JEFFERSON CITY -- Deficit reduction remedies now being adopted by Congress will either require large-scale cuts in existing welfare programs or trigger increased state spending, or both, two top Missouri officials have warned.

State welfare and budget directors' pessimistic estimates reflect concern throughout state government over the future of programs that assist low-income families, disabled and neglected children and elderly citizens. Budget Director Mark Ward has compiled estimates that indicate Missouri will lose millions of federal dollars for programs in the state's departments of Social Services, Mental Health, Health and Highways and Transportation.

Social Services Director Dr. Gary Stangler has warned that proposed reductions in the Medicaid program will seriously limit Missouri's ability to meet future needs of the elderly and disabled as well as women and children. Although the elderly and disabled account for slightly more than a third of the Medicaid recipients, this group uses two-thirds of the Medicaid program resources.

The state's welfare director predicts that if a cap is placed on assistance programs for women and children, Missouri will experience a shortfall of more than $470 million by the year 2000. Women and children receiving some form of Medicaid assistance number 235,000, while 134,000 elderly and disabled are enrolled in Medicaid programs.

Stating Missouri has "limited options for controlling Medicaid spending," Stangler says the state can take one of four possible steps, or a combination, in meeting future federal funding decreases. These options are reducing the number of eligible recipients, reducing the services provided, eliminating any growth or cutting reimbursement rates to providers, or achieving greater efficiencies through managed care.

Ward said state government receives $4 billion annually from Washington, representing more than 30 percent of the state's $12.9 billion operating budget. The state budget director predicts that "assuming no cuts in Social Security, debt interest and defense spending, the proposed federal budget will mean a shortfall of $700 million for the state in seven years, requiring reductions below current spending levels that would average 22 percent." He notes that if some programs are exempt or cut less, it would mean greater reductions or eliminations in other areas.

Ward thinks changes now in the process of being approved by Congress will affect the state's entire economy, including state and local revenue collections, its work force, institutions "and a host of other aspects of the economy that cannot be predicted."

Noting that health care and entitlement reform proposals will have the most immediate effect, Ward said health services are a huge and growing sector of Missouri's economy, comprising 11 percent of employment. "Changes in Medicare and Medicaid will affect employment in this sector, because Medicaid represents nearly half the federal funds that flow through state government," the budget chief says.

Ward said figures compiled by his office show that a 5 percent growth cap on Medicaid spending could have a $300 million impact on Missouri by the year 2002. As for welfare reform, which will also have a major effect on the state, an $80 million gap between projected need and the block grant level is predicted in just five years.

Even though an unfunded mandate restriction has already been signed into law, Ward said there are a couple of facts to keep in mind. First, the law didn't repeal existing unfunded mandates that continue to add costs to state and local budgets. Second, the current law can be amended and future Congresses can add federally ordered programs.

Noting that domestic discretionary spending is only $260 billion of the $1.5 trillion federal budget, Ward said if large entitlement programs, such as Social Security and defense are exempted, then domestic spending will bear the brunt of reductions. Even the less drastic cuts offered by President Bill Clinton would result in a reduction in federal funds of $400 million in the state's budget within five years.

Still another effect of the budget measures working their way through Congress is one impacting Missouri's general revenue. In addition to reduced funding from Washington and lower federal sharing of existing programs, state income taxes are closely linked to the federal system. Changes in U.S. tax laws will have an impact on Missouri's income tax collections, lowering them by an unknown degree and thus limiting the ability of Jefferson City to make up for declining federal appropriations for state-administered programs.

When asked about this impact, Ward said this variable "adds uncertainty to state fiscal planning."

Because Missouri is also a major defense production area, as well as the site of several military installations, the state's overall economy will be affected by total military outlays as well as specific spending decisions made by Congress. Missouri is expected to see both positive and negative effects based on recommendations of the Base Realignment and Closure Commission.

A staff member in the office of Gov. Mel Carnahan says the chief executive is "committed to working together with local communities, engaged groups such as Citizens for Missouri's Children, state department directors and the General Assembly to coordinate responses to changes in federal budget policy." The staffer warned, however, that under budget proposals in Congress, there will be "serious negative impacts" on state and local programs as well as a large segment of the state's population.