PUBLIC POLICY PERSPECTIVESJanuary 14, 2010 Vol. 2 No. 1 CFILC ANALYSIS OF THE GOVERNOR’S BUDGET FOR FY 2010-2011 AND HOW IT WOULD IMPACT PEOPLE WITH DISABILIESINTRODUCTION “The Devil is in the Details”: Once again, the disability community is facing yet another state budget battle. Governor Schwarzenegger is approaching the end of his term of office and he views this as his last opportunity to fulfill his campaign promises to reform the state budget process and to “blow up the boxes” of state government. News reports and capitol insiders agree that he views this budget proposal as his last opportunity to restore his legacy as a populist reformer. The Governor’s Budget for FY 2010-2011 and his proposals for the current fiscal year deficit is a symbol for throwing the gauntlet for another prolonged budget battle. The Governor views the ongoing state budget deficit as an opportunity to leverage the permanent elimination of programs and services he views as unnecessary and wasteful. Irrespective of the negative impact his proposed cuts in health and human services programs and other related budget categories may have, he seeks to balance the budget through massive cuts and the elimination of vital programs and services impacting people with disabilities and without any revenue increases to bridge the deficit. At the beginning of this year, the Governor vowed to protect public education from further cuts. While this initially pleased the education community, it raised concerns among other communities of interest about how this could be accomplished without cutting their programs even deeper. The Governor’s promises to the education community ultimately proved to be illusory because in reality his spending plan would fund schools at the same under-funded level as the current fiscal year for FY 2010-2011 and provide less money than anticipated while simultaneously require school districts to absorb over $2 billion in cuts resulting from rising costs. We all understand that the Governor’s proposals mark only the beginning of a long process during which the Legislature will evaluate his budget and produce its own budget bills. The final budget agreement will most likely to be once again negotiated behind closed doors and will not be finalized by the constitutional deadline. Nevertheless, we are facing a projected $19.9 billion deficit that will certainly increase after the May Revise. Unless the budget agreement includes some revenue increases, the real world calculation about how the budget can be balanced raises legitimate concerns for the disability community. Our challenge and our advocacy efforts will be formidable this year, so this edition of Public Policy Perspectives reflects my own research and independent analysis of the Governor’s Budget. I have compiled a vast body of research materials and reviewed the analyses and perspectives extrapolated in reports published by legislative committees, Legislature, the Legislative Analyst’s Office (LAO), California Budget Project, and other leading advocacy organizations. I understand that many readers do not have the time to go through a detailed review of proposed budget items, but further understand that they may at some later time wish to read them more carefully. I admit that this report is long because the issues are complex and because our standard 14-point font size and other formatting accommodations that make the email newsletter more accessible makes the text of the newsletter longer than many other newsletters. With this in mind, in order to facilitate your review of this report and analysis, I have changed the design for this edition. If you choose, you can simply a series of bullet points that appear in the Executive Summary at the beginning of each budget category. This will enable you to obtain a brief summary and analysis of the Governor’s budget proposals. For those who are interested in a more detailed reading about the budget category that reflects my extrapolation of the research, I have included for each budget category a “Narrative Description” section. The narrative description includes a more detailed discussion garnered from some of the reports I have cited. So, with this new format, you may pick and choose whether you only need a quick analysis of a given budget proposal, or a more in depth analysis. It’s entirely your choice. I have also designed this edition to serve as a One Stop Resource for our analysis of the Governor’s Budget. If you need to obtain information for a letter or support or opposition, a press release, or talking points you can keep a copy at hand and refer back to it, as needed. Subsequent editions of the email newsletter will provide updates about the Governor’s Budget and the status of negotiations on the current fiscal year deficit and the FY 2010-2011 Budget Bills as the move forward in the budget review process in the Capitol. For quick reference, I am including an INDEX that cites the page number for each budget category. The index includes the following subject areas: INDEX TO THE CFILC ANALYSIS OF THE GOVERNOR’S BUDGET FOR FY 2010-2011
SUMMARY OF THE GOVERNOR’S BUDGET: THE GOVERNOR’S BUDGET PROPOSES DEEP CUTS IN HEALTH AND HUMAN SERVICES PROGRAMS, RELIES UPON AN INFLUX OF $6.9 BILLION OF NEW FEDERAL FUNDING, AND ASSUMES THAT THE STATE WILL PREVAIL ON APPEAL ON STILL PENDING MEDI-CAL LAWSUITS Executive Summary
