Public Policy Perspectives vol.1 no. 1

As promised at the Fall 2008 Statewide Meeting and at the December All-Advocates Meeting, I reported that one of new goals of the CFILC Public Policy Unit and Systems Change Network (SCNetwork) is to identify ways to improve and facilitate communication among all of CFILC’s stakeholders. Thanks in large part to the Internet and e-mail systems, all of us have daily access to a barrage of competing, and sometimes conflicting, information and reports about state budget issues, state and Federal legislation, and public policy initiatives that are debated in Sacramento and Washington D.C. Separating the wheat from the chaff and balancing unduly alarming information versus important information or reports that may otherwise fall through the cracks is challenging for all of us.

In order to disseminate what we estimate will prove to be the most reliable sources of information to our stakeholders on a timely basis and to help keep our ILCs and SCNetwork informed about topical issues and developments, the Public Policy Perspectives E-mail Newsletter will function both as a centralized resource tool and a mechanism to provide background information and communicate the need to respond to Action Alerts. Since the legislative calendar and our legislative and public policy priorities are constantly evolving and subject to last minute notice, the e-mail newsletter will be distributed on an “as needed” schedule.

In this first edition of the e-mail newsletter, we will focus attention on our main area of concentration for 2009---the ongoing state budget crisis and its potential implications for ILCs if the Legislature and the Governor fail to resolve the deficit in the Fiscal Year 2008-2009 Budget Act before the state cash flow dries up in February and for the upcoming Fiscal Year 2009-2010 Budget Bill . Please keep in mind that the budget negotiations and the corresponding assessments and implications are constantly changing, so we need to be flexible in reporting information. As we all know, developments can change from day to day and hour from hour, so many of the things that we predict may occur when the Public Policy Perspectives E-Mail Newsletter is posted on a Friday may be entirely different than what will later transpire by the following Monday.

Nevertheless, we will attempt to provide information that will be food for thought for our SCNetwork and Public Policy Committee meetings and other purposes. Later editions will provide updates on CFILC’s legislative and state budget agendas, the ongoing activities of the SCNetwork, our progress in working with the National Council on Independent Living (NCIL) to reauthorize the Federal Rehabilitation Act and for increased funding for ILCs, and other important issues and developments.

Of course, your feedback, input, and participation is welcomed and will be greatly appreciated. Over time, we hope to solicit newsletter reports from anyone who wishes to contribute.

Henry J. Contreras
CFILC Public Policy Director

Analysis of the Current State of the State Budget Crisis: The Governor Vetoes the Democratic Budget Plan to Address the Current Fiscal Year Budget Shortfall, Leaving Everyone Uncertain as to “Where Do We Go From Here”?

Those of us who live and work in Sacramento have above average access to information about the state budget crisis and negotiations. Much of it is speculation, some of it is rumor, and most of the predictions will ultimately prove unreliable.

The words “unprecedented,” “fiscal meltdown,” “dire,” “emergency crisis,” and “colossal” and variations thereof are used quite frequently in these reports and e-mails, yet they fail to give the public an accurate picture of just how massive the budget deficit has become and what are the likely negative outcomes for seniors, poor and low-income families, and people with disabilities. We are now facing a projected $41.5 billion deficit over the next 18 months and that figure is growing from day to day as failed budget negotiations continue to wreck havoc on the state economy.

On Wednesday of this week (January 7^th), the Governor vetoed the $18 billion deficit reduction plan Democrats had passed by a majority vote, rather than the constitutionally-prescribed 2/3 vote requirements in December over the virulent objections of the Republican Caucus. Although the Legislative Counsel Bureau, the attorneys for the California State Legislature, issued a legal opinion opining that this maneuver was legal, tax payer groups and the Members of the Republican Caucus of each house immediately filed a lawsuit claiming that the action was unconstitutional. Shortly thereafter, the state court ruled that the request for judicial review was premature and that the plaintiffs could not pursue that legal challenge because the Governor’s veto made the ruling of the court unnecessary and “moot”.

The Governor had previously announced his intention to veto the 15 bill package immediately after it was passed, but the Democratic Leadership withheld officially transmitting those bills to his desk in the hope that continued negotiations could produce a budget agreement that the Governor would sign, even with the uncertain legality of that effort. The budget negotiations between the Democratic Leadership and the Governor continued for a 3-week period over the holiday recess in a series of daily meetings.

