S&P: Medicaid, Pension Costs Create Budget Complications for States

A sluggish forecast for U.S. economic growth as well as an increase in U.S. states’ Medicaid and pension contribution costs is creating a budgetary squeeze in many state capitols, according to a research report issued by S&P Global Ratings on Monday.

While the risk of a recession within the next 12 months has fallen into a 15-20 percent range from 20-25 percent, the rate of economic expansion “is expected to remain fairly anemic at 1.8 percent over the longer term (roughly 10 years), well below the 3.0 percent average growth rate that prevailed from 1980 to 2000,” the report said.

“And while the risk that federal policy could trigger a recession has eased, the potential for a dramatic scaling-back of federal aid for Medicaid has never been greater,” the report said.

The slow-growth economy is producing sluggish revenue trends for the states, said Gabriel Petek, an analyst at S&P, in

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