Director of Finance to hold meeting at noon regarding the “trigger cuts”

by Brian Leubitz

Today’s the day. If you remember back to the disaster that was last year’s budget there was a $4B mystery source of revenue that was basically a cross your fingers and hope real hard kind of thing.  The legislature then asked the Controller (John Chiang), the Legislative Analyst (Mac Taylor) and the Director of Finance (Ana Matosantos) to track how much revenue was coming in, and then if that $4B did not come in, “pull the trigger” on cuts of up to that amount that were already determined.

Well, today is that day, and Matosantos, Brown (and formerly Schwarzenegger’s) Director of Finance has to decide how much will be cut for the 2012 part of the current fiscal year.  Don’t expect much good news, as the Controller’s office already released data indicating that we weren’t going to hit that target.  Oh…and we spent more than we projected.

After accounting for November revenues, total year-to-date general fund revenues are now behind the budget’s estimates by $1 billion, but expenditures for the year are over projections by $1.95 billion.  It turns out that during a bad economic period, people need more services, but in the current climate in Sacramento, getting the legislature to approve the revenues for those services is an impossible feat even for somebody with the experience of Jerry Brown.

And so we go to the people, I suppose.  According to a new PPIC poll, Californians are not particularly interested in a cuts only budget.

A new poll shows 60 percent of California voters, weary of state spending cuts and unsettled by the prospect of more, are ready to support Gov. Jerry Brown’s plan to raise taxes. … When asked about those automatic spending reductions, part of the budget package signed last summer, a plurality of likely voters – 45 percent – say they would prefer a mix of spending cuts and tax increases to address the shortfall, according to the poll.

Brown, a Democrat, is seeking to raise the statewide sales tax a half-cent and increase income taxes on people who make $250,000 or more a year. He opened a campaign committee last week, and his political adviser, Steve Glazer, has started fundraising for the effort.(SacBee)

There is a long time between now and November 2012, and a lot of painful cuts remain no matter what happens at the ballot box.  But as we continue this slow motion take-down of the California Dream, we’ll need to consider what our values really are.  Perhaps we really are a state that is only concerned about our present day self-interest, but I have higher expectations for Californians. We can, and will, break out of this viscous cycle of cuts.

State faces another looming budget crisis

by Brian Leubitz

UPDATE: I’ve included video of Taylor’s press conference from John Myers’ twitter feed. Thanks John!  You can get the full press conference from the CalChannel here.



I’ve been a little quiet around here, as I was more than a bit busy with the election and then trying to recover from said election.  And Sacramento was hardly hopping either, just a few press conferences here and there.  However, Leg Analyst Mac Taylor (and sometimes Right-leaning Budget Warrior) has been on the grim watch on our state finances along with Finance Director Ana Matasantos.  And grim is really the best adjective for the situation:

The report by the Legislative Analyst’s Office says the state faces a budget deficit in the current fiscal year largely because it will collect only $300 million of $4 billion that Gov. Jerry Brown and the Legislature added to the budget just days before it was approved in June. Critics had called the sudden infusion of projected revenue “phantom money” that was conjured to avoid deeper spending cuts.

The report says California also faces a budget deficit in the 2012-13 fiscal year of $13 billion.(SF Chronicle)

I’m not sure how bright I can highlight this situation, but we are steamrolling towards another budget crisis.  And guess what, there is so little left to cut, there will be no other choice to cut deeper into some already devestated state services.  Of course, much of that could be avoided with a bit of reasonableness from the other side of the aisle, but let’s be realistic here. Unless somehow four Republican legislators get a Dickensian like visit from beyond, do we really think that is going to happen?

Now, the ultimate determination will be made by Matasantos by December 15, but given that relatively few of those $4Billion have come in, it is tough to imagine that she will have much choice. The $4 Billion will hit education particularly hard, with the possibility of eliminating 7 school days from the year. As David Dayen points out, the threat of a $13B series of cuts threatens to make ridiculously small the few parts of President Obama’s jobs package that can pass Congress. $1 Billion in veterans benefits will do little to combat the biggest of the 50 Little Hoovers here in California.

