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CDCAN

December 31, 2008

State budget crisis: Summary of Governor's 2009-2010 budget

* Summary of Governor's 2009-2010 Budget
* More details next week on January 9th
* Calls for over $17 billion of spending cuts
* Includes $14 billion in new revenue proposals
* Proposals need approval by Legislature
* Budget deficit at over $41 billion

Most of the spending cuts were proposed by Governor in November and early December – More cuts likely to be coming next week and in coming months – Department of Finance director calls budget situation "A disaster"

SACRAMENTO (CDCAN) - Department of Finance director Mike Genest released late this morning (December 31) a 84 page summary of major parts of the Governor's proposed 2009-2010 State Budget that the Governor will officially release next week. The summary outlines - though provides no details - of over $40 billion in proposed solutions including $17 billion in spending cuts and about $14 billion in revenues, with significant reductions proposed for health and human services. The budget deficit is now estimated to be over $41 billion by the end of the 2009-2010 State Budget year (June 30, 2010). (see CDCAN website to download official copy at www.cdcan.us CDCAN will also issue a Action Alert later today.)

Most of the proposals include those the Governor earlier released in November and early December for the special session of the Legislature - proposals which the Legislature has not yet acted on.

Democrats passed a plan in December - But Governor threatened veto

However the Legislature did pass a Democratic plan that contained a mixture of over $7.3 billion in spending cuts and $9.3 billion in revenue increases that the Governor said earlier this month he would veto because it went too far on revenues and not far enough on spending cuts and failed to provide incentives he wanted for businesses that he felt would improve the economy - and revenues. The Democratic plan as passed - without the need for Republican votes - did not include any cuts to In-Home Supportive Services, mental health or Medi-Cal.

The Democratic plan - contained in a package of about 16 bills, is still waiting to be sent officially to the Governor until a deal can be worked out with the two Democratic leaders and the Governor. Talks will continue in the coming days.

The Legislature and the Governor - even if the Governor withdraws his veto threat and the Democratic plan is approved - still will need to tackle how to resolve the $20 billion or so remaining deficit - which Genest and other state officials says will grow worse unless immediate action is taken. The Governor and both Democratic and Republican legislative leaders have previously agreed that resolving the remaining deficit will mean more major spending cuts - though Democrats and the Governor also want more revenues - though differ on how that should be achieved.

Never before has budget information been released officially so early

Never before has budget information for the next budget year been formally released - even in summary form - so early and on the eve of New Years Day - and the unscheduled press conference by senior Schwarzenegger Administration officials and budget staff reflects what the Governor said earlier that the State was facing as "fiscal Armageddon".

The release of this budget information at this point is being viewed as another step in a much longer budget process that will likely mean more details and proposed cuts in the coming months, including May.

The Governor previously warned, as did Genest today, that continued inaction on resolving the budget crisis will make the situation worse - and would result in the need for even deeper cuts.

State Controller John Chiang yesterday released a bulletin that warned that California would run out of cash by March 1st and unable to pay its bills to many vendors, including those who provide community-based services to children and adults with disabilities, mental health needs, seniors and low income children, unless the Legislature and Governor took immediate action to resolve the budget crisis.

No details in budget summary

The budget document released today did contain some new proposals that established spending reduction targets without detailing how those targets would be met, including $334 million impacting regional centers. The Governor's proposals declined to label those targets as a reduction at this point - but a target to keep spending at the level it was budgeted for the current 2008-2009 State Budget year.

Genest did say that the Governor's proposal does not call for the suspension of the 1988 Proposition 98 - the school funding guarantee in the State Constitution, but would fund public education at the minimum required by the proposition for the 2008-2009 and 2009-2010 State Budget years. Education advocates say that would result in reductions in spending however. It is not certain how those reductions will impact special education for over 650,000 children with disabilities and other special needs.

Other details and proposals will be released when the Governor releases his budget officially next week on January 9th, Friday.

