Budget Bills and Votes
Proposition 98 minimum guarantee funding for K-14 is set at $55.3 billion, a $1.1 billion decrease from 2012-2013, due to a drop in expected total General Fund revenue. The enacted 2013-2014 budget also provides funding to reduce the state’s inter-year deferral of K-14 funding (part of the “wall of debt”) by $2 billion over two years, from $8.2 billion to $6.2 billion. $250 million in one-time funding has also been allocated for a new K-14 program intended to reduce the high school dropout rate and improve students’ skills in science, technology, engineering, and math (STEM) fields. The budget further includes $428 million in new revenue resulting from Proposition 39 for energy efficient projects at K-12 school and community colleges.
The budget also includes a new “local control funding formula” (LCFF) that has a focus on local control and flexibility. As the Proposition 98 funding grows, LCFF will be phased out over eight years. The LCFF also intends to ensure that school districts’ funding returns to at least 2007-08, adjusted for inflation, levels by 2020-21.
Early Learning, Preschool and Child Care
These programs continue to be funded with non-Proposition 98 General Fund.
CalWORKs expenditures have been proposed for a total of $7.1 billion, with $5.4 billion budgeted for CalWORKs program expenditures and $1.7 billion in other related programs, such as Department of Education child care, Child Welfare services, Foster Care, California Community Colleges child care and education services, etc… Child Care and Development funds have experienced a net decrease of $9.8 million federal funds in 2013-14.
Special Education funding set aside last year for the realignment of mental health services for special education students will not be affected – $357 million in Proposition 98 General Fund and an additional $69 million in federal funds. There is also an increase of $3.6 million Proposition 98 General Fund for Special Education average daily attendance growth.
AB 86 appropriates $1.25 billion in one-time Proposition 98 funding to implement “common core” state academic standards. Local Education Agencies (LEAs) can use these funds for any professional development, instructional materials, or technology-based instruction expenses necessary for common core implementation.
School districts and county offices of education that opted to operate adult education programs in 2012-13 are required to maintain those programs at the 2012-13 levels for two years, after which the funding will again become flexible at the local level.
The budget also proposes $315 million Proposition 98 General Fund to fund a comparable K-12 adult education system. It gives $300 million to support the program within community colleges, as well as earmarking $15.7 million and shifting the responsibility for the Apprenticeship Program from school districts to community colleges. Funding for adult education will be allocated from a new block grant based on the number of students served and only for core instructional areas such as vocational education, English as a Second Language, elementary and secondary education, and citizenship. This funding will be reassessed in the future based on program participation and effectiveness.
Funding for the UC and CSU higher education systems are set at $12.1 billion, an increase of $617 million from last year, as a result of the Proposition 30 tax increases. However, the increased funding for UC and CSU does not impose any “performance measures” as a condition of future UC and CSU funding augmentations, nor does it restrict future tuition increases. The budget also authorizes a new “Middle Class Scholarship Program” for students with family incomes of less than $150,000, but above the eligibility limits of CalGrants, beginning in 2014-15. It also folds UC debt service into its base budget and authorizes UC to restructure that debt to lower short-term costs.
SB 678 California Community Corrections Performance Incentive Act
Under SB 678, the state awards grants to county probation departments based on the performance of adult felony probationers. Due to the Governor’s 2011 public safety realignment, the total funding available to counties under SB 678 would have been dramatically reduced from $138.9 million in 2012-13 to $34.8 million in 2013-14. The enacted budget implemented changes to ensure that counties continue to be rewarded for their efforts to minimize probation failure rates. As a result, General Fund spending has been increased by $72.1 million, bringing total SB 678 funding to $106.9 million for 2013-14.
Since 2008-09, there has been a net $234 million reduction in funding for the courts. The 2013-13 budget includes $63 million General Fund augmentation for the courts to begin to restore the Judicial Branch to pre-recession vitality. Nevertheless, due to the lack in funds, seven courthouse capital outlay projects have been delayed indefinitely in the counties of Kern, Los Angeles, Monterey, Placer, and Pumas. Some construction projects will still move forward with the spending of $781.4 million for various phases of nine court construction projects in the counties of San Joaquin, San Diego, Merced, Tehama, Imperial, Riverside, Glenn, and Siskiyou. The budget also includes $34.8 million from the Immediate and Critical Needs Account (ICNA) in 2013-14, increasing to $54.2 million in 2014-15, for a service fee payment on the New Long Beach Courthouse. This will result in a private-public partnership for the management of the courthouse until the end of the contract. The decision to fund this service fee payment from the ICNA, rather than the General Fund or some other sources, caused the Judicial Council to indefinitely delay four courthouse construction/renovation projects in the counties of Fresno, Los Angeles, Nevada, and Sacramento. Lastly, the enacted budget also includes a new round of fee increases on court users. Court user fees have also increased by $130 million per year compared to 2008-09 levels. The current funding also fails to acknowledge the vast new responsibilities imposed on the Superior Courts as a result of AB 109 Realignment.