It is hard to really blame Gov. Brown for much here, other than his rosy expectations. The Right will take the usual attack on Democrats of being too close to labor, but even if he totally decimated pensions and laid off huge portions of the state public employees, we still wouldn’t get near dealing with the situation.  But the fact remains that the $4 Billion that has failed to show was put in the budget because the cuts without them would have been unbearable.

So California, meet the dystopic future, where cutting K-12 school days and rocketing higher education fees are the best option.

In a move telegraphed in their previous meeting, Treasurer Bill Lockyer and Director of Finance Mike Genest decided that the $10 billion federal stimulus “trigger” was not met – that will cause billions in additional cuts and new taxes as part of the February budget deal. Here’s the logic used by Genest in not pulling the trigger:

After a legal and fiscal review of recently enacted federal legislation, and in coordination with the State Treasurer and his staff, the Director has determined that the amount of additional federal funds available to offset General Fund expenditures through June of 2010 is $8.17 billion,” said Ana Matosantos, Department of Finance chief deputy director. “This amount is below the $10 billion established in (budget language) as the amount required to eliminate a portion of the personal income tax surcharge and specific spending reductions previously enacted by the Legislature.

But is this the right move? Speaker Karen Bass doesn’t think so:

I am disappointed with the narrow reading of the trigger and the decision made today by the Director and the Treasurer. But it was the last minute changes to the budget demanded by Republican Senators that put the trigger level out of reach and all but guaranteed the higher taxes and cuts to critical programs. We agree with the Treasurer that a portion of the cuts should be restored, and we will work through the budget process to find alternative solutions to a portion of these cuts.

This is better framing than we’ve seen from the Sacramento Dems in some time – blaming Republican budget demands for making it difficult to clearly reach the trigger level, and arguing that the cuts should be restored.

Along with Speaker Bass, the California Budget Project argued that Genest and Lockyer were using too narrow a definition of the trigger language:

However, the DOF’s methodology excludes ARRA funds that will support programs and services that suffered deep reductions in the 2008-09 and/or 2009-10 budgets. In many instances, these same programs and services have experienced significant cuts repeatedly in recent years. The CBP believes that the calculation of federal funds that may be counted toward the $10 billion threshold should include ARRA funds that will support programs and services that received funding reductions in the 2008-09 or 2009-10 budgets and/or that are experiencing higher costs due to the economic downturn – costs that would, in the absence of federal funds, fall on the state’s General Fund.

The result is devastating. 3 million California parents, seniors, and people with disabilities will lose dental, podiatry, psychology and other Medi-Cal benefits the federal government does not mandate but that are nevertheless necessary to economic recovery and a decent human standard of living. Marty Omoto lays out the full impact, which includes further cuts to education and the courts.

It didn’t have to be this way. Even putting aside the “narrow reading” issue, this is a failure of both the state and the federal government. Democrats agreed to a bad deal, and the Yacht Party did their best to make the Great Recession worse by destroying the very governmental services that we need to stop the downward spiral and start a recovery. And the US Senate has blame to share, for stripping out $40 billion of the state stabilization funds and generally not being aggressive enough in dealing with the crisis facing all levels government.

California keeps cutting spending, and the recession keeps getting worse. We at Calitics understand that’s no coincidence. When will Sacramento?

A couple quick updates to stories we’ve been following:

• The State Senate today approved two bills relating to unemployment insurance on a near-unanimous vote.  The bill  (AB 23×3) to extend benefits for an additional 20 weeks using federal stimulus money passed 38-0, and the bill (AB 29×3) changing eligibility requirements to allow seasonal workers to benefit from unemployment benefits, also with federal money, passed 37-1.  The latter bill needs to go to the Assembly for concurrence; the former will go right to the Governor.  Sen. Gil Cedillo remarked in his release:

“Our immediate action on this issue was necessary to help almost half a million unemployed Californians stay afloat. These bills put to use the estimated $3 billion dollars in federal stimulus monies made available by the American Recovery and Reinvestment Act (ARRA),” remarked Cedillo. “We have a tremendous opportunity to turn our economy around and put federal dollars to work for California. The bipartisan leadership today highlights what we are able to accomplish when we focus on results,” Cedillo added.