However, the Governor pulled away from continuing negotiations after the Democrats failed to give him even more concessions on environmental regulations, economic stimulus, and waivers of existing work place wage and hour labor law administrative regulations. The Governor apparently made a strategic decision that the veto would require any continued negotiations to work off of his budget proposals that made significant additional budget cuts in programs impacting vulnerable population groups. His decision has made the state’s fiscal outlook become even more dismal despite an impending cash crisis that will prevent the state from financing infrastructure projects that are already in the final stages of implementation and that will force the State Controller to issued warrants (i.e. IOUs) for vendors doing business with the state and delay taxpayers state income tax refunds.

The question of “where do we go from here?” is perplexing everyone in the State Capitol. Changes in the membership of both the Assembly and Senate following the terming out of the largest class of outgoing Members since the enactment of term limits will complicate any continued negotiations because these new Members are facing the massive state budget deficit none of them have the prior experience to address with any real degree of knowledge or experience in crafting proposed solutions. Similarly, the incoming new Republican Members are holding on to the same “no tax” pledges of their colleagues which, as we all know, are an insurmountable obstacle because the budget simply cannot be balanced with program cuts alone.

Despite his posturing to urge lawmakers to abandon their ideological differences and renew negotiations, the reality is that the Governor has failed to produce a single Republican vote of his own volition. Senate President Pro Tem Darrell Steinberg has indicated his belief that the key to any successfully negotiated budget is the ability of the Governor to persuade enough Republicans to vote for a tax proposal that would meet the 2/3 supermajority vote requirement in each house. “We’re always willing to talk, but it’s all about the votes,” Steinberg announced. If the Governor has a proposal that puts a significant dent in the deficit that has the requisite number of votes, that’s great.”

Yet, it does not appear that the Governor currently has the political clout to “terminate” continued opposition. The Republican Vice-Chair of the Senate Budget Committee, Senator Bob Dutton (R-Rancho Cucamonga), revealed that his caucus won’t support the Governor’s budget proposal because of his tax measures that include a 1 ½ percent increase in the state sales tax, a tax on oil refined in California, and a nickel-a-drink excise tax on alcohol. They continue to insist that the weakness of the state economy makes it fiscally imprudent to enact new taxes.

In response, the Governor announced that his plan that contains $17.4 billion in cuts and more than $24 billion of new revenue from taxes, short-term loans, and borrowing against future state lottery proceeds, is a compromise that the Legislature should work from and embrace. Democrats continue to insist that the budget cuts go too far and should be counter-balanced by more revenue enhancements.

Key Problem: Governor’s Reported Loss of Credibility

Capitol insiders report that while the Democratic Leadership will continue negotiations with the Governor, the Governor “poker strategies” are a huge obstacle. They believed that the 3-week intense negotiation period enabled them to earn his trust by making a good faith effort to make major concessions. His vetoes have strengthened their resolve to oppose additional cuts the Governor continues to insist upon, such as major cuts in IHSS. Senator Steinberg has characterized IHSS home healthcare workers as deserving people doing “God’s work” and insists that other options need to be put on the table because he will not agree to IHSS cuts.

Apparently, the Governor’s advisors who have been recruited from the ranks of the prior Deukmejian and Wilson Administrations have convinced him to employ the same negotiation tactics as his “Iron Fist” predecessors. During the course of past year budget negotiations both of the former Governors regularly took immovable stances on their budget proposals, based on their assessment that the Democrats would eventually cave in to protect needy families and vulnerable population groups Republicans largely do not care about. They also regularly incorporated last-minute “pulling the rug” tactics just as the Democrats believed that they had made significant progress. Then, as now, this tactic assumes that public pressure and media attention within the circus arena of political intrigue will force Democrats to negotiate from their base.

These tactics are fairly obvious to an experienced negotiator such as Senator Steinberg, who has prior experience as a labor lawyer and a well-respected Member of the Legislature. So far, he has clearly demonstrated the sophistication of his own negotiation tactics, as exemplified by crafting the December majority vote Democratic budget plan that caught Republicans completely off guard. The ability of Senator Steinberg to meet and exceed those strategic challenges is a sign that we hope will produce a favorable outcome for the disability community and other communities of interest. He has repeatedly sent the message that leveraging in this economic crisis for unrelated political gain is inexcusable. The unresolved question is whether the public and the media will label the Governor’s underlying motivation and tactics for what they are; namely, an effort to retaliate against labor unions for their prior budget-related strategies that helped defeat his past power grab efforts through the initiative process, forcing pro-business waivers of state environmental law requirements for construction projects he favors, and the permanent undermining of wage and labor protections in the work place.