Health and Social Services
The Affordable Care Act (ACA) Medi-Cal expansion grants new eligibility to non-disabled adults under the age of 65 who do not have children. These adults will be eligible if their incomes are below 138 percent of the federal poverty level ($15,856 for an individual). Federal funding will decline down to 90% between 2017 and 2020, when the state’s additional baseline expenditures are projected to grow by between $60 million and $257 million General Fund beginning in 2016-17 and could exceed $1 billion annually by 2019-20.
The mandatory portion of the ACA expansion sets the income threshold to 138 percent of the federal poverty level ($32,499 for a family of four) and mandates that most citizens obtain health coverage. The state must pay 50 percent of the costs of the new individuals who sign up under the mandate. The budget includes $104 million General Fund for this part of the expansion, but this may understate the true costs due to a reduction of $84 million by legislative Democrats in order to fund other programs.
Counties are currently responsible for providing coverage to the uninsured, but the budget authorizes state savings of $300 million for the first six months of 2013-14 of the Medi-Cal expansion to shift some of this county funding to the state. For 2014-15 and beyond, the savings formula created by the budget could potentially cause counties that do not operate a county hospital to be left short on funds. These formulas also give county providers some advantages over private safety net providers. The Medi-Cal expansion will also include additional benefits, specifically mental health and substance abuse. The budget includes $67 million General Fund to pay for these benefits in 2013-14, but the annual costs will likely surpass $130 million.
The Medi-Cal expansion extends the 2012-13 gross premiums tax (GPT) retroactively on Medi-Cal managed care organizations (MCOs) until June 2013, and then imposes a new sales tax of 3.94 percent on Medi-Cal MCOs for three years. The retroactive GPT will generate $333 million in state revenues and provides $166 million in General Fund savings, while the new sales tax will generate $645 million and provide $305 million in General fund savings in 2013-14.
The budget partially restores a portion of the Medi-Cal adult dental benefits and prescription enteral nutrition benefits effective May 1, 2014.
The budget also accelerates Medi-Cal eligibility for former foster youth who would otherwise lose eligibility when they turn 21. While federal health reform will make all foster youth eligible for Medi-Cal up to the age of 26, beginning January 1, 2014, this bill will prevent formerly fostered adults who turn 21 between July 1, 2013 and January 1, 2014 from losing their health care.
Managed Care Sales Tax Extension
The budget package extends the previous gross premiums tax (GPT) retroactively on Medi-Cal managed care organizations (MCOs) until June 30, 2013, and then imposes a new sales tax of 3.94 percent on Medi-Cal MCOs for three years. The previous GPT tax of 2.35 percent expired June 30, 2012. The retroactive 2012-13 GPT would generate $333 million in state revenues and provide $166 million in General Fund savings, primarily to offset the 2012-13 Healthy Families Program deficiency. The rest of the funds would be returned to managed care plans in the form of higher Medi-Cal rates. The new sales tax, which would force Medi-Cal managed care plans to pay a tax of 3.94 percent on their revenues, would generate proceeds of $645 million to the state in 2013-14 and provide General Fund savings of $305 million (with the remaining funds returned again to managed care plans through higher Medi-Cal rates).
Republicans opposed the extension of the GPT due to the elimination of the Healthy Families Program, but switching to a state sales tax going forward raises additional concerns:
- Unlike the GPT, which is fixed at 2.35 percent in the state Constitution, the sales tax rate can be raised with a two-thirds legislative vote and Governor’s signature. Thus, Democrats will find it much easier to raise this sales tax and look for other selective targets for similar assessments.
Other Medi-Cal Issues
The budget assumes net savings of $459 million General Fund in 2013-14 from implementing the 10 percent rate reductions that were originally authorized as part of the 2011-12 budget, then delayed by court actions. The 10 percent reduction alone could be enough to drive more providers out of the Medi-Cal network, but the budget creates even greater risks: in order to recover the savings retroactively, the Administration will actually impose reductions in excess of the 10 percent level over a period of 24 months to 30 months. Despite broad bipartisan support for policy bills that would have reversed all or part of the rate reductions, including SB 640 (Lara) and my SB 646, the budget provides no relief for most providers. Only AB 900 is still moving, and if it is successful, it will roll back the Med-Cal reimbursement reductions for nursing facilities that are a distinct part of a general acute care hospital. Other facilities and providers will likely be adversely affected by the reduced reimbursements, reducing patient access to care at the same time the state is implementing a major Medi-Cal eligibility expansion under federal health reform.
