The June 30th Budget: Scattered Silver Linings With An Increasing Chance of Dark

July 31, 2011
by Sheila Kuehl

This is the seventh in a series of essays exploring the Mr. Toad's Wild Ride nature of California's 2011-12 budget.  Recovering from a first-ever gubernatorial veto of a state budget, Democrats rallied and presented a balanced, on-time budget with a scattering of rosy assumptions and a hailstorm of additional cuts.

Further essays will present an explanation of "re-alignment" proposals, and an analysis of the winners and losers.     

The Final Final We Really Mean It But Don't Like It Democratic Budget
On June 28, two days before the end of the 2010-11 fiscal year, Democrats in both houses of the Legislature, acting under their new ability to approve a budget by a bare majority (though not raise any taxes) passed a final budget and sent it to the Governor.  The temporary taxes enacted in 2009 expired on June 30th.  Attempts to get four Republicans to vote to extend them had failed, as had attempts to get four Republicans to vote to place them on the ballot for a general up or down public vote.  The only possibilities left were enacting more bloody cuts, piling misery on those who had already lost in the budget amendments in March. 

Brown considered the budget, wielded a restrained blue pencil, and signed it, bringing in the first on-time budget in many, many years.  The final budget contained 85.9 billion in General Fund expenditures, with an overall budget, including special funds and some bond funds (those tapped in the budget) of 129.5 billion.

The budget, as signed, retained a number of the proposals made in the vetoed June 15 budget, with changes sufficient to satisfy the Governor.  The overall score was: 15 billion in cuts, primarily to health and human services, higher education and, to a
lesser extent, prisons; almost 3 billion in deferred loan repayments; estimated increased revenues (over the January estimate) of 700 million, estimated special fund revenues of 200 million and "natural revenue growth", that is, a projected increase in revenues based on the April uptick, of about 8.3 billion.  The total of "solutions" was 27.1 billion, closing the deficit projected in January.

An Itchy Trigger Finger
The budget also contained a number of "trigger" provisions established to provide further cuts automatically in case revenue projections just don't pan out.  Automatic cuts make sense in a Legislature that has to keep going back to a minority party for permission to do anything financial, except cut.  However, they do remind me of the guy in the old movie holding a gun to his own head and pleading, "Stop me before I hurt somebody". 

Here's how the triggers are supposed to work.  The budget projects General Fund revenues for 2011-12 at about 88.5 billion.  If, in December of this year, revenues are forecast to be lower than anticipated by between one and two billion, 600 million in additional cuts go into effect (so-called "tier one" cuts).  If the revenue gap is more than 2 billion, additional cuts of up to 1.9 billion are triggered ("tier two").  Or, as one member put it "Armageddon One and Armageddon Two".

Specifically, under Tier One, if revenue projections are off by one to two billion, the UC system would lose another 100 million, CSU the same, The Department of Developmental Services the same.  In Home Supportive Services would lose another 110 million, prisons another 92 million, and childcare an additional 23 million.  The Community Colleges lose another 30 million which they are allowed to backfill with fee increases to students.  Medi-Cal cuts made last March would be extended to all managed care plans to save another 15 million. 

Tier Two, which kicks in if revenue projections are off by more than two billion, would reduce the school year in 2011-12 by up to seven days, to save 1.5 billion.  Home-to-school transportation would be eliminated, saving 248 million, and the community colleges would be denied a 72 million dollar apportionment increase, which is, at the moment, contained in the new budget.  Other, smaller cuts, also go into effect.

A Trip To The Butcher Shop
As reflected in every 2011-12 budget proposal, from January to June, Health and Human Services took the biggest hits, reducing the overall budget in this area by 15 billion more than had already been cut in March.  As previously reported, this meant co-payments for medical visits, caps on the number of visits, reduction of provider payments by 10%, and the elimination of Adult Day Heath Care benefits in Medi-Cal.  The new budget did include funding for a scaled-back adult day program at half the cost, one which would have required a federal waiver to enact.  However, when that change got to the Governor's desk, he vetoed it.  Result: the total elimination of adult day health care for more than 35,000 seniors and the probable shut down of dozens of senior centers.

Mental health dollars were reduced by 861 million and Prop 63 mental health monies, which were meant to augment, not replace, general fund mental health dollars, were purloined to fund several of the programs.  CalWORKS was cut by 837 million, including an 8% grant cut and a reduction in the overall lifetime cap from 60 months to 48 months.  Other cuts were reported in my earlier essays.  Given the way the safety net has been slashed and trashed in the last few years, you don't, under any circumstances, want to be poor in California.

In a move even the California Chamber of Commerce decried, the courts were hit with another 743.6 million dollar cut, including stopping all court construction for at least a year.  Large and small counties, alike, were immediately posting notices of court postponements, courtrooms closed and service hours cut.  Services to children and the indigent looked to be hit hardest. 

Prisons lost an additional 366 million, much of it in inmate medical care and inmate training programs.  Members seemed to be placing a good deal of faith in "realignment" proposals, which would transfer responsibility for low level offenders and probation to the counties (see my next essay).  However, this did nothing for those whose offenses were too serious to be called low-level, leaving them with much-reduced medical care and very few programs for rehabilitation.

Education fared a little better, keeping the Democratic pledge to make cuts to K-12 only in the triggers.  K-12 funding stayed at a level similar to 2010-11 (which had already resulted in teacher layoffs and crowded classrooms, but didn't get any worse).  Payments for Prop 98 deficits from previous years were deferred, again.  1.7 billion came out of UC, CSU and Community Colleges.  The Cal Grant program was cut by 153 million.

A Trip To The Optometrist For Rose Colored Glasses
Revenue projections were rosy, but just this side of improbable.  First and foremost, the budget estimated an additional 200 million from collecting the existing use tax (we all call it the sales tax) from online sellers.  Yes, that is what Amazon has gone ballistic over.  They are suing (not just here, in at least seven other states).  They frenetically fired their affiliates in California (those who tout books on their own websites and then pass-through sales to Amazon for a cut), in order to show they have no actual ties in the state.  The courts will decide if that works.

Secondly, the budget assumed revenues of about 220 million through a narrow tax amnesty program related to abusive tax avoidance transactions.  They also extended an existing hospital fee for an additional 198 million and tinkered with accrual figures to achieve a paper revenue of 160 million.

Another 2.4 billion was penciled in from special fund raids.....oh, i mean.....loans.

What Happened To "Jobs Jobs Jobs"?
Interestingly enough, what this budget does is leave a new trail of unemployed Californians.  State government is a large employer in many counties, and the basic provider of services in the state.  Striving to seem like a man with his finger on the pulse of the "I no longer have mine, so you shouldn't have yours, either" gestalt of the Twenty-Teens, the Governor showed large reductions in the budget for state workers and services.  269 million in General Fund dollars and 157.6 million of special fund dollars were cut through consolidating departments, reducing the use of contracts, reducing rentals, taking back cell phones (I hope they donated them all to Verizon to give to battered women), banning "non-essential" travel, and reducing the vehicle fleet.  Forty oversight boards were eliminated, including the Health Care Quality Improvement and Cost Containment Commission, the Colorado River Board, the State Mining and Geology Board, nine panels at Fish and Game, the Commission on Emergency Medical Services, the Medical Assistance Commission and dozen of other oversight boards in the healthcare fields.  My last essay on this year's budget will set out some thoughts on the Winners and the Losers.

Next: Realignment---Bringing It All Home