“Dire” Warnings From State Controller John Chiang

On December 30, 2008, State Controller Chiang sent a letter to all state agencies notifying them that they needed to take administrative actions necessary to issue “registered warrants” to vendors and other payees in lieu of checks. He clearly indicated that due to the lack of General Fund cash, the state has been meeting expenditures only by utilizing a combination of internal and external borrowing. Unfortunately, due to the failure of the Governor and the Legislature to fashion a solution to address the cash flow shortage, he projected that by February 1, 2009 that there will be insufficient cash available to meet all of the expenditures related to the Fiscal Year 2008-09 Budget Act.

The shortfall resulted from a significant gap in the collection of projected revenues from a variety of sources traditionally forming the funding base of the state’s revenues needs due to less than anticipated tax collections and other revenue shortfalls and additional expenditures relating to the ongoing state and national economic crises. Without an immediate cash solution or the ability to borrow billions from the strained financial markets, the Controller announced that he has no choice but to pursue the deferral of potentially billions of dollars in payments or issue registered warrants, which are essentially IOUs, to meet these obligations.

This is exactly the point where the “unprecedented” nature of the current state budget crisis comes into play. State workers and vendors have a great deal of experience in dealing with similar budget act delays and the subsequent issuance of registered warrant since nearly every legislative session has produced similar scenarios where significantly delayed budget bill agreements have required the issuance of warrants.

To some degree, the past reaction to these shortfalls have been resolved by innovative solutions or borrowing. State workers have been able to have their salaries deposited into their accounts after banks and credit unions have agreed to deposit those funds as low or no interest loans for later reimbursement when the budget is eventually signed into law. While many vendors have sufficient cash or lines of credit to carry them over during these expected delays, our ILCs and other businesses and organizations that rely upon state funding are forced to pay interest on these loans or lines of credit to get by on a temporary basis. Layoffs and creative staffing solutions often accompany these delays, but the current economy is promising to make such borrowed funding unavailable or at higher rates of interest.

At this point in time, no one can predict how the current cash shortfall and the anticipated ongoing shortfall for the next fiscal year will come into play. It can be extremely frustrating for those who rely on state funding because both the Governor and the Legislature appear to be poised to continue to hold onto their entrenched political and ideological positions even as Rome burns around them.

We are, indeed, once again, in unchartered waters and predicting how programs and services and people will be affected is impossible to predict with any degree of certainty. Our ILCs have been advised to prepare now for worse case scenarios and to submit claims for reimbursement as soon as possible to avoid the loss or delay of funding.

CFILC Learns That How the Lack of Cash Will Affect Our Programs and Services and Our Consumers is Yet, Unknown, But Will Be Determined in the Near Future

In an effort to determine exactly which programs and services will be impacted when the projected cash flow problems occur beginning on February 1^st, our Public Policy Unit has been accessing the website of the State Controller. The website has posted reports released by the Controller for the months of July, August, and September to allow the public to review which programs State Controller Chiang has determined he can and cannot pay out without a current year budget augmentation that provides funding to meet the unrealized revenue estimates upon which the Fiscal Year 2008-09 Budget Act was based.

We soon determined that is difficult to make any accurate assessments or predictions about exactly which programs could continue to be paid simply by reading those reports. As a result, please be advised that you should not rely upon them because they may result in more concern than is necessary at this point in time.

It is possible that after waiting for things to be more fully developed, analyzed, and released for public review that the news may be better than expected for some of the programs our consumers rely upon. The Controller will most likely issue and post that report next week or the following week, so we will continue to follow up.

LAO Weighs in With New Cautions Relating to the Governor’s Budget Proposals

The Governor’s proposes to “balance” his proposed budget by utilizing approximately $10 billion in borrowing to help close the projected 18-month $41.5 billion shortage. However, Mac Taylor, the new Legislative Analyst announced today that the state is likely to face problems with this projection. The Legislative Analyst Office (LAO) is the Legislature’s independent, non-partisan fiscal analyst that assesses the impact of each proposed Governor’s budget and issues reports and recommendations on the state’s fiscal condition.

He announced that the Governor’s borrowing plan faces at least two major hurdles. Finding investors in a credit market that is in turmoil and potential legal challenges as to the legality of the state’s authority to take out short-term loans to balance the budget could very well derail the plan.

