‘Unusual’ Funding System Contributes to States Failing to Spend Entire CHIP Allotments, Brief States
Although CHIP spending levels have "fallen below the total funds made available" at the federal level -- at the end of fiscal 2000, 40 states had $1.9 billion left over -- a policy brief from the Urban Institute's Assessing the New Federalism states that "it would be premature to judge [CHIP] on that basis," as it is "still a work in progress." When Congress approved legislation establishing CHIP in 1997, it made available approximately $40 billion in federal funds for fiscal years 1998-2007. States have access to more than $4 billion between 1998 and 2001, slightly more than $3 billion between 2002 and 2004, approximately $4 billion in 2005-2006 and $5 billion in fiscal 2007. The brief notes that the "U-shaped funding is unusual," but "anticipates the need for time to start new programs by giving states three years to spend a given year's allotment." Thus states had until the end of FY 2000 to spend their FY 1998 allotments. The brief outlines states' spending patterns, beginning in FY 1998, when only 19 states spent any of their allotments and only New York and South Carolina spend more than 10% of their allotments. That year, states spend about $121 million, or 3%, of the total $4.2 billion available. In the following fiscal year, expenditures increased by seven times the previous year as more states began to implement programs. States' spending in FY 1999 equaled about 21% of the 1999 allotment. Compared to the two states in FY 1998 that spent more than 10% of their allotments, 31 states had spending greater than 10% of their allotments in FY 1999. As for FY 2000, states are projecting that CHIP spending will more than double the amount spend in FY 1999 -- four states estimate they will spend their entire FY 2000 allotment or more, but five states are projected to spend less than 10% of their FY 2000 allotments. The brief notes that policymakers "should prepare for an anomaly in spending patterns" because of the way CHIP is designed. States are expected to spend a larger percentage of their FY 1998 allotments than they will spend of their FY 1999 allotments. Furthermore, the number of states that spend their entire FY 1999 allotments will be fewer than the number spending their entire FY 1998 allotment. The brief explains that states that had implemented CHIP later or had higher Medicaid eligibility thresholds for children before implementing CHIP spent a smaller part of their FY 1998 allotment. Although many states are expected not to expend their early fiscal year allotments, a "sizable share could use all of their allotments" in fiscal years 2005 or 2006. What's Next? As for what should be done with the $1.9 billion in unspent FY 1998 CHIP money, the brief highlights three options:
- Immediately redistribute the unspent funds, allowing recipient states to "use these as their 'first dollars' spent in the reallocated year." The brief notes this option "maximizes reallocations and quickly rewards fast-acting states," who then can expand their CHIPs and "carry forward sizable balances of their own funds in future years;"
- Allow states to "draw from unallocated funds any amount they spent beyond their own allocation during the three years the fiscal year was open." This option "is designed to reallocate funds consistent with the extend to which each state has expanded its program beyond the base allocation;"
- Allow states to use reallocated funds only after they have spent all their allocations for all open years. This third option "ensures that excess funds go to states that absolutely need them," but only reallocates a "small share of the unspent funds," the brief states.