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Parsing the Final 2009 Deficit Numbers

If you follow this stuff, then you already know that the final, fiscal year 2009 deficit came in at $1.4 trillion, about $400 billion lower than what the administration projected back in May, and a little over $150 below where the administration thought it would be after its mid-session review (MSR) in August. As the newspaper write-ups all point out, lower-than-expected spending on the financial rescue accounts for a big chunk of the difference. (Though it's worth noting that this explains more of the dropoff from the May to the August projection than from the August projection to the final number. The drop in the actual cost of the bailout relative to the August projection is mostly a function of anticipated spending getting pushed into the next fiscal year, as the administration's release explains.)

Anyway, I just wanted to flag something that jumped out at me in the administration's breakdown of the difference between its August deficit projection and the final fiscal-year 2009 number--a somewhat troubling indicator of the financial health of states:

Outlays for the Department of Health and Human Services were $796 billion, $17.6 billion below the MSR estimate.  A little less than half of the total difference was in outlays for Medicaid, which were $7.6 billion (2.9 percent) lower than MSR estimates, due to slower-than-expected growth in State Medicaid spending. While year-end financial and enrollment data are still being finalized, the difference between the estimated and actual Medicaid spending growth was likely due to a combination of slower-than-expected enrollment growth and stronger efforts by States to control program spending, such as by freezing or cutting provider reimbursement rates or by reducing benefits [empahsis added].

Keep in mind that Medicaid is jointly financed by states and the federal government. While it's possible that states are finding new efficiencies in their Medicaid programs, I suspect they're just cutting wherever they can because their budgets are in such lousy shape--which, suffice it to say, isn't great for the economy.

I understand that the politics of additional state aid are difficult. But boy would it make a lot of sense right now.