While the Legislative Analyst reported that the proposal reflects a good faith effort to close the “colossal” deficit, he recommended less borrowing and more strategic spending cuts and revenue increases. Taylor also reiterated his concerns about the urgency of the state’s fiscal emergency.

In response, the Governor’s Department of Finance indicated that borrowing would continue to be part of the budget solution unless there is an agreement for deeper spending cuts or even higher taxes, including more cuts in education, healthcare, and welfare payments. The Governor also proposes to borrow $5 billion against future state lottery sales and take out $4.6 billion in those short-term loans that would be repaid in the 2010-2011 fiscal year.

Taylor indicated that trying to eliminate about one-quarter of the budget deficit through borrowing also could be a problem in the wake of the credit market meltdown. The legality of the $4.6 billion in short-term borrowing is uncertain because the voters passed Proposition 58 in 2004 to restrict the state’s ability to borrow for budgetary purposes.

This is yet another example of how voter initiatives have place a virtual choke hold on the ability of the Legislature to meet fiscal challenges because of a “take it or leave it” nature of budget proposals crafted by special interests and sold to the voters without the close scrutiny necessary to assess potential problems down the line. There are many other voter initiatives that have restricted funding to specific programs and services and that require voter approval to make and amendments thereto.

Should the Voters Be Asked to Vote for Tax Increases to Help Overcome the Deficit and the Republican “No Tax” Pledge?

The Legislative Analyst also suggested a possible solution may be to address the state budget deficit by calling for a special election as early as late April of 2009 to approve a proposed tax increase package, as well as revisiting the impact of past voter initiatives that earmarked state funding. The voters would be asked to determine whether they approve of allowing the state to dip into the funds generated by those initiatives. Republicans and the Governor have already proposed to use funds collected by Proposition 63 to fund mental health programs and Proposition 10 that raises money for children’s healthcare as part of their budget solutions.

The Legislative Analyst suggested that Proposition 99 that imposed a tobacco tax for healthcare programs and Proposition 49 that set aside money for after-school programs could be added to that list. There are polls that have indicated public support for tax increases to balance the budget, but none of these polls have assessed any specific tax increases or raiding of prior voter-approved sources of dedicated state funding for certain programs.

Are Further Budget Cuts in a Recession Counter-Productive?

The California Budget Project (CBP), a well-respected, independent nonprofit fiscal “think tank” issued a report in December of 2008 that is germane to the ongoing debate about resolving the state fiscal emergency with more program cuts. The report examined the impact of proposed budget cuts at a time of growing need as the state economy continues to deteriorate and increasing numbers of low- and middle-income Californians are finding it more difficult to make ends meet.

CBP noted that the economy is forcing more Californians to turn to income support and related programs such as Food Stamps, WIC, Healthy Families, Medi-Cal, and CaWORKS for assistance. Yet, this increased reliance is coming about at the same time as lawmakers and the Governor are proposing deep cuts in health and human services programs to meet the immediate, short-term need to close the budget gap.

Given the scope of the downward spiraling economy in virtually every state in the nation, prominent economists are reporting that carefully chosen tax increases are preferable to spending cuts during a recession because “steep budget cuts will exacerbate the economic downturn and harm vulnerable low- and middle-income families. These recommendations deserve close attention since the Legislature and the Governor are proposing more budget cuts as solutions that are more preferable to revenue enhancements.

The report includes graph charts illustrating that as of November 2008, California’s unemployment rate has reached its highest level in 14 years, that more than 900,00 Californians are unemployed (up by 250,000 from the previous year), food prices increased by 7.6 percent between September 2007 and September 2008, and the number of Californians receiving Food Stamps is rising substantially. The report also notes that increased food prices mean that Food Stamp benefits are falling short of family needs, that there has been a corresponding steady increase in the number of women and children enrolled in WIC, and increased numbers of children and families enrolled in Healthy Families and Medi-Cal. The number of families relying upon CalWORKS cash assistance has also increased by 27,000 in the last 12 months.

The CBP report concludes economists from a broad spectrum of ideologies agree that economic theory and historical experience clearly demonstrates that it is economically preferable to raise taxes on those with high incomes than to cut state expenditures during a recession. A group of economists made this argument in a recent letter to the Governor of New York and it is a message that CFILC and the SCNetwork advocates should relay at every available opportunity.

Will Continued Negotiations Produce a Solution?