Genest, who oversees the department that puts together the Governor's budget, said in an unscheduled press conference this morning at the State Capitol that the Governor believes that the immense size of the budget deficit means that "we have to solve this problem with every tool available" including tax increases and spending cuts.

He said the major part of the solutions to bridge the budget gap - estimated at over $41 billion by the end of the 2009-2010 State Budget year (June 30, 2010) is spending cut which he said the Governor felt was "appropriate" because the State cannot spend more than what it brings in as revenue.

Asked by a reporter if the proposals released today that call for massive cuts and also significant revenue increases is meant to drop a "doomsday scenario" to force the Legislature to act, Genest said that "It wasn't us that dropped the dooms day scenario on the Legislature - it was the economy." He said he expected further updated budget numbers to be released in the coming weeks to be a "disaster".

Next Steps

Legislature

* No legislative hearings or floor sessions this week.

* Legislature will reconvene on January 5th, after failing to come to any agreement on how to resolve the budget crisis in November and this past month. Hearings on the latest proposals are not likely - since most of them have been heard before, though any new proposals could be heard. Since a package of bills containing major cuts and revenue increases has already been passed by both houses - but remain in limbo due to the threat of the Governor to veto it - it is likely that the Legislature will wait on a deal that can possibly be reached with the Democratic leaders and the Governor before moving forward on other budget issues.

* Floor sessions will likely be called on the budget crisis when the Democratic legislative leaders and the Governor come up with a budget deal on the package of bills that Democrats passed earlier this month. The leaders and the Governor are hoping for a deal that will resolve the immediate crisis that - if not addressed - could mean the State will run out of cash and not able to pay its bills as early March 1.

* The Democratic Legislative leaders - Assembly Speaker Karen Bass (Democrat - Los Angeles) and Senate President Pro Tem Darrell Steinberg (Democrat - Sacramento) will continue their talks with the Governor in hopes of working out a solution to a package of bills passed by the Legislature earlier this month that they hope would cut the deficit almost in half. The Governor is hoping to persuade the Democrats to include more incentives for businesses that he feels would increase revenues - and also wants deeper spending cuts. It is possible that some of the new proposals - such as the $334 million targeted savings for regional centers - could be included in any new deal reached between the Democratic leaders and the Governor (though that $334 million proposal doesn't require approval of the :Legislature since no details will be provided until May).

* The Democratic plan, passed with only Democratic votes in both houses, contained new revenue increases that went beyond what the Governor proposed - and was written in such a way that by-passed the need for Republican votes. Republicans protested the move and predicted the revenue increases would be overturned by the courts.

Governor

* Will deliver next week his annual "State of the State" address to both houses of the Legislature and then release the details of his proposed budget for 2009-2010 on January 9th.

* Will continue talks with the two Democratic leaders (the Governor is still out of State and is conducting those talks by phone or video conferencing).

CDCAN summary of major proposed Health and Human Services cuts

Note: more proposed cuts and details will likely be available next week when the official Governor's budget will be released for 2009-2010 (January 6th) and also when he releases his proposed revisions to that budget in May (referred to as the "May Revise" or the "May Revision").

SSI/SSP (Supplemental Security Income/State Supplemental Payment)

Cash Assistance Program for Immigrants (CAPI)

CDCAN Note: These are federal/state grants to the lowest income people with disabilities, the blind and seniors. The CAPI program is for about 10,000 low income persons with disabilities, the blind and seniors who are legal immigrants but do not qualify for the federal SSI program. These proposals were previously proposed by the Governor in November.

* Rollback of SSI/SSP Grant Level & Elimination of CAPI Program - A reduction of $200.1 million in 2008-2009 State Budget year and another $1.247 billion in 2009-2010 in the SSI/SSP program by reducing the SSP grant (state payment) to the federally required minimum and eliminating the Cash Assistance Program for Immigrants.

* SSI/SSP Cost of Living for June 2010: Reduction of $27 million in 2009-2010 by suspending the June 2010 state Supplemental Security Income/State Supplementary Payment (SSI/SSP) cost of living

If approved, the yearly reduction (or savings to the State general fund) resulting from this reduction of the cost of living money is estimated by the Department of Finance to be $323.9 million beginning in 2010-11.

