Medicaid Expansion Will Break New Mexico Budget

Feb 25, 2016

New Mexico Flag.jpg

One of the best ways for a family to get into deep financial trouble is to take on payment obligations they cannot sustainably afford. The responsible thing to do, of course, is to make sure there is enough money left in the family finances before a new spending item is added.

Our state governments are effectively forced to operate under the same principles. Just like a family they cannot print their own money (only the federal government can do that) and they have to balance their budgets every year.

However, that has not prevented our states from putting new spending programs in place without having a dedicated revenue source in place. The latest example, Medicaid Expansion, is threatening to bring many state budgets deep into the red in as little as a year.

So far 31 states and the District of Columbia have accepted Medicaid Expansion.  It is very likely that this number would have been far lower if the federal government had not promised to pay the full cost of the program for the first three years.

The problem is what happens beyond those three years. To get an idea of just how big that problem can be, one need not go any farther than New Mexico. Already today there is big fiscal cloud looming over Santa Fe, ominously foreshadowing a big hole in the state budget. The main reason is Medicaid Expansion enrollment:

  • When New Mexico adopted Medicaid Expansion the enrollment forecast was at 147,000;


  • In 2015 that number was 46 percent higher, with 215,000 people having signed up for Medicaid Expansion.


Under Affordable Care Act stipulations, New Mexico is going to pick up ten percent of the tab for the program starting in 2017. The federal government may pledge to continue paying 100 percent for a couple of more years, but in the end that does not change the fact that once the state's responsibility kicks in, it is going to have to send a hefty bill to taxpayers. An optimistic estimate points to $100-150 million annually in higher taxes just to cover Medicaid Expansion.

Or, to be exact, one tenth of Medicaid Expansion.

It is a safe bet that legislators in Santa Fe have not even contemplated a scenario where they would have to cover more than ten percent of the cost. They are busy trying to accommodate for the new costs they know are coming their way. After two years with state spending growing at 7.6 percent (Fiscal Year 2015) and 6.2 percent (FY16) the budget for FY17 is actually set to shrink, albeit marginally. The Albuquerque Journal reports:

"While the budget plan for the fiscal year starting in July would cut state spending by roughly $96 million, most of that would be offset by taking money from various government accounts."

They have a steep hill to climb just to stop the budget from growing. In the past two years alone, health care costs have gone up by double digits:  

New Mexico state budget; Total spending; $ millions

Annual growth





14 to 15

15 to 16







Public schools






General control












Public safety




































*) Agriculture, Energy and Natural Resources


Source: New Mexico Department of Treasury


As if the cost of Medicaid Expansion was not enough, New Mexico has a deep problem with its dependency on federal funds. In FY15 38.5 percent of the state’s total revenue came directly from Uncle Sam. The question is: what happens to those federal dollars when Congress is again faced with trillion-dollar deficits, as the Congressional Budget Office predicts will happen no later than 2022?

To top off the problems for the Enchantment state, severance tax revenue have dropped dramatically. The Albuquerque Journal again:

"Plummeting oil and natural gas prices are largely to blame for the spending cuts, having forced the state’s revenue projection for next year to be pared back by $326 million over the last three weeks."

While New Mexico is in a particularly tight spot due to losses in severance tax revenue, the state’s situation is not that different from many other states. For example, stagnant personal incomes have created a perennial revenue problem for states like Oregon, where personal income taxes pay for 68.3 percent of the state’s revenue, or New York (54.6 percent), Massachusetts (53.9) and California (50.2).

With long-term weakness in revenue growth, the last thing a state should do is take on responsibility for new spending programs. New Mexico has already rolled the dice with Medicaid Expansion; what matters there is to rein in the costs as best possible. Other states, still not having accepted the program, should cautiously watch - and learn from their mistake. 

Sven R. Larson

Sven R. Larson is an economist and Member of the Council of Scholars with Compact for America. He has a blog called America’s Fiscal Future and he recently published "Robbing the Millennials: How We Looted Our Kids' Future and the New Handshake We Owe Them"

blog comments powered by Disqus

Stay Up-To-Date on Your State's Key Policy Data - Economics, Politics, Demographics - by Joining Our Mailing List Today!

Check Out Our Unique Apps:

U.S. Capitol.jpg

Government Workforce

Tax Squeeze.jpg

Tax Burden

Strings Attached to Federal Dollars.jpg

Federal Tax and Spend

Hundred Dollar Bill.jpg

Cost of Living (COLI)



Measuring a Dollar.jpg

Federal Tax & COLI


Federal Pension

United States Office of Personnel Management Seal.jpg

Federal Payroll

Check out more

Stories from our

Media Partner:

Check Out All Posts For Your State:

Alabama.jpg  Alabama

Alaska.jpg  Alaska   

Arizona.jpg   Arizona 

Arkansas.jpg  Arkansas

California.jpg  California

Colorado.jpg  Colorado

Connecticut.jpg  Connecticut

 Delaware.jpg  Delaware

Florida.jpg  Florida

 Georgia.jpg  Georgia

Hawaii.jpg  Hawaii

  Idaho.jpg  Idaho

   Illinois.jpg  Illinois

   Indiana.jpg  Indiana

  Iowa.jpg  Iowa

  Kansas.jpg  Kansas

  Kentucky.jpg  Kentucky

   Louisiana.jpg  Louisiana

   Maine.jpg  Maine

  Maryland.jpg  Maryland

Massachusetts.jpg  Massachusetts

Michigan.jpg  Michigan

Minnesota.jpg  Minnesota

  Mississippi.jpg  Mississippi

Missouri.jpg  Missouri

Montana.jpg  Montana

Nebraska.jpg  Nebraska

Nevada.jpg  Nevada

New Hampshire.jpg  New Hampshire

New Jersey.jpg  New Jersey

New Mexico.jpg  New Mexico

New York.jpg  New York

North Carolina.jpg  North Carolina

North Dakota.jpg  North Dakota

Ohio.jpg  Ohio

Oklahoma.jpg  Oklahoma

Oregon.jpg  Oregon

Pennsylvania.jpg  Pennsylvania

Rhode Island.jpg  Rhode Island

South Carolina.jpg  South Carolina

South Dakota.jpg  South Dakota

Tennessee.jpg  Tennessee

Texas.jpg  Texas

Utah.jpg  Utah

Vermont.jpg  Vermont

Virginia.jpg  Virginia

Washington.jpg  Washington

West Virginia.jpg  West Virginia

Wisconsin.jpg  Wisconsin

Wyoming.jpg  Wyoming