Steadily increasing healthcare costs are driving state and local government deficits higher and are a big reason why they could double between now and 2064.
Slowing or reversing those deficits will require big changes in state taxing and spending policies, according to the Government Accountability Office.
The costs of funding Medicaid and healthcare for government employees and retirees are growing so fast that, at the current rate, spending on such programs will be greater than all other state and local government expenses combined by 2060, according to the congressional watchdog agency.
That will mean less money for police and fire protection, road building and maintenance and public schools.
“To oversimplify it, they basically can do two things: increase taxes or reduce spending,” said GAO’s Director of Strategic Issues, Michelle Sager. “They could do other things, like spending more efficiently or increasing fees.”
The GAO projected the state and local deficits to be about 2 percent of the GDP. By 2060, that number will have doubled. The report also predicted that the governments’ deficit against the GDP nearly doubled since last year. In 2013, the deficit was about $167 billion.
The federal government’s deficit was 4 percent of the GDP last year.
“Substantial policy changes” are needed, as “most state and local governments are required to balance” their budgets,” the GAO report said.
GAO recommended that state and local governments raise taxes and immediately cut spending by 18 percent.
The deficit was calculated by measuring the difference between the collective revenues and spending of state and local governments nationwide. The calculation, however, did not include assets held in rainy day funds.
