A Bleak Budget

Monday, December 8th, 2008

* Lawmakers warned that they need to act now
* State fiscal officers say current situation is the worst they’ve seen in decades
* Parties spar over the economic impact of cuts versus taxes

REMINDER: Health Access/CPEHN Holiday Party in Oakland: THURS, DEC 11th
* You’re invited! Max’s 500 12th St, Oakland. 4-7pm. RSVP to jessicar@health-access.org

What’s new on the
Health Access WeBlog: CPR for CPR, Live Blogging from the Joint Convention, Bankruptcy Debt and Medical Debt, Tough Cookies, New Senate Budget Committees and Chairs, Health Care as Economic Stimulus, Obama and Daschle Asks for Advice; Insurance for Insurance?

SACRAMENTO–All 120 legislators – from those who’ve been here 8 days to those who’ve been here 8 years – gathered in a rare “joint convention’’ in the Assembly Chambers on Monday to get the full fiscal debrief from the state’s fiscal luminaries – the Treasurer and the Controller, the Legislative Analyst’s Office, and the Governor’s Department of Finance.

The purpose of the gathering was part Budget 101 for the newbies and a wake-up call, of sorts, even for those who have been at it for a while. The numbers expressed were not new to those who have been watching the budget implosion since it was signed in late September: That California will face a nearly $30 billion deficit if lawmakers do not do something in the next five weeks.

What was striking was the urgency with which all the top fiscal officers spoke. Treasurer Bill Lockyer, whose career in Sacramento spans four decades (1973) intoned that lawmakers need to “adopt an honest and balanced budget very soon. No gimmicks. No phony accounting. Stop plying on the tooth fairy.’’

What makes this year’s deficit so much worse than usual, said Legislative Analyst Mac Taylor, is the fact that the state has already turned over every rock and no longer has money – or tricks – remaining up its sleeve to balance the budget. Additionally, tricks and borrowing that were employed in previous years will be coming due, exacerbating the problem.

The scenario is so scary, said State Controller John Chiang, that the state will not be able to pay its bills beginning in March. While that timeline has been widely known – what was striking about Monday’s testimony is the juxtaposition of numbers.

The state’s general fund is about $103 billion. Typically, California has about $18 billion it can pass around from fund to fund (internal borrowing), like borrowing $100 from a savings account until payday, then repaying that loan.

The problem, Chiang said, is that the state has borrowed so much that that internal borrowing capacity will dwindle to $882 million (that’s 5% of what it usually is). In March, California will have totally maxed out all of that capacity, leaving it $1.9 billion in the red.

Assembly Speaker Karen Bass, speaking to reporters before the joint session, said the reason for the extraordinary meeting was that she wanted all members to hear the same thing at the same time. “I think some of my colleagues, on both sides, are in denial,’’ she said

The Governor last week called lawmakers into a extraordinary fiscal session, which gives them just 45 days to enact midyear cuts and revenues he has re-submitted.

In health care, the Governor’s proposed cuts include:
* denying Medi-Cal coverage to nearly a half-million low-income parents;
* eliminating dental, vision, podiatry, and several other Medi-Cal benefits for 2.5 million parents, seniors, and people for disabilities; and
* reducing funding for public hospitals.


Even after the fiscal Armageddon layed out by the state’s financial officers, lawmakers – new and old – made statements and asked leading questions that largely fell along party lines.
As an alternative to taxes and revenues, Republicans invoked the California Performance Review reports, which Gov. Arnold Schwarzenegger commissioned when he first took office to “blow up the boxes.” Few of the ideas were implemented.

Last year’s Assembly Budget Vice Chair Roger Niello, a Republican, asked what could be done about the fast-growing social service programs, for instance.

Mike Genest, the Director of Finance and former chief of the Senate Republican Budget office, acknowledged that social service programs grow at a pace that far outstrips the state’s income growth. For instance, while state revenues grow at about 5 percent, Department of Developmental Services grew at 15 percent, Department of Mental Services grew at 12 percent, and In-home supportive services grew at 13 percent.

But, Genest said, “It’s difficult to sit and suggest cuts in in-home supportive services when you’ve seen the workers bathing people, changing their medical devices or taking people to the store. We do not take cuts lightly because this is very serious business and the reason they are growing is because the need is growing.’’

One of the newest lawmakers, Republican Assemblymember Danny Gilmore from Hanford explained that unemployment in his southern Central Valley district was higher than the nation and rest of the state. “How important is job creation. Is it essential to putting (the budget) in balance?” he asked, leadingly.

In fact, job creation is one of the strategies that Treasurer Bill Lockyer and Gov. Arnold Schwarzenegger have spoken about. To create that, the state would have to be able to sell its infrastructure bonds for school building, rail projects and other important projects. California, though, would not be *able* to sell its bonds unless the legislature acted on some kind of midterm package, Lockyer said.

Republicans asked about the impact of increasing taxes on the economy. Democrats asked about the impacts of cuts on the economy.

Fiscal experts said both would hurt the economy, but at this point, the state has little choice. Lockyer suggested trying to increase the state’s match for Medi-Cal. (In fact, a Health Access report earlier in the year, available on our website, detailed the particularly negative impact of health care cuts.)

But all conceded that lawmakers were going to have to do what they did not want to do.


The Assembly has announced two budget sessions in the two weeks leading up to Christmas. The first, on Thursday, would be about Education. Next week’s would be about Transportation.

The Senate has a new Budget Committee that includes all Senators, and new subcommittees (and new chairs) that will meet this Wednesday. Senator Alex Padilla chairs the new subcommittee on Health and Human Services.

Health Access will continue to monitor budget news as it becomes available. For information, contact the author of this report, Hanh Kim Quach at hquach@health-access.org.

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