Why Are We Facing Yet Another Budget Crisis?: Once again, the budget agreement that was reached for the current fiscal year budget was founded on failed budget solutions that are now being carried over into the creation of another deficit for the current fiscal year budget and for the balancing of revenues and spending for the FY 2010-2011 budget. More than half of the increase in the projected deficit was attributable to failed budget gimmicks, overly optimistic estimates about incoming revenues, and “smoke and mirrors” accounting changes that only covered up the real deficit. The lawsuits that were filed last year by disability community advocacy organizations to seek a preliminary injunction preventing implementation of Medi-Cal budget cuts and higher recipient eligibility standards, as well as another lawsuit that seeks to overturn cuts in wages and benefits for IHSS workers are still pending on appeal and the litigators believe that they will prevail. This is a strong possibility because the rules of the Federal courts dictate that preliminary injunctions may only be filed where there is a reasonable basis to conclude that the plaintiffs will prevail in the underlying lawsuit and that the plaintiffs would suffer irreparable harm with the issuance of the preliminary injunction. If these lawsuits are upheld, they will increase the size deficit, as has the other successful lawsuit that overturned the illegal transfer of transportation funds to the General Fund (GF). A good example of questionable budget assumptions was the one agreed to in the current fiscal year budget that the sale of the State Compensation Fund, which is a quasi-state agency that administers workers’ compensation claims, would reap $1 billion in proceeds from its sale to the private sector insurance industry. That “fix” was criticized from the onset as being unrealistic and the Governor has apparently gotten the message because he has dropped that proposal in his current budget, although you never know whether a lower estimate of revenues from the sale will appear once again and be one assessed as being more realistic. The July 2009 budget package projected a shortfall for FY 2010-2011 of $6.9 billion. All told, it added another $13 billion to the deficit as a result of all of the following: (1) $4.9 billion as a result of Federal and State court litigation; (2) $2.3 billion from the erosion of previously enacted solutions; (3) $1.4 billion from caseload and population growth; and (4) $3.4 billion from revenue decline. As we all know, the state budget is an expression of the values of our society. Conversely, the proposed cuts and program eliminations in health and human services programs would undercut those values that led to the public policy objectives for the enactment of the original statutes. More Detailed Description Of The Automatic Trigger Mechanism That Would Go Into Effect Without Federal Assistance: If the Federal Government does not comply with the Governor’s request for $6.9 billion in additional funding and program flexibility, the Governor’s proposed trigger mechanism would automatically go into effect. This would not be the first time that a state budget was enacted based on the need for more Federal assistance. The February 2009 budget agreement temporarily deferred additional cuts that the Legislature and the Governor agreed would not be “triggered” unless California failed to receive at least $10 billion in Federal economic stimulus funding that was believed to be forthcoming. We ended up not meeting that level of funding, so the additional health and human service budgets were eventually triggered. Among other things, the Governor is proposing a new series of budget cuts that would also be triggered primarily in the areas of health and human services, including:
The Governor has also proposed securing an additional $2.4 billion in revenue under the trigger to help balance the budget by:
THE GOVERNOR’S PROPOSALS FOR THE IN-HOME SUPPORTIVE SERVICES PROGRAM Executive Summary Fighting against additional cuts in the IHSS program is one of the highest priorities for CFILC and the Systems Change Network. The Governor is proposing two changes that would result in savings of $77.9 million in the FY 2009-2010 budget and $922.6 million in FY 2010-2011, including:
Narrative Description The IHSS cuts and the limitations on eligibility criteria from the current FY 2009-2010 were immediately challenged by a coalition of disability advocacy organizations shortly after the current fiscal year budget agreement was reached and the Budget Bill was signed by the Governor. In a case named as V.L., et al v. Wagner, the plaintiffs, who were disabled and elderly Californians who needed in-home assistance for one or more of the activities of daily living, sought to prevent the State from implementing the cuts contained in the budget agreement. The plaintiffs also asked the United States District Court to issue a preliminary injunction to immediately prevent the Department of Social Services and the Department of Health Care Services from taking action to administratively implement the proposed cuts. Under the established rules of the Federal Courts, preliminary injunctions may only be issued if the judge believes that there is a reasonable legal basis to conclude that the plaintiff will ultimately prevail on the underlying case and that the plaintiffs would also be irreparably harmed if the preliminary injunction is not issued. On October 23, 2009, the court issued the preliminary injunction. In its order, the court wrote that:
