A detailed look at Prop 1A…

The California Budget Project, fresh off its conference this year where I had the pleasure of speaking on health policy, just published a preliminary analysis of Proposition 1A on its website.

Here’s some salient sections for health advocates (emphasis added). First, the notion that it would prevent the restoration of the severe cuts we have seen in the past year:

The revenue forecast amount established by Proposition 1A, which limits spending from the state’s existing tax base, would be significantly below the Governor’s “baseline” spending forecast, a forecast that assumes that the cuts proposed by the Governor in his New Year’s Eve budget release continue. For example, in 2010-11, the first year when the Director of Finance would be required to calculate whether the state has received “unanticipated revenues,” the revenue cap would be an estimated $16 billion lower than the Governor’s “baseline” spending estimate for the same year. The gap would widen in 2011-12 and 2012-13 to $17 billion and $21 billion, respectively.

By basing the new cap on a level of revenues that is insufficient to pay for the current level of programs and services, Proposition 1A would limit the state’s ability to restore reductions made during the current downturn out of existing revenues.

Here’s another section reiterating that point, that the money from the reserve could also not be used for such restoration:

Proposition 1A limits the amount that can be used from the reserve in “bad budget” years to the difference between anticipated revenues and prior year’s spending adjusted for population growth and the CPI. It does not allow the reserve to be used to support a “current services” or “baseline” budget, even if sufficient funds would be available in the reserve to do so. The discrepancy arises from the fact that the CPI – the inflation measure used by Proposition 1A – is designed to measure changes in the cost of goods purchased by households, not governments. Thus, the CPI does not accurately measure the year-to-year increase in the cost of delivering the same level of public services. Specifically, the CPI does not take into account the fact that government spends a larger share of its budget on items – such as health care – for which costs have risen faster than the rate of inflation. Between 1990 and 2007, for example, national per capita health care expenditures more than doubled, rising by 164 percent, while the CPI for California, which measures inflation in households’ purchases, rose by just 61 percent.

The particular concern for health care is noteworthy. If the formulas in Prop 1A don’t take into account medical inflation, an aging population, or other impacts–like the erosion of employer-based health coverage–then existing health programs are threatened.

Another issue of concern is that the mesaure seems to require “deposits” into the reserve even in bad year. That’s money that would be diverted from general fund priorities, including health and human services, at a time when cuts would already be on the table.

[The CBP] analysis found that Proposition 1A would have required contributions to the reserve in a number of years where the state experienced a moderate deficit. In November 1995, for example, the Legislative Analyst’s Office projected that the cost of a General Fund “current services” budget would increase by 8.6 percent from 1995-96 to 1996-97. However, in that same year, because revenues exceeded the “expenditure forecast” amount, a BSF contribution of $2.0 billion would have been required, which would have left available revenues $1.0 billion – 2.2 percent – below the amount needed to support a current services budget.

Proposition 1A also would have required both a transfer to the BSF and a shift of “unanticipated revenues” out of the General Fund in 2005-06. These shifts would have been required despite the fact that by most measures, 2005-06 was a “bad budget” year, which required $5.9 billion in “solutions” to bring the budget into balance. Had Proposition 1A been in effect, $1.4 billion in additional “solutions” would have been needed to provide sufficient resources to make the mandatory 1.5 percent transfer to the BSF. At the end of the year, an additional transfer of revenues out of the General Fund would have been required since estimated collections were in excess of the revenue cap.

Most people would question a so-called “rainy day” fund that required money while it was raining. When you can’t pay the rent, that’s not the time to divert money to the savings account, as worthy as that might be.

Finally, Prop 1A gives the Governor new, unilateral power to make cuts.

SB 8 (Ducheny), passed as part of the recent budget agreement, gives governors the unilateral authority to cut spending if available resources decline or expenditures increase “substantially” mid-way through a budget year. This provision would only take effect if Proposition 1A is approved by the voters. The new authority would allow an appointee of the governor, the Director of Finance, to reduce appropriations that support the operations of the
state by up to seven percent

SB 8 also allows the Director of Finance to suspend cost-of-living adjustments or rate increases for up to 120 days and, if the governor declares a fiscal emergency, cost-of-living adjustments would not be made until the Legislature sends the governor one or more bills addressing the emergency.

New powers to make cuts, but not to raise revenues. State budgets are fundamentally about education, health, and public safety. For those who are concerned about health care, there’s reason to be concerned about the impacts of Prop 1A.

Health Access California promotes quality, affordable health care for all Californians.

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