Missouri senators cite credit concerns about Medicaid

JEFFERSON CITY, Mo. -- Some Missouri lawmakers already hesitant to expand Medicaid now have a new reason to object: the potential effect on the state's debt.

Republican members of the Senate Appropriations Committee raised concerns Monday that an expanded Medicaid health care program could hurt the state's stellar credit rating, making it more expensive for Missouri to issue bonds.

Missouri enjoys a AAA credit rating -- a fact that Democratic Gov. Jay Nixon and Republican legislative leaders alike frequently tout as evidence of their conservative financial management. But Moody's Investors Service last week assigned a negative outlook to Missouri because of its link to the federal government. That means a downgrade in the federal government's credit rating likely also would result in a downgrade in Missouri's credit rating.

Moody's cited two areas of concern are the amount of federal purchasing in Missouri, such as for military contracts, and the proportion of the state budget comprised by the federally and state-funded Medicaid program.

Missouri is projected to spend about $8.5 billion on Medicaid this year, about 35 percent of the state's $24 billion operating budget. Under Nixon's budget proposal for next year, Medicaid spending would rise to $9.9 billion -- about 38 percent of the total budget. Nixon has touted the Medicaid expansion as the right thing to do -- both for the health of an estimated 260,000 lower-income adults who would be added to the rolls and to ensure Missouri gets a good return on the federal taxes its citizens pay.

Nixon and some lawmakers also have proposed a state bond issue for public facilities such as colleges, universities, parks and a state mental health hospital. A lower credit rating could increase the interest rate that Missouri would pay on new bonds.

Some senators Monday questioned whether a larger Medicaid program could make it even more likely that the state's crediting rating could be downgraded.

"We're faced right now with making a pretty darn big decision on Medicaid, and that is if we're going to basically hitch our wagon a lot tighter to the federal government," said Senate Appropriations Committee Chairman Kurt Schaefer, R-Columbia. "What does that mean for long-term economic stability for the state of Missouri?

"It appears to me that what got us the negative outlook, we are simply going to double down on that now if we do Medicaid expansion," Schaeffer added.

House Speaker Tim Jones also raised concerns Monday about the effect of a Medicaid expansion on Missouri's credit rating.

"If you massively expand that reliance on federal spending, I would assume you are going to create that fear even worse in the eyes of the credit reporting agencies," said Jones, R-Eureka.

Nixon's budget director, Linda Luebbering, said the governor is willing to pass a law containing an automatic withdrawal from the Medicaid expansion if the federal government backs off its pledge to provide full funding for the initial years and at least 90 percent funding in future years.

Missouri's accounting chief said if the state's credit rating is lowered because of the federal government, there would be only a "negligible effect" on the interest rates paid by Missouri.

"Our investors are extremely sophisticated," said Stacy Neal, director of the Division of Accounting in the state Office of Administration. "They can tell the difference between something that's happening at the federal level and we're being impacted by and something that's happening through our specific variables."

New Mexico, Maryland and Virginia all previously had their AAA crediting ratings assigned a negative outlook by Moody's because of their financial links to the federal government. But so far, none of those states has lost its AAA status.

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Associated Press writer Chris Blank contributed to this report. Follow David A. Lieb at: http://www.twitter.com/DavidALieb