Mental Health Wellness Initiative
The budget package enacts a mental health wellness initiative that seeks to expand community-based mental health crisis treatment capacity. The budgeted cost of the initiative is $206 million, including the following:
One-time General Fund expenditures of $143 million General Fund, including $125 million in grants to develop residential crisis treatment facilities.
On-going expenditures of $39 million from the Mental Health Services Account (Proposition 63), including $32 million to help support 600 triage personnel.
On-going expenditures of $25 million in federal funds, including $22 million to help support 600 triage personnel.
Proposition 63 (millionaire’s mental health tax of 2004) funds should be used instead of General Fund for this initiative, and both the Legislative Analyst's Office and the Department of Finance agreed that approach was possible. However, the majority insisted on increasing General Fund spending. On the bright side, the package should help to develop additional facilities for treatment and the training of personnel that could eventually provide more appropriate treatment for the seriously mentally ill and help to keep those individuals out of jails and emergency rooms.
The budget package requires the Department of Development Services (DDS) to submit one report on the future of developmental centers and a subsequent report discussing the related fiscal effects. It also sets a firm target date for completing the closure of Lanterman Developmental Center by the fall of 2014 and no later than December 31, 2014. While more should be done to shift costs from the antiquated, high-cost developmental center system into community-based services, the budget package moves the discussion forward on potentially closing more developmental centers.
Disincentives for Private Insurance. The budget package authorizes regional centers to pay copayments on behalf of consumers with private insurance who have incomes of less than 400 percent of the federal poverty level (about $92,000 for a family of four), but prohibits regional centers from paying deductibles. The prohibition on paying deductibles treats those families unfairly because the fact that they have private insurance at all saves the state money. If they had no insurance, DDS would pay for the entirety of their benefits, which often involves autism-related services for children. Also, most of the regional centers had agreed on their own to pay deductibles on behalf of at least some consumers, so the budget actually will result in higher out-of-pocket costs for those consumers. The budget assumes savings of $5.1 million General Fund by asking families to pay deductibles themselves.
Provider Rate Restoration. The budget includes an increase of $32 million General Fund to reflect the sunset of the previously enacted rate reduction of 1.25 percent for community providers and regional center operating costs. This restoration should help to maintain the network of providers that serves the developmentally disabled population in the cost-efficient community delivery system.
In-Home Supportive Services
The 2013 budget includes $6.2 billion ($1.9 billion General Fund) for the In-Home Supportive Services (IHSS) program, an increase of three percent above revised 2012-13 expenditures of $6.0 billion ($1.8 billion General Fund). The budget projects the average monthly caseload in IHSS will be 448,225 recipients in 2013-14, an increase of 1.2 percent above revised 2012-13 projections. The 2012-13 average monthly caseload is projected to be 442,769, an increase of 2.0 percent from the prior year.
Cash Grants on the Rise-California Could be Second Highest in the Nation. The 2013 budget includes $50.9 million (county Realignment funds) for a five percent increase in CalWORKs grants (with full year costs of $150 million projected for the five percent increase), and authorizes annual increases until grants reach 50 percent of Federal Poverty Level (FPL). The five percent grant increase in 2013 14 and future grant increases will be funded through the redirection of 1991 realignment general growth revenues. If counties do not have sufficient realignment funding to cover the additional costs, the state General Fund is on the hook for the balance. This could result in additional state costs of $1 billion upon reaching the 50 percent of FPL level, making California the second highest welfare cash grant in the nation.
Last year, the Legislature rolled back 30 years of progress that preceded federal welfare reform and emphasized independence and job training under the Greater Avenues for Independence (GAIN) Program. This year, the budget further unwinds CalWORKs reforms included in Chapter 47 (SB 1041, Statutes of 2012) by loosening participation requirements, increasing subsidized employment (which will result in more recipients retaining welfare after 24 months), and delaying when a recipients time on aid “clock” begins for welfare recipients. The budget includes $48.3 million, growing to between $150 million and $250 million annually for these program enhancements. SB 1041 adopted a 24 month time-on-aid clock, allowing for any type of activity identified as necessary to remove barriers to meet participation requirements within those 24 months. The 2013 budget would delay the start of the clock for those receiving the newly created family stabilization services (e.g., individuals receiving mental health and substance abuse services), lengthening recipients time on aid while not having to participate in work activities. This is a move away from accountability and healthy incentives to pursue independence.