In reaching its decision, the court closely examined both the requirements of the Federal Medicaid Act of 1965, as well as the California statutes that evolved over time to govern the State’s participation in the Medi-Cal program. The court concluded that the Functional Index score upon which the State sought to impose program eligibility limitations have never before been used for the specific purpose of determining IHSS eligibility. Instead, it was part of a job-related obligation for social workers who were required to determine whether or not a person eligible for IHSS services would be unable to remain in his or her home safely without those IHSS services. The court also found that the Department of Social Services had admitted in a 1989 report to the Legislature that the Functional Index score was “difficult to conceptualize.” Moreover, the score could not be used to fully determine whether or not a recipient could live safely in their homes because it was not designed to measure the need for an assessment of the mental functioning tasks of memory, orientation, and judgment. In its legal briefs, the plaintiffs argued that the new eligibility requirements violated the Medicaid Act, the Americans with Disabilities Act, the Rehabilitation Act, and the Due Process Clause of the United States Constitution. The court found that while the Federal regulations governing the Medicaid Act allows a state participating in the program to “place appropriate limits on a service based on such criteria as medical necessity or on utilization procedures…the state may not arbitrarily deny or reduce the amount, duration, or scope of a required service…to an otherwise eligible recipient solely because of the diagnosis, type of illness, or condition.” Based on its reading of the applicable law, the court found that the use of numerical ranks and the Functional Index score to determine eligibility for IHSS services likely violated Federal law because neither of these criteria reasonably measures the individual need of a disabled or elderly person for a particular service. The court also concluded that numerical rankings are particularly inaccurate measures of the needs of individuals with mental impairments, such as elders with Alzheimer’s disease. In addition, individuals with cognitive and psychiatric disabilities frequently require verbal, rather than physical assistance. Therefore, many of these individuals receive numerical rankings of 2, rather than 3 or 4. The court also noted that numerical rankings of 2 for recipients with mental disabilities reflected the nature of the assistance needed, not the severity of the need. Thus, disabled and elderly individuals with numerical rankings of 2 have no less need for verbal assistance than individuals with severe physical impairments have for physical assistance. For example, elders may need daily reminders to eat on a regular basis, to take their medications, or to avoid eating foods that are contraindicated with certain other prescribed medications. The court illustrated other examples of how the Functional Index score was an inaccurate instrument for determining the severity of need. The judge concluded that reliance upon such a flawed assessment tool could very well place many individuals with scores below 4.0 at serious risk of harm. Plaintiffs had also claimed in their legal briefs that both the ADA and the Rehabilitation Act specifically require states to comply with an “integration mandate” that guarantees individuals with disabilities the right to interact with non-disabled persons to the fullest extent possible. The court determined that the plaintiffs had provided substantial evidence that the use of the Functional Index could place them at significant risk of being unnecessarily institutionalized. These risks of harm were determined to be sufficient to meet the legal standard for the issuance of the preliminary injunction. In reaching this conclusion, the court was not persuaded by the State’s argument that individuals losing IHSS services could rely upon family members for in-home care and concluded that such a “theoretical” argument did not overcome the obligation to comply with Federal disability law. Interestingly, the court also found that there was persuasive evidence that the IHSS cuts would actually cost the State tens of millions of additional dollars because of the high cost of institutional care relative to in-home care. The judge also concluded that the loss on IHSS services could increase emergency room visits and hospitalization that would impose even higher costs. Thus, the court ruled that the plaintiffs had met all of the legal standards for the issuance of a preliminary injunction and that they would suffer irreparable harm in the absence of a court order. As is the case with other lawsuits that have been filed against the State relative to its recent program cuts and transfers of funds from one source to another, this case is on appeal. The State remains convinced that it will ultimately prevail on appeal and the Governor’s Budget relies upon that dangerous assumption for the purposes of balancing its proposed budget and making additional cuts in the same budget categories. Time will tell whether or not those assumptions were correct. With respect to more recent developments, on October 28, 2009, the Assembly Budget Committee and the Senate Budget Subcommittee No. 3 on Health and Human Services held a joint oversight hearing on the implementation of the IHSS wage and benefit