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COVID-19 and State Fiscal Implications
May 19, 2020
Reporting & Analysis

This article is provided as courtesy of Billy Millwee with Millwee & Associates Consulting. Billy served as the Texas Medicaid Director and Deputy Health and Human Services Executive Commissioner for a number of years, and he and his firm have been engaged in Medicaid consulting on a national level since 2012. Overview Across the nation, states are facing significant budget challenges due to the COVID-19 pandemic. As revenues decline, state expenditures are simultaneously increasing due to increasing demands on state services. In many cases, anticipated general fund revenues will be less than the costs to maintain state services. Despite these challenges, states must continue to balance their budgets.[1] There are three main budgetary impacts of COVID-19:

  1. Higher Direct Costs – States have already incurred and will continue to incur significant direct costs to respond to the COVID-19 pandemic. Key areas impacted include law enforcement, health systems, infrastructure, and education. For example, states may allocate funding to expand hospital and laboratory capacity, purchase and refurbish medical supplies, and fund state health programs to provide testing and treatment.
  2. Higher Indirect Costs – States will incur higher indirect costs from changes in the state’s economic conditions that are resulting from the COVID-19 pandemic. For example, as unemployment rises and income falls, more people will qualify for health and social service programs funded by state governments.
  3. Lower Revenues – States will face revenue implications driven by economic changes resulting from COVID-19.

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