One would expect that all of these economic indicators, recommendations from prominent economists, and calls to action to legislators on the behalf Californians would produce the impetus for abandoning politics and ideology over the stark reality of our economy. Yet, these motivating factors have been in place fiscal year after fiscal year and crisis after crisis without any meaningful reforms in the underlying factors that cause the continued fiscal dysfunction of our state.

According to media reports, the Governor and the Democratic Leadership returned to the negotiating table immediately after the Governor’s veto. January 8, 2009 was the first time in over a month that the Republican Leadership participated in formal discussions. According to Senator Steinberg, “We are going to work with our Republican colleagues and the Governor every day.” Senate Republican Minority Leader Dave Cogdill also indicated that he expects talks to intensify in coming days and weeks. “Everyone understands the urgency of the situation we’re dealing with and we’re going to stay at it,” Cogdill announced.

Cogdill’s Republican counterpart in the Assembly, Assembly Republic Minority Leader Mike Villines of Clovis said he is open to discussing tax increase if Democrats first entertain a permanent cap of state spending, an economic stimulus package, and waste-cutting measures.” Sound familiar?

“We have never ruled out revenues,” he said. “We’ve always said that there are ways to do revenues that are not tax increases. But regardless, we’ll have that conversation as long as we know that we’re doing all the pieces of the puzzle.”

Villines added that while taxes are a last resort, he would prefer a broad approach rather than targeted taxes proposed by Democrats. He would not specify which taxes he meant, but business groups have resisted Democrats’ plans to raise income taxes on the wealthy. “If you’re going to raise taxes in California, it should be something that would be fair and across the board, for everyone, in one fell swoop,” Villines reported. “It would not be picking winners and losers.”

Food for Thought: Can We Redouble Our Efforts and Adapt Advocacy Strategies?

Of course, there are no meters to gauge the veracity of these varying public statements on state budget solutions or to accurately assess just how far downward the sides are willing to have that state move before “emergency” and “fiscal crisis” have any true political and ideological meaning. Prior budgets have already used all available forms of “smoke and mirrors.” There are no programs that have been evaluated as being wasteful or duplicative and that have successfully survived prior chopping blocks to remain in effect.

So, we will continue to advocate, we will continue to mobilize, and we continue to mobilize the SCNetwork and all of our other resources to keep disability issues at the forefront of the public debate. At times it seems that the battle will never end and that we are not producing any tangible results for all of our work. Yet, it is important to keep in mind that even the major lobbyists and lobbying firms that prowl the hallways of a State Capitol are finding less access, less influence, and less accountability on the part of lawmakers and the Administration. It’s small comfort, but it is the way of the world in 2009.

Over the course of upcoming weeks, the SCNetwork, ILC Executive Directors, and the Public Policy Committee will be meeting to plan new strategies for mobilizing our consumers and working in collaboration with allied partners. We must continue putting on the pressure because any interest group that waivers in its advocacy, that otherwise demonstrates anything less than a full commitment to their issues and constituents, or that somehow reveals that their programs and services are nonessential will quickly be identified and stripped beyond the bare bone minimum. It the wake of our state budget crisis survival is the key.

From an objective standpoint, if you look beyond Sacramento there is relatively little media attention focused on the state budget crisis. What little there is generally focuses on the nature of the conflict and controversy, the overly aggressive partisan bickering and negative public comments, and how interest groups are pitted against one another.

Given this unfortunate reality, we need to find ways to step up our advocacy activities within our local communities. We need to reach out to community leaders, business leaders, and nontraditional potential allied partners to spread the message that budget cuts will impact everyone somewhere down the line.

We need to protect our programs and services for people with disabilities, but we also need to address the larger economic issues. People in your community need to hear the message that smaller food budgets mean that grocers will lose business, truckers may be laid off, or that full time workers will become part time workers or join the ranks of the unemployed or underemployed. In turn, social service and healthcare caseworks will be forced to work harder and people will continue to hoard their family budgets and may forego “luxuries” such as eating in restaurants, contributing to their churches, or continue with preventative healthcare that will only make them sicker and force them to seek medical services in emergency rooms or community clinics.

So, our advocacy in Sacramento and in our local city councils and board of supervisors must continue at the same time that we renew our efforts to reach out to our neighbors and to our local newspapers and media outlets. Everyone understands the critical importance of delivering the clear message and everyone within our organization has a proven track record of accomplishment. In the final analysis, we just have to continue to mobilize to meet that age-old challenge to work harder, faster, and better.