cuts and lowered eligibility standards that were agreed to in the FY 2009-2010 budget. The IHSS Coalition and other advocacy organizations were invited to submit questions and written testimony. The committees jointly examined the agreed upon service reductions and proposed program eliminations, the expansion of quality assurance and anti-fraud proposals, the elimination of the share-of-cost buyouts that lowered some recipients’ out-of-pocked expenses, and the reduction of support for Public Authorities that was blue-penciled by the Governor. The latter was the subject of a lawsuit that was filed by Senate President Pro Tempore, Darryl Steinberg. Although the hearing did not produce any specific outcomes, it did identify concerns about the last agreement, not to mention the current actions being proposed by the Governor. Since that hearing, the IHSS Coalition has been organizing press events and has been engaging strategic planning discussions with other advocacy organizations to oppose what could well lead to the elimination of the IHSS program. Most recently, they send a letter to the Legislature’s Democrats and released a press release that made the following points that our ILC Executive Directors, Advocates, and consumers can use as talking points for their own advocacy efforts:
Those of you who may be seeking background data and arguments that can be used to support your letters, office visits, phone call campaigns, and other advocacy efforts about saving IHSS certainly can refer to the IHSS Coalition’s talking points. The summary of the Federal District Court’s decision for issuing its preliminary injunction is another resource that summarizes some of the bases for the ruling on the legal challenge. THE GOVERHOR’S PROPOSALS ON THE SUPPLEMENTAL SECURITY INCOME/STATE SUPPLEMENTARY (SSI/SSP) PROGRAM Executive Summary The Governor is proposing two changes that would result in total savings of $21.8 million in FY 2009-2010 and $285.1 million in FY 2010-2011, including proposals that would do the following:
Narrative Description Approximately 1.2 million SSI/SSP recipients who are elderly, blind, or have disabilities that depend upon SSI/SSP grants for their subsistence. The current monthly grants are very difficult to rely upon because they are expected to pay for all of their living needs, including food, shelter, utilities and transportation out of this limited funding. The current fiscal year’s grant is already making it difficult for recipients to meet their needs, particularly in high-cost counties where housing and other living expenses are higher than those in other areas of the state. Federal law requires that the state SSP portion of the grant be maintained at or above its 1983 level of funding. Failure to comply with the Maintenance of Effort (MOE) requirement would result in the loss of all Federal Medicaid health care funding. The elimination of the CAPI monthly grants would also make it difficult for recipients to cope with daily living expenses. When Congress passed the most recent immigration reform bill, legal immigrants were expressly denied eligibility for SSI/SSP. The CAPI program is a state-optional program enacted by the Legislature to provide cash assistance for 10,800 legal immigrants who were excluded from the SSI/SSP because of purely political considerations when they were debated in Congress, rather than any sound public policy decision. It is patently unfair to deny these legal immigrants any cash assistance. They are individuals who played by the rules relative to acquiring legal immigration status. A large number of CAPI recipients are elderly and disabled female legal immigrants who fled the war in Viet Nam. OTHER SOCIAL SERVICES PROGRAM PROPOSALS In addition to the major socials services programs discussed above, the Governor is also proposing all of the following: First 5 Program Shifts
In addition, the Governor wants to continue to shift the same percentage of annual revenues to offset state General Fund costs from FY 2011-2012 to FY 2014-2015. Narrative Description The First 5 program supports programs for children from birth to age 5 using funds provided by a 50 cent per pack state tax on cigarettes imposed by Proposition 10 of 1998. In May 2009, the voters rejected Propositions 1D, which would have diverted First 5 funds to help balance the state budget. Increased Local Share of Costs
Narrative Description The Governor suggests that counties would fund these increased costs by redirecting a portion of the county savings that result from the proposed reductions in CalWORKS and the IHSS program. Food Assistance Programs
Narrative Description The California Food Assistance Program provides state-funded nutritional benefits to qualified legal immigrants who are ineligible for Federal Food Stamp benefits Executive Summary
Narrative Description In addition to savings to the Department of Social Services from the reduction of state reimbursement for child care, the Department of Education would also realize savings of $77.1 million. In addition, there is an unallocated reduction of $123 million in Proposition 98 funds for “Stage 3” child care. The elimination of the program for recent legal immigrants would affect approximately 24,000 individuals. The reduction would provide savings of $3.3 million in FY 2009-2010 and $55 million in FY 2010-2011. GOVERNOR’S MEDI-CAL PROGRAM PROPOSALS Executive Summary The Governor’s Budget proposes a number of reductions to the Medi-Cal program that would achieve $1.1 billion in savings for FY 2009-2010 and FY 2010-2011. Some of these proposals have been rejected by the Legislature when they were proposed in prior years and the Governor is recycling them for this year’s budget negotiations. They include:
