State faces largest budget crisis in decade. This is why.

ALBANY -- New York faces budget deficits between $6 billion and $8 billion over the next three years amid ballooning costs for Medicaid.

Budget documents released Friday afternoon showed the state faces its worst fiscal problems since the recession in 2010, when a $10 billion budget gap needed to be closed.

The state Legislature and Gov. Andrew Cuomo will need to come up with a balanced budget for the next fiscal year that starts April 1.

A $6 billion budget gap for the 2020-21 fiscal year could mean deep cuts in programs and services.

The main culprit is exploding costs for Medicaid after the state was able under Cuomo since 2011 to largely keep spending growth to about 3% or 4% a year.

The state's mid-year budget update Friday showed deficits of $2.9 billion growing to $3.9 billion by 2023 in New York's $70 billion Medicaid program.

So that is fueling an overall budget gap that is estimated to jump from $6 billion next year to $8.5 billion by 2023.

More than 6 million people are on Medicaid in New York, about one third of the entire state's population.

"Thanks to Medicaid over-spending, New York's state budget gaps have blown up to their highest levels since the Great Recession," wrote E.J. McMahon, founder of the Empire Center for Public Policy, a fiscally conservative think tank in Albany.

Rising budget gap, what it means for you

Lawmakers and Cuomo have dealt with relatively small budget gaps in recent years after having to deal with a $10 billion gap when Cuomo took office in 2011.

In Cuomo's first year, he and lawmakers had to cut school aid by $1.3 billion or 6%, cut health-care costs and lower overall spending by 10%, leading to a series of concessions by labor unions who represent state workers to avoid mass layoffs.

Now they will face new pressures on how to balance the budget in the coming months.

Cuts shouldn't be done solely within the Medicaid system, said Andrew Rein, president of the Citizens Budget Commission, a business-backed think tank in New York.

"Developing and implementing a plan to solve the entire budget problem need not be done entirely within the Medicaid program," he said in a statement.

"Other portions of the budget also should be considered, including mistargeted school aid and unproductive economic development programs."

The state budget's biggest spending items are school aid and Medicaid, and while those have had spending growth in recent years, Cuomo has forced other state agencies to largely keep their spending flat.

New York also doles out billions of dollars a year on economic-development programs to promote job growth and had a $1.3 billion property-tax relief initiative.

Schools are also limited in the ability to raise property taxes to cover any decrease in state aid. A property-tax cap makes it exceedingly difficult to raise school taxes more than 2% a year.

School groups are already lobbying for a $2 billion increase in aid for the 2020-21 year. This year, school aid rose by $1 billion, to a total of $27.9 billion -- by far the most per capita in the nation.

"As schools seek to offer the range of academic programs needed to prepare today's students for success in tomorrow's economy, the fact is that it will take more of an investment to get it right," the New York State Educational Conference Board said Thursday.

Why is New York in this position?

State officials and experts said the fiscal woes are not a result of an economic downturn, which is usually the case. Instead, it is health-care costs.

"This is different because it is a significant deficit not in the context of any kind of economic downturn," said Bill Hammond, the Empire Center's director of health policy.

"It's a Medicaid problem," he added.

Enrollment in the state's managed long-term care program has been growing at about 13% a year, up to a total of about $8 billion this year.

New York splits Medicaid costs with the federal government, and counties also pay a capped portion.

Medicaid has helped New York lower its uninsured rate to its lowest on record at 4.7%, according to the federal Centers for Disease Control and Prevention.

But the increased enrollment has come at a cost amid a decline in federal aid for Medicaid expenses, said Freeman Klopott, a spokesman for the state Budget Division.

Also, New York's Medicaid program is spending $770 million this year to support financially distressed hospitals, a 27% increase, he said.

He said a cost-cutting plan will be part of Cuomo's budget proposal in January.

"With increased utilization and medical inflation nationally creating a structural imbalance," Klopott said in a statement, "the Division of the Budget and the Department of Health are once again developing a cost-curbing plan that will be described in the Executive Budget to be introduced in January and continue high-quality care for more than six million New Yorkers."

Fiscal watchdogs warned about cutting too deep into New York Medicaid's program, which is one of most robust in the nation.

Part of the plan calls a $2.2 billion lag in Medicaid payments to health-care organizations. The other calls for a $1.8 billion "savings plan," McMahon said.

Rein called it, "one part gimmick and one part delay."

"The state will make permanent a $2 billion payment deferral, which simply perpetuates papering over the structural problem," he said.

"For the remainder, the state again delays presenting a savings plan. Delays only serve to make the solution more painful."

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