* Other: Reduction of $14.6 million due to delaying by six months the replacement of Los Angeles County's automated benefit and eligibility determination system.

In-Home Supportive Services

CDCAN Note: Most of these reductions were previously proposed by the Governor in November.

* Reduction of $62.7 million in 2008-2009 State Budget year and reduction of $384.2 million in 2009-2010 State Budget year by providing non-medical IHSS services to the neediest IHSS recipients, eliminating the state's share of cost contribution for the "least-needy IHSS recipients", and reducing the state participation (state funding) in IHSS worker (provider) wages to the state minimum wage.

Medi-Cal

CDCAN Note: Most of these reductions were proposed earlier by the Governor in November and December.

Overall Medi-Cal Program proposed reductions of $50.8 million for the 2008-2009 State Budget year and another $668.7 million for the 2009-2010 State Budget year for various changes to Medi-Cal eligibility and changes to Medi-Cal services.

* Medi-Cal Optional Benefits - Proposed reduction of $39.4 million ($19.7 million of that State General Fund money) in the 2008-2009 State Budget year and another $258.8 million ($129.4 million of that in State General Funds) for the 2009-2010 State Budget year by permanently eliminating certain Medi-Cal optional benefits for adults, including dental, optometry, psychology services (previously proposed by Governor in November)

* Medi-Cal Aged, Blind and Disabled Program Eligibility & Share of Cost - proposed reduction of $28.6 million ($14.3 million of that State General Fund money) for the 2008-2009 State Budget year and another $371.6 million ($185.8 million of that State General Funds) for the 2009-2010 State Budget year by rolling back eligibility for this specific Medi-Cal program to what it was in 2001, which would mean anyone who did not meet that eligibility standard would be required to pay a Medi-Cal share of cost.

* Medi-Cal 1931(b) Program - Proposed reduction of $5.2 million ($2.6 million of that State General Fund money) for the 2008-2009 State Budget year and another $176.4 million ($88.6 million of that State General Funds) for the 2009-2010 State Budget year by reducing income eligibility for the Medi-Cal 1931(b) program and changing eligibility for two parent families by revising "under-employment".

* Medi-Cal Reimbursement Rate to Public Hospitals - proposed reduction of $54.2 million in State General Funds and an increase of $54.2 million in federal funds in 2009-2010 State Budget year by reducing reimbursement rates for public hospitals and instead using the federal funds for particular public health programs.

* Medi-Cal Limited Scope Services For Immigrants - Proposed reduction of $4.4 million ($9.4 million in State General Fund money and increased federal dollars of $5 million due to "diminished recoupments" for the 2008-2009 State Budget year and another $64,4 million ($139.9 million State General Fund and increased federal funds of $75.3 million) in the 2009-2010 State Budget year by providing "limited scope" Medi-Cal services to newly qualified immigrants and immigrants who permanently reside in the State "under the color of law".

* Medi-Cal Eligibility for Undocumented Immigrants - proposed reduction of $9.6 million ($4.8 million of that State General Funds) in the 2008-2009 State Budget year and another $142.4 million ($71.2 million of that State General Fund money) in the 2009-2010 State Budget year by implementing a month to month eligibility requirement for undocumented immigrants, except for emergency health cases.

* Medi-Cal Fee for Service Providers - A proposed "shift" of $85.5 million from the 2008-2009 State Budget year to the 2009-2010 State Budget year by implementing one month delay in "checkwrite" payments to Medi-Cal fee for service providers. This proposal is in addition to a previously authorized two week delay under current State law.

* County Administration Cost of Living - A proposed reduction of $24.7 million for suspending the state law that requires cost of living money for County Administration in the Medi-Cal Program.