Narrative Description As noted in the Executive Summary, many of the Medi-Cal related proposals have been previously offered by the Governor and rejected by the Legislature. The Department of Health Care Services would be required to more accurately classify how some of these proposals would be implemented from a programmatic standpoint. The department would be required to make programmatic changes involving: (1) limits on services and utilization controls, (2) increased cost-sharing through the co-payment and premium payments requirements, and (3) the broad description of “other programmatic changes.” The reduced rates paid for family planning services would lower them to 2007 funding levels. The Governor is also proposing to expand Medi-Cal managed care plans in the Counties of Venture, Mendocino, Lake, Madera, and Kings. The Administration has supported imposing managed care for seniors and people with disabilities, which are the population segments that absorb a large share of Medi-Cal spending. This issued is being explored and may be incorporated into the Section 1115 Medi-Cal Waiver that will be submitted to the Federal government following the expiration of the existing waiver. CFILC has been partnering with other disability advocacy organizations to provide valuable input in the development of the Section 1115 Waiver. CFILC has also been working with advocacy organizations to come to agreement on minimal standards for people with disabilities to ensure, among other things, there are adequate provisions for giving them a genuine choice in enrolling in a managed care plan, ensuring that medical facilities participating in a managed care plan have accessible medical equipment and have trained their medical staff, to ensure that all medical information will be provided in accessible formats, and that there will be continuity of high quality care. HEALTHY FAMILIES PROGRAM Executive Summary
Narrative Description The Healthy Families program is matched with the Federal State Children’s Health Insurance Program (SCHIP). It is designed to provide health care coverage for low-income children who do not qualify for Medi-Cal. A large number of these children have special needs or disabilities or come from families who may have parents who are employed to provide support and services to people with disabilities, mental health needs, and seniors. The Governor is attempting to achieve savings by narrowing the eligibility standards. With respect to his proposal to increase premiums, currently children in families with incomes between 151 percent and 200 percent of the Federal poverty line pay $16 per child per month for Healthy Families up to a maximum of $48 per family. The increase would result in premiums of $30 per child per month and would increase the per-family share to $90 per month. Healthy Family program enrollees began paying higher premiums and co-pays as a result of legislation passed in 2009. GOVERNOR’S PROPOSALS ON SPECIAL EDUCATION Executive Summary
Narrative Description With respect to the Governor’s promise to pursue additional Federal funding for special education, he specifically indicated that he will seek $1 billion in increase Federal support for special education. Presumably, if this augmentation is received it would result in an increase based on the AB 602 funding model. The Governor’s Budget also contains broad categorical funding program flexibility. However, it continued to exempt special education as a “Tier 1” protected category. For FY 2010-2011, the Governor proposes a negative 0.38 percent cost of living adjustment. This is partially offset by an increase of $3.5 million for growth for an overall reduction of $9.4 million statewide. THE GOVERNOR’S BUDGET PLAN FOR LOCAL GOVERNMENT Executive Summary
Narrative Descriptio We are all aware of the fact that past legislative raids on local government funding has impacted cities and counties in a number of ways. They have resulted in layoffs, the elimination of local programs and services, and have passed on many other State obligations to local government. Both CSAC and the League of California Cities are in the early stages of their detailed analysis about how the Governor’s Budget will impact their member cities and counties on an individual basis. Local government budgets are very complex because they heavily rely upon a number of revenue sources, including Federal and State funds. City Councils and County Boards of Supervisors have directed their administrative staff to assess how those funding shifts and the reduction of various programs and services will impact them. CSAC and the League of California Cities will provide updates as these review process proceeds GOVERNOR’S PROPOSAL FOR MENTAL HEALTH Executive Summary
TRANSIT FUNDING Executive Summary The Governor is proposing major changes in which revenues are generated for transit programs and transportation projects. His restructuring is alleged to be motivated in large part by court decisions that ruled against the legal authority for the Legislature and the Governor to come to agreement on balancing GF budget deficits by transferring dedicated transit and transportation funding streams away from those uses and to the GF.