At least 76,000 people whose benefits would run out on April 11 would see immediate relief.  It appears the Governor, after hedging, will sign both bills, but we shall see.

• As early as tomorrow, says Marty Omoto, we may have a decision from the Finance Director Mike Genest and Treasurer Bill Lockyer on whether the state will receive enough stimulus funding to “pull the trigger” that would reduce some of the worst cuts in February’s budget, and eliminate some of the tax increases.

The determination by the State Treasurer and Department of Finance Director is crucial on whether major permanent cuts happen or not to several critical programs that serve hundreds of thousands of people with disabilities, mental health needs, the blind, seniors and low income families. While there has been no official word on what the State Treasurer or the Finance Director will report, most observers feel that the likely news will not be good.

If you want the details on the cuts at risk, read Marty’s post.  Given the fact that the Legislative Analyst already foresees an $8 billion dollar hole in the budget, and that the special election poll numbers are tanking, which would add another $5-$6 billion hole, I would expect the bad news as well.  Because of the murkiness of what money counts toward the General Fund and what doesn’t, there’s a fair bit of room for politicking in there.

Now that you’re truly titillated, allow me to explain.  Today, Director of Finance Mike Genest and Treasurer Bill Lockyer meet to discuss the amount of money California can expect to receive from the federal stimulus package.  The meeting is public and will begin at 10am.  Some of our Twittering favorites like Anthony Wright and John Myers will be on hand.

Why is this important?  Well, if you’ve been following things, at issue is the budget “trigger” that would be reached if the state meets a threshold of $10 billion dollars collected from the federal government that can offset General Fund spending.  That trigger would reduce tax increases and eliminate some of the worst cuts from the budget deal in February.  While there lurks the spectre of a continuing deficit for FY 2010, meaning that any cuts and taxes saved by the trigger would just increase that deficit, the consequences of particularly these cuts are very real as well.  They are almost all focused on health care for the very neediest members of society.  The aforementioned Anthony Wright explains:

More directly, about three million low-income California parents, seniors, and people with disabilities will lost dental, optometry, podiatry, psychology, and other benefits. A full run-down of the lose benefits, and their economic and human impacts, is available in a handout on our website.

As the chart shows, the list of Medi-Cal benefits to cut share one striking characteristic: elimination of these benefits is not cost-effective and instead is likely to cost the state more to provide care to the same population. For example, the elimination of optometry services means that Medi-Cal beneficiaries will go to ophthalmologists.

The elimination of podiatry means more expensive and less expert care from physicians. The elimination of incontinence creams and washes will lead to Stage 3 and 4 bedsores—bedsores that would be reportable as adverse events or “never events” if they occurred in a hospital. But because they will happen to persons with disabilities trying to live in the community, they will result in the institutionalization of those who could otherwise have remained in the community. Penny-wise and pound-foolish does not begin to describe these cuts.

Those cuts could be entirely offset by the massive corporate tax cut which could go as high as $1.5 billion dollars a year, so I suggest the legislature look elsewhere for their pound of flesh.  Not to mention that a failure to get the most out of the stimulus funds would do a disservice to the state.  It is unacceptable at this critical time that any money gets left back in Washington.  And the tools are in place to cross the $10 billion dollar trigger point, as The California Budget Project has ably shown.  

It sets up to be an interesting meeting, as the Treasurer has not made many public comments about the trigger, while Finance Director Genest’s reports show the state falling short by $2 billion dollars.  Thanks to the poor drafting of this provision, there’s no telling the outcome if Lockyer and Genest disagree.  Don’t expect a resolution today – the participants have two weeks before a final solution.  

Mac Taylor at the Legislative Analyst’s Office (LAO) has made his preliminary assessment of the impact of the federal stimulus on California’s bottom line.  This is important, recall, because if the state can get over $10 billion in such a way that reduces the budget deficit, they would hit a “trigger” that would allow the state to eliminate $1.8 billion in tax increases and restore about $1 billion in really painful cuts to social services, particularly health care for the needy.