Regional Centers (Dept. of Developmental Services)

CDCAN Note: The 3% reduction was previously proposed in November by the Governor. Details on how to keep spending by regional centers at the 2008-2009 State budget level - meaning finding ways to reduce an anticipated growth in spending that is projected to be over $334 million that could mean major reductions - won't be released until May by the Governor.

* 3% Reduction - A proposed reduction of $24.6 million in 2008-2009 State Budget year for regional centers, and another reduction of $60.2 million in 2009-2010 State Budget year, due to a 3% "discount of payments" made to service providers by regional centers and a reduction of regional center operations costs by 3% effective February 1, 2009 if approved by the Legislature. The "discount of payments" would mean that providers would see a reduction in their reimbursements from the regional center by 3%, with some exceptions, proposed to take effect February 1, 2009 if approved by the Legislature. The savings (or reduction) in this proposal also reflects a reduction of $4.1 million in the 2008-2009 State Budget year and another $12.2 million in the 2009-2010 State Budget year to adjust for the proposed reduction of the State Supplemental Payment (SSP) to the federal minimum.

* Caseload and Utilization (Use of Services) Target - the Governor has not yet made an actual proposal to not fund the caseload for regional centers - something that if done would mean a suspension of the landmark Lanterman Developmental Disabilities Services Act, but his budget proposal today is establishing a "savings target" of $334 million for regional centers. His budget proposal today would require the Department of Developmental Services, which oversees the regional centers and developmental centers to work with stakeholders in the coming months (probably during January through early or late March) to develop proposals to keep spending at the 2008-2009 State budget level and "achieve the targeted savings while maintaining the entitlement and ensuring program and service integrity". The Governor would then release his actual proposal to control regional center spending, when he releases his revisions to his proposed budget in May.

Mental Health

CDCAN Note: Governor previously proposed this reduction in December.

* Proposition 63 Mental Health Services Act Funds - Proposes a reduction of $226.7 million State General Fund money in the 2009-2010 State Budget year by instead funding Mental Health Managed Care with Proposition 63 funds. This requires amending the non-supplantation requirement of the Mental Health Services Act (Proposition 63) to allow the use of Proposition 63 funds for Mental Health Managed Care, meaning it would have to be approved by voters sometime in 2009.

* Governor's proposal would also require the Department of Mental Health will work with the counties and other stakeholders on changes necessary to provide "greater local flexibility regarding the maintenance of effort and non-supplantation requirements of the Act. Implementation of this proposal will require passage of a voter initiative.

CalWorks

CDCAN Note: this is California's welfare to work program that impacts thousands of children with special needs and disabilities, including thousands of parents who have special needs, including mental health needs.

* Cost of Living: Reduction of $79.1 million in 2009-2010 State Budget year by suspending the CalWORKs cost of living due July 2009.

* Pay for Performance Program: Reduction of $40 million in CalWORKs in 2009-2010 State Budget year by suspending the Pay for Performance county incentive program.

* CalWorks Grants and Safety Net Program - a proposed reduction of $123.5 million in 2008-2009 State Budget year and another $696.9 million in the 2009-2010 State Budget year for the by reducing by 10% the monthly assistance CalWorks payments and by changing the CalWorks Safety Net program to reward working families who are fully participating in federal work requirements with continued maximum Safety Net benefits, imposing a 60-month time limit on assistance for certain child-only cases, implementing a six-month self sufficiency review requirement to engage families who are not participating in work requirements.

California Food Assistance Program

* Reduction of $37.8 million in 2009-10 from eliminating the California Food Assistance Program effective July 1, 2009.

California Children and Families First Commission

CDCAN Note: this proposal was proposed by the Governor previously for the December special session of the Legislature.

* Proposed a reduction of $275 million through elimination of the California Children and Families Commission and "redirection of all state funds and 50% of local funds to support children's programs administered by the Department of Social Services." The Department of Finance said that this reduction would target resources to "high-priority state programs that would otherwise require General Fund support, while also allowing some funding to be retained by counties to continue to fund local priorities" and that this proposal does not impact local fund reserves. Would require voter approval.