Narrative Description In the reports that accompanied his proposed budget, the Governor claimed that his changes in the collection of state revenues for transportation programs are necessary because in recent years the dramatic rises in the prices of motor vehicle fuels have outstripped the prices of other taxable goods. This increase has, in part, shifted consumer spending from other taxable goods to gasoline and has contributed to relative decreases in General Fund sales tax revenues revenue. Most of these increases in recent budget cycles have been used to fund the General Fund costs of transit bonds, school transportation, and transportation of the developmentally disabled. The use of these revenues to pay for costs otherwise borne by the General Fund was done because the dedication of these funds did not anticipate the current high gas prices and the level of funding for local public transportation that the statutory formulas otherwise would have provided. The Governor also claims that as a direct result of the CTA’s lawsuit, over $958 million of FY 2009-2010 budget solution cannot be legally used to balance that budget. Because these funds cannot be used as budgeted, they are being placed in the Public Transportation Account, which has a growing balance. The Governor’s Budget proposes to achieve $1.8 billion in GF savings through the proposed tax shift, while continuing to fund transportation programs at the level expected in 2009. Setting this as the line of demarcation would purportedly reduce net taxes paid by consumers by $976 million. In comparison, CTA views the Governor’s proposal as another $1.5 billion cut for FY 2010-2011. It would result in a significant loss of funds for transit agencies because they would no longer receive any state support for keeping their buses, trains, and ferries running. While the Governor’s revenue shift proposal, at least theoretically, could still allow public transit to receive capital funding from a portion of the new per gallon fuel increase that would be put into STIP, Article XIX of the California Constitution prohibits these funds from being used for bus or rail car purchases or transit operations, including the costs of driver salaries or fuel. Thus, CTA views the Governor’s Budget this as another scheme to raid state transit funding. Rather than complying with the court order, CTA believes that the Governor’s plan would simply eliminate those dedicated funding sources. At stake in the FY 2010-2011 budget is same $1.5 billion which would, under current law, provide critical relief to transit providers seeking to meet rising demands for services. In the final analysis, the proposal would result in fare increases and layoffs of drivers and mechanics. CTA further argues that it would result in less mobility for those who rely on public transportation at a time when access to jobs and social services is crucial. Riders will be paying higher transportations costs and it would increase pollution because riders will be forced to switch to less efficient car and taxi travel that will further clog up already congested motorways. They are strongly urging the Legislature to oppose these proposals because public transit is an investment that pays dividends with respect to better jobs, more freedom of movement, and a cleaner and safer transportation system. Foreseeing that even success in the courts may not be enough to halt funding raids, CTA has partnered with the League of California Cities and the California Alliance for Jobs. They may sponsor a statewide ballot initiative that would prevent further raids on state funding for a variety of local services, including public safety, libraries, and parks. The Governor’s Transportation Budget will be examined in a January 21, 2010 hearing of the Senate Committee on Budget and Fiscal Review. I forwarded a copy of the agenda and a committee analysis of the transportation budget to our Budget Subcommittee Chair. At a minimum, the committee analysis initially suggests that there are alternatives to the Governor’s fuel tax swap that should be examined. SPECIAL SESSION As previously discussed, the current state budget crisis will require the Legislature and the Governor to deal with deficits in both the current fiscal year budget deficit and the balancing of the FY 2010-2011 budget. The LAO, the Department of Finance, and other fiscal analysts believe that there is a need for decisions to be made on proposed budget cuts to meet those budget deficits by MARCH 1, 2010. Accordingly, the Governor has proclaimed another fiscal emergency Specials Session that will be convened in conjunction with the Regular Session of the Legislature. The Governor is proposing that the Legislature adopt $8.9 billion of his $19.9 budget solutions and to put measures on the June 2010 ballot to facilitate General Fund relief of a combined $1 billion from Proposition 10 and Proposition 63 funds. The proposed special session actions would encompass three-fourths of the Governor’s total expenditure reduction and funding shift proposals. The Administration agrees that these actions need to be taken by March 1st to achieve the projected savings. The opening salvo in the current budget battle has been sent. The Governor has released specific Special Session proposals that would eliminate all funding for Medi-Cal and Adult Day Health Care and propose other unspecified “cost