Background

When Governor Jerry Brown proposed the FY 11-12 budget in January, the State was facing an unprecedented combined deficit of $25.4 billion for the current and next fiscal year. With his decision to cancel the sale of state office buildings and his intent to create a $1 billion reserve, the combined deficit grew to an unprecedented $27.6 billion. To make matters worse, the Legislative Analyst’s Office (LAO) predicted massive budget shortfalls each year through FY 15-16.

The Administration launched a six-month effort to tackle the deficit in a balanced, bipartisan manner. It proposed to address the deficit through a combination of reductions in state spending ($12.5 billion) and the temporary extension of several major tax rates and other measures to increase revenue ($12 billion).

Democrats in the Legislature largely supported the Governor’s plan to close the budget gap. Following a condensed budget subcommittee process, the Legislature voted to approve cuts to state programs and services totaling approximately $10 billion. This included profound reductions to the all of the state’s safety net programs, such as Medi-Cal, In-Home Supportive Services (IHSS), and CalWorks. These changes were signed into law by the Governor on March 24, 2011.

Neither the Governor nor the Democrats, however, were able to garner the Republican votes necessary to achieve a 2/3rd majority, which could enact the Governor’s revenue proposals. In May, it was estimated that these proposals would achieve approximately $9.3 billion in additional state income.

General Budget Framework

On June 28, 2011, Legislative Democrats instead approved a budget (1) by majority vote that relied on further spending reductions, deferred payments to schools, and, most notably, an assumption of $4 billion in additional tax revenue for the fiscal year. The revised revenue estimate was based on a, unanticipated rising tide of state tax collections in the last half of the year. There is a growing belief that this surge portends a resurgence of the California economy.

“Trigger language” and the continued need for new revenue

Should revenue not materialize at the levels currently anticipated the budget also includes “trigger language” that would implement additional spending cuts. Budget trailer bill AB 121 authorizes the Department of Finance to provide by December 15, 2011 an estimate of total General Fund revenue for FY 11-12. If the Department determines that this forecast is less than what is currently anticipated in the budget, it “triggers” a series of cuts to occur sometime in January. These cuts are broken down into tiers:

Despite these actions, additional budget deficits are expected for FY 12-13 through FY 14-15, as the state’s structural or underlying imbalance between revenue (which is at a historical low) and expenditures (most of which are legally mandated) remain. The Governor and Democrats in the Legislature maintain that long-term, stable sources of new income are essential to address this inequity. Without the necessary votes in the Legislature, however, the focus is now on collecting enough signatures to place new revenue initiatives on the ballot in the November 2012 election.

Filling the Budget Gap

Utilizing the latest figures from the Department of Finance, the final budget fills the state’s budget deficit as follows (in millions):

Of the approximately $15 billion in expenditure reductions, roughly $5 billion were in the arena of Health and Human Services. These reductions are as follows (in millions):

Basic Summary General Fund Budget (in millions)

As illustrated in the above chart, total income and expenditures decreased dramatically from the last fiscal year (6.7% and 6.1% respectively). General fund expenditures in Health and Human Services decreased by 13.2% from last year.

Impact of the Budget on IHSS

The final budget includes the following reductions and savings in the IHSS program:

• A requirement that all recipients obtain certification from a licensed health care professional that without IHSS services the recipient is at risk of being placed in institutional care (estimated savings of $67.4 million).
• A mandate for the state’s participation in the new Community First Choice Option available under Federal law as of October 1, 2011 (estimated savings of $128 million).
• The elimination of the county mandate and most of state funding for IHSS Advisory Committees (revised estimated savings of $1.5 million).
• A mandate for the implementation of the Medication Dispensing Pilot Project beginning July 1, 2011. The goal of the pilot is to reduce hospitalization and institutionalization resulting from medication noncompliance among high-risk Medicaid recipients. There is a stipulation that should the requisite savings not be achieved by July 1, 2012, there will be a mandatory across the board reduction in service hours for all IHSS recipients (estimated savings of $140 million).

These measures were contained in SB 72, the human services trailer bill, which was signed into law on March 24, 2011.

Public Authorities

State funding for Public Authority Administration was reduced in the May Revision as a result of the continuing decline in caseload. However, the final budget restores this funding to the January appropriation. Budget Trailer bill AB 106 (4) mandates the development of a new methodology to determine reimbursement rates for Public Authority administrative costs “to go into effect commencing with the 2012-2013 fiscal year.” This is to occur through a stakeholder process.

The budget removes the mandate that each county have an IHSS Advisory Committee, instead making such committees elective. State funding for these committees is also significantly reduced. Public Authorities are still required to have an IHSS Advisory Committee or Independent Consumer Governing Board (5). The budget allocates $3,000 of state funds to each Public Authority to support the activities of the Committee/Board.

Phase One Realignment

The final budget includes a realignment of certain public safety programs (with $5.6 billion in program costs) from state purview to local government responsibility. To fund this new responsibility, a percentage of the existing state sales tax will be diverted to local government beginning July 1, 2011. In addition, a portion of existing vehicle license fee (VLF) revenue will also be diverted to local government.

The Administration still intends to realign additional programs, such as mental health services, substance abuse treatment, and child welfare, from the state to the county level in FY 11-12. However this is pending additional legislation.

Phase Two Realignment

The Administration continues to propose a future realignment of the IHSS program from the county to the state level. The goal of this effort would be for the state to assume all fiscal responsibility for the program. There are no details yet as to how this would occur. We expect a detailed proposal to implement Phase Two Realignment to be included in the Governor’s FY 12-13.

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

The monthly grant available through SSP was reduced to the minimum payment required by federal law. As a result of this change, the maximum monthly SSI/SSP grant for an individual is now $830 – a $15 reduction from the previous $845. The monthly SSI/SSP grant for married couples was reduced to the federal minimum ($1,407) in 2009. Cost of Living Adjustments for SSI/SSP grants were permanently eliminated as of January 1, 2011.

Adult Day Health Care

Adult Day Health Care (ADHC) was eliminated as an optional benefit under the State’s Medi-Cal plan. This elimination, pending approval by the federal Centers for Medicare and Medicaid Services (CMS), is scheduled to occur in September.

The final budget allocates $85 million to allow for the transition of ADHC recipients to alternative services. AB 97 (6), a trailer bill enacted in March, includes intent language to create a new program, titled “Keeping Adults Free from Institutions (KAFI), which would serve as an alternative for eligible former recipients. However, as yet, the trailer bill that actually implements the creation of a new program (AB 96) has not been signed by the Governor. Additionally, though the Governor approved the funding of $85 million to “transition current beneficiaries …. to other appropriate services”, he vetoed language in the budget that signified the intent to develop new federal waiver services “to provide a more narrow scope of services and to specify a level of medical acuity for enrollment.(7)” As a result, the future transition of ADHC recipients to a new program is currently unclear.

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* (1) SB 87, Chapter 33, Statutes of 2011

* (2) Signed into law by the Governor on June 30, 2011

* (3) Supplemental Security Income/State Supplementary Payment Grants

* (4) Chapter 32, Statutes of 2011

* (5) Pursuant to Welfare and Institutions Code Section 12301.6 (b)

* (6) Chapter 3, Statutes of 2011

* (7) Provision 13 of Budget Item 4260-101-0001

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