Taylor doesn’t think we can get there:

A significant portion of the $31 billion in aid to California will be available to address the state’s budgetary problems. We estimate that, based on the enacted state 2009-10 budget, California can use $10.4 billion in new federal dollars for this purpose over the life of ARRA. Of that amount, $8 billion would be available in 2008-09 and 2009-10. The Director of Finance and State Treasurer will determine their own estimate of the latter amount by April 1 of this year. If the amount is less than $10 billion, then annual state program reductions of nearly $1 billion and revenue increases of about $1.8 billion adopted as part of the 2009-10 budget package will go into effect.

Given the state’s continuing economic struggles, however, it is possible that state revenues (and the Proposition 98 minimum funding level) may continue to fall. In that case, it may be possible to use additional federal education dollars for budgetary relief.

This is an analysis of things as they stand right now, with no further changes from the legislature to qualify the state for more funding.  It is not the final version of things, as Taylor notes, because the legislature could act quickly on a number of fronts to put the state over that $10 billion dollar line.  And the Budget Act provision is written so sloppily that it’s hard to even know what money would be eligible under it.

The Legislature will need to take many actions in the coming months to ensure that the funds are used in ways that meet its priorities and preferences. To assist in this process, we offer the following considerations in making decisions regarding these new federal funds:

• Maximize the Benefit of Federal Funds to the General Fund Budget. In this report, we make specific recommendations about how to help the state’s budgetary situation under different scenarios.

• Act Quickly in a Handful of Cases. In certain instances, the state will need to act rapidly to ensure it receives the maximum amount of relief or to use the funds in the most effective way possible. Addressing a Medi-Cal eligibility issue and providing direction on the use of transportation funds are two such examples.

The Medi-Cal eligibility issue ALONE would make over $11 billion in funding available to the state.  In addition, we know that revenues are going to come up short, which would allow up to $3 billion in education funding to be shifted to budget relief.  Taylor makes a number of recommendations that would allow the state to cross the trigger.

Nevertheless, the headline from the LA Times is “Stimulus Money Might Not Be Enough For California”.  That’s only true if the legislature does nothing.  And so these opening grafs are really kind of misleading.

Reporting from Sacramento — California appears likely to fall short of getting the federal stimulus money it needs to avoid the full tax hikes and spending cuts lawmakers approved last month to settle a contentious 100-day budget stalemate.

A fresh analysis of California’s flagging fiscal situation says the state needs about $2 billion more than Washington is providing. Lawmakers will be unlikely to reduce the personal income tax increase the new budget contains, or to restore some of the money they cut for universities, courts, social services and health care programs.

John Myers at Capitol Notes has a much more nuanced take, and he updated it with the LAO report today.  In the hearings today, Taylor didn’t sound assured of his own analysis.

But the LAO presentation, during this morning’s hearing of the Assembly Budget Committee, certainly didn’t sound definitive when it came to the $8 billion estimate. “This was our best kind of shot at it,” said Taylor […]

But when the question and answer session from legislators wrapped up, it was clear that a feisty debate is brewing as to whether to count more federal stimulus money towards deficit relief… thereby allowing some of the cuts and taxes to be set aside… or let the budget package stand as it is.

“I think taking for granted the $8 billion figure,” said Assemblymember Mike Feuer (D-LA), “is a big mistake.” Feuer went on to say that the Legislature should try to reach the magic $10 billion figure “any way we can,” thus maximizing federal matching dollars that state government has often left unused.

The California Budget Project’s analysis shows that there are plenty of ways to reach that $10 billion, through competitive grants and moving items to offset the budget, without costing the state very much at all and saving the worst budget cuts from being enacted.  There’s no reason not to get creative and do this.

Two other things.  The original trigger was set at $9 billion, until Abel “My Precious Tears” Maldonado wouldn’t sign off unless the gas tax increase was eliminated and lawmakers had to raise the trigger.  So if you want to blame someone for IHSS services being cut (or, if you prefer, raising your taxes), there’s your man.

Second, this will largely be resolved at a public meeting next week between Mike Genest, the finance director for the Governor, and state Treasurer Bill Lockyer.  And because the wording is so vague in the Budget Act, that meeting could erupt into chaos:

The actual bill says the two jointly have the responsibility of whether to “trigger off” those budget items. What if they disagree on the analysis? Ummm, well, no one really knows.

Well, at least it’s simple and elegant.