containment strategies.” The proposal would cut $1 billion in General Fund spending for Medi-Cal and $104 million for Adult Day Health Care. His proposal also includes the necessary statutory trailer bill language that would be needed to amend current law. The proposal would also cut family planning services and Medi-Cal benefits for legal immigrants. These proposals would have a horrendous impact on low-income seniors, people with disabilities, the blind, and individuals in need of mental health services. The Department of Health Care Services would be required to develop those unidentified cost containment strategies. They most likely would include utilization controls on Medi-Cal benefits and services, higher co-payments, increase premiums, and changes in Medi-Cal provider rates The Legislature will now be required to engage in fast-track negotiations with the Governor on his current fiscal year Special Session proposals. Moreover, it will continue to move the Governor’s Budget through the normal channels of legislative review that are designed to produce Assembly and Senate Budget Bills following subcommittee and committee hearings. THE LEGISLATURE MUST CONSIDER THE LONG-TERM EFFECTS OF ITS BUDGET DECISIONS The Assembly Budget Committee’s “Summary of the Governor’s Proposed 2010-2011 Budget” squarely addressed this challenge and posed some fundamental questions about the long-term fiscal consequences that could ensue. In brief summary they were:
The California Budget Project (CBP) noted that over one-third of the Governor’s $8.5 billion of his proposed “expenditure solutions” specifically target health and human services programs. In a Time Magazine report about the California Governor’s herculean budget deficit task, Jean Ross, CBP Executive Director opined that "If the governor's proposed cuts go through, it will shred the safety net." She also noted in one of her recent studies that California is now suffering a12.3% unemployment rate and has lost all of the non-farm jobs gained during the recent economic expansion. Non-farm employment rose from 14.3 million in 2003 to a peak of 15.2 million in 2007. By July, it had fallen to 14.2 million. THE LAO URGES CAREFUL REVIEW OF THE GOVERNOR’S BUDGET PROPOSALS The Legislative Analyst, Mac Taylor, has raised similar concerns to those highlighted by the Assembly Budget Committee and Jean Ross. In a recent PBS radio interview he addressed the proposal to “scale back or eliminate in-home care.” He stated that “We think there clearly would be many people who would go into the Medi-Cal program, and that would end up costing the state. The LAO report on the Governor’s Budget also addressed some of the other adverse fiscal consequences for many of his proposals. The report stated that in some cases his proposals may not generate the level of savings he assumes. For example, he assumes about $650 million in estimated savings from limiting IHSS services only for people with severe disabilities. Those restrictions would make 87 percent of the existing caseload ineligible for services. Although the Governor’s Budget includes about $50 million to cover increased developmental services costs for some of the affected individuals, his budget does not appear to include any additional funding for long-term care costs. These costs are likely to occur when former IHSS recipients are forced to seek out-of-home care. The LAO believes that a cut of this magnitude could result in increased long-term care costs that would exceed the estimated savings in IHSS. The LAO report alerted the Governor and the Legislature that there are significant risks they must take into consideration in coming to a budget agreement, including taking precautions about giving some of the proposals sufficient lead time for implementation. This requires a careful consideration of the appropriate timing in the event that there is an agreement on major program reductions, particularly in health, social services, and criminal justice programs. Since the proposals are intended to create savings that help would help balance the budget, many upfront decisions about the necessary implementation time will be critical. In addition, the LAO cautioned that the Legislature and the Governor need to carefully assess whether proposed budget solutions are subject to legal risk. For example, it is unclear whether the State can unilaterally (i.e. without agreements with its employee unions) increase mandatory employee contributions to their retirement benefits. Similarly, he cautioned them to carefully evaluate the legality of proposed cuts in health, social services, transportation, and other areas that are subject to legal challenge. He urged the Legislature in crafting language in the Budget Bill and its trailer bills to determine in advance whether they would be subject to lawsuits and to attempt to put the State in the strongest possible legal position to defend those cuts and prevail in the courts. The LAO also urged careful consideration of viable “Plan B” options if the requested Federal assistance is not forthcoming, if current fiscal year cuts are not made by March 1, and if the voters reject the redirection of funding. The Governor’s Budget relies very heavily on all of these tenuous contingencies. With respect to some of the Governor’s spending cuts, the LAO viewed the heavy reliance on Federal funding and the trigger mechanism as a means