Medicaid spending."

The task force report had a number of other recommendations, including: transparent, accountable state government finances; replacing cash-based.budgeting with modified accrual budgets; states should enact multiyear forecasts and plans that extend at least four years beyond the current budget year; and states should encourage independent review of their budget forecasts.

States should also strengthen and make better use of their rainy day funds. They need to save larger amounts automatically, the report said.

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