Unemployment Insurance Loan Repayment
The budget includes $261.5 million General Fund to pay interest due to the federal government in September 2013 for an Unemployment Fund loan secured to pay Unemployment Insurance (UI) benefits. The UI fund began incurring this debt in January 2009 at the height of the “great recession” and currently owes about $8.4 billion. California has already borrowed $611.8 million from the State Disability Insurance Fund to make the first two interest payments ($303.5 million in September 2011 and $308.3 million in September 2012), and will continue to pay interest until the UI loan is fully repaid. In the interim, the federal government is ratcheting up federal employment taxes on employers (by 0.3 percent each year) to pay down the principal on the federal loan, which is currently projected to be fully repaid by 2020. This backdoor tax increase on employers is a direct result of the majority’s unwillingness to aggressively pursue debt reduction.
Workers’ Compensation Regulatory Assessments
Historically, the Division of Occupational Safety and Health and the Division of Labor Standards Enforcement were General Fund costs. In 2009, the Legislature established two new assessments on workers’ compensation premiums to fund the Occupational Safety and Health Fund (OSHF) and Labor Enforcement and Compliance Fund (LECF) to support these programs, and employers went along with new assessments on a limited-term basis (through July 1, 2013) to help the General Fund in its time of need.
Both assessments were subject to an annual cap on total revenue collections ($52 million for the OSHF and $37 million for the LECF) and were scheduled to sunset on July 1, 2013. The 2013 14 budget eliminates the sunset dates, permanently funding these programs with assessments on workers’ compensation premiums, and increases the annual caps by a total of $14 million to $103 million ($57 million for the OSHF and $46 million for the LECF).
This action raises significant concerns:
Since 2009, expenditures in these programs have increased by 51 percent, from $62.8 million in 2008 09 (General Fund) to $94.8 million in 2013-14 (assessments). These assessment increases are in addition to increased employer taxes that are being imposed by the federal government to fund $8.4 billion of debt supporting the unemployment insurance program (noted above).
This change should require a two-third vote of the Legislature as a tax increase because it does not provide a direct benefit to the fee payer. However, the Administration claims that these assessments fund the "reasonable regulatory costs to the state incident to issuing licenses and permits, performing investigations, inspections, and audits." This difference of opinion may result in litigation.
The state budget includes a loan of $500 million in Cap-and-Trade fee revenues to the General Fund with no repayment date identified. So far, three Cap-and-Trade auctions have generated $257.4 million for state programs and $539.3 million for investor owned and publicly owned utilities to be used as credits/benefits to ratepayers. Although the Governor has provided an investment plan to the Legislature pursuant to AB 1532 of 2012 that identifies broad state priorities, there are still no details on future program expenditures. With revenue available to prioritize spending, it is absurd that the state is diverting these funds to the General Fund rather than use them as intended. This action not only adds to our “wall of debt” but confirms that the “fee” is a tax and is further evidence that the budget remains un balanced.
SRA Fire Tax
The administration attempts to expand the use of the State Responsibility Area (SRA) Fire Prevention “fees” to backfill the General Fund and expand programs with no benefit to the fee payer. Furthermore, there is budget bill language that prohibits the use of $5.1 million of SRA fees appropriated for vegetation management purposes for this fiscal year because environmental groups are upset with the proposed removal of certain types of sage brush and other plants. This policy puts environmental benefits before homeowner protection in the SRA. Litigation on this tax is still pending.
Off-Highway Vehicle Fund
The 2013-14 budget provides the Off Highway Vehicle (OHV) program with an additional $5 million in funding for its local assistance grant program which will return the program to its past funding level of $26 million. The OHV Trust Fund is still owed $133 million from loans taken to benefit the General Fund. The Administration intends to repay these loans by 2015-16, although no due date is established in statute.
This budget also redirects money from the Off-Highway Vehicle (OHV) Fund to a new “active” transportation program to be developed in future legislation. This new program will focus on human-powered transportation, which would eliminate OHV use of these funds, even though federal gas tax revenues from OHV users generate this funding.
New Funds for California’s Veterans. In addition to the base budget of $354 million, the California Department of Veterans Affairs (CalVet) budget includes $24.5 million to proceed with the opening of the Redding and Fresno veterans’ homes. Resident admissions are expected to begin in October 2013. The budget also includes $3 million to fund strike teams to assist with the claims backlog at federal U.S. Department of Veterans offices in California, and another $3 million in one-time funding for the County Veterans Service Officers to hire more service representatives and conduct additional outreach. These measures are expected to assist California veterans in receiving the benefits to which they are entitled and decrease the amount of time it takes to receive those benefits.