to avoid the normally expected open discussion about some very dramatic programmatic changes. The report characterized some of the Governor’s cuts, particularly those subject to the trigger mechanism, as “draconian” in nature. Other the other hand, there may be no other options for the Legislature and the Governor to produce a credible balanced budget that avoids the choices posed by the trigger list without some new revenue sources. Since this is merely the beginning of the state budget process, the LAO noted that while balancing the budget will require difficult decisions, the Legislature does not need to be limited by the Governor’s specific proposals. In the area of social services, for example, the Legislature has the option of making more targeted changes so that benefits would continue to be provided by the most vulnerable recipients, rather than the complete elimination of programs. This is particularly true in the category of “state-only” programs where there are no Federal constraints. The Legislature must determine if it shares the Governor’s priorities. By now, it is clear that nearly every state budget category that can be cut has already been cut to bare bone minimums. Advocates and others circling the halls of the Capitol or participating in District Office visits will be asked over and over again what other programs they believe should be cut if order to protect the ones you are asking them to support. It’s a logical question, but a difficult challenge if Republicans continue, as anticipated, with their hard and rigid ideological “no tax” positions. To some degree they actually would like to see, rather than fear, the toppling down of state funded programs and services despite all of the negative societal and economic impacts that would ensue LAO REVENUE RECOMMENDATIONS: The LAO insisted that revenue options need to be explored. He reported that some of the Governor’s revenue trigger proposals are worthy of considering, as are some other revenue options. However, given the fragile state economy, the LAO report did not recommend broad-based tax rate increases above current levels. Nevertheless, the report recommended consideration of extending the dependent personal income tax credit reductions, perhaps even permanently. Moreover, the modification or elimination of tax expenditure programs such as special credits, deductions, and exemptions can raise revenues without resulting in marginal tax increases. Fee increases where their costs are supported by the General Fund were another suggestion. RECOMMENDATIONS OF THE CALIFORNIA TAX REFORM ASSOCIATION (CTRA): CTRA is, a progressive think tank headed by a leading lobbyist, Lenny Goldberg, is also circulating a paper titled “Low Hanging Fruit in the Tax System: 10 Tax Policies for $20 billion. It acknowledges that the recent pattern of $20 billion plus budget deficits is placing the survival of basic services and a healthy public sector at stake. CTRA is asking health and human services advocacy organization to circulate and promote 10 measures that would have the least impact on economic growth and recovery---the “low hanging fruits of the tax system. They include all of the following:
Of course, no one likes tax increases and corporate interests in particular will resist closing tax loopholes and will label them as “job killers.” Yet, at some point we have to make decisions about balancing these interests against the more important need to improve our schools and state infrastructure and to provide vital health and human services programs. OTHER REVENUE OPTION RECOMMENDATIONS: Los Angeles Times columnist Peter Schrag wrote an article making many of the same recommendations as CTRA. He supported personal income tax increases based on his assertion that, contrary to popular belief, California is not a high tax state and only ranks 17th. With respect to sales tax expansion, he would extend it to include accounting and legal services, auto repair, and gambling. With respect to Proposition 13 tax rates, he favors the creation of a split tax roll that increases post-Proposition 13 taxes on commercial property that could reap $3.3 billion, while also making it fairer for new enterprises that have to pay more taxes than established competitors. He would also increase community college fees (low-income students would not be affected) that could be offset by Federal tax credits; reform public employee pensions for new employees to lower state contributions; give local government the option to increase taxes by a majority vote; and suggests that the State should stop funding water and road projects with General Obligation bonds because their interest payments come out of the GF. RECOMMENDATIONS FROM THE CALIFORNIA COMMISSION ON THE 21ST CENTURY ECONOMY: Finally, the California Budget Project has written a position paper opposing the tax reforms recommended by the Commission on the 21st Century Economy. The Governor endorsed their recommendations, but CBP believes that the recommendations would only shift the cost of state services from the wealthiest of Californians to middle- and low-income taxpayers. Their recommendations would reduce the State’s reliance on the personal income tax, particularly for those at the top, and shifting state revenues toward consumption-based taxes. You can find the full report on the CBP website.
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