Overview

Governor Jerry Brown submitted his budget to the state legislature on January 5, 2012. The Governor’s budget forecasts a combined deficit of $9.2 billion ($4.1 billion in the current fiscal year and $5.1 billion in FY 12-13). Though this is a significant improvement over the budget deficit in January 2011 (estimated at $25.4 billion), addressing this shortfall promises to be just as difficult.

Notably, as a result of roughly $16 billion in spending cuts enacted in the last year, California’s structural – or ongoing – deficit is now estimated to be less than $5 billion in each of the next three years. The State is slowly recovering from the Great Recession; however this recovery is plagued by external factors such as the European debt crisis and political instability on the Federal level.

The Governor’s Budget Solutions

The Governor is proposing actions that would fill the $9.2 billion shortfall as well as allocate $1.1 billion to the state’s reserve account. These actions include:

Governor’s Tax Initiative

The Governor is proposing a temporary increase in income tax rates for the wealthiest Californians as well as in the Sales and Use tax rate. These tax increases will be voted on as part of a Constitutional Amendment in the November 2012 election.

Income tax rates would increase anywhere from 1 to 2% for individuals with taxable income over $250,000 for a period of five years. The Sales and Use tax would increase by 0.5% for a period of four years. Both of these changes are expected to result in $6.9 billion in additional revenue. After accounting for mandatory Proposition 98 spending, the net increase to the State General Fund would be $4.4 billion.

Importantly, if the Governor’s Tax Initiative is not approved by the voters in the November 2012 election, it will trigger $5.4 billion in further spending cuts. The vast majority of these cuts would impact education. There would be no impact to IHSS as a result of this trigger.

Spending Reductions in IHSS

The Governor’s budget proposes to eliminate Domestic and Related Services for certain recipients in the IHSS program. More specifically:

• It would eliminate domestic and related service hours for consumers who live in any type of shared living arrangement in which these services can be “met in common” with other household members. This would not apply to consumers who live only with other consumers. Domestic and related services include: meal preparation and clean-up, housekeeping, laundry, food shopping, shopping and errands. Currently, when a consumer lives with a roommate, the assessment of need for domestic and related services is prorated and reduces the number of hours approved for domestic and related services.
• It would also eliminate domestic and related service hours for recipients under age eighteen who live with a parent who is able and available to provide the domestic and related services.
• If a recipient needs domestic and/or related services due to fact that other members of the household, or their parents if applicable, have a medically verified condition, they may request authorized hours for any of these services that meet the need assessment metrics.
• It is unclear how this would apply if a recipient resides in a shared living arrangement with an individual who refuses to provide domestic and related services not as a result of a medical condition.
• The Administration estimates that approximately 254,000 recipients in shared living arrangements will be impacted by this proposed reduction beginning July 1, 2012.
• Assumes a General Fund savings of $163.8 million in FY 12-13.

The Governor’s budget also assumes that the 20% across the board reduction in IHSS service hours that was “triggered” by the Department of Finance on December 13, 2011 will be implemented on April 1, 2012. This is based on the expectation that the Administration will be successful in its efforts to overturn the Temporary Restraining Order currently in place as a result of a lawsuit filed in U.S. District Court ¹ . This proposal would result in $179.1 million in savings in FY 12-13; however the state has set aside the same amount should pending litigation not turn out in its favor.

Additional Impact on IHSS

• The Governor’s budget assumes $130 million in savings resulting from program integrity efforts.
• It assumes that the current 3.6% across the board reduction in service hours will sunset on June 30, 2012, as per existing state law.
• It proposes to repeal the Medication Dispensing Machine Pilot Project, which was implemented as part of the FY 11-12 state budget. There is no cost or savings associated with this proposal.²

Expansion of Medi-Cal Managed Care

The Governor’s budget proposes a vast and expedited expansion of Medi-Cal managed care services. Though details regarding the various proposals remain unclear at this point in time, the following items are of note:

• The budget proposes to expand the existing “Dual Eligible Demonstration” beyond the current scope of “up to four counties”³ to eight to ten counties that “that already have the capacity to coordinate care for these individuals”. This Demonstration is scheduled to implement in January 2013. The IHSS program will be included as part of this demonstration, which means that IHSS services for these individuals will be incorporated into Managed Care Plan Rates beginning the first year and administration of IHSS will be integrated into Managed Care beginning in year two.
• It also proposes the mandatory enrollment of all Medi-Cal recipients into managed care beginning January 1, 2013, the expansion of managed care into all counties (it currently exists in only 30 counties), as well as the inclusion of IHSS services into managed care. This would involve a three year process in which recipients would be phased in over a period of time based on geography.
• The budget also assumes the eventual elimination of all Fee-For-Service Medi-Cal by January 2014.

These proposals, in additional to other payment changes and deferrals not detailed here, are expected to generate approximately $678.8 million in General Fund savings in FY 12-13.

As stated above, many of the details regarding these proposals are unclear. We will continue to monitor these proposals very carefully in the coming days.

¹Oster, et al v. Lightbourne et al

²The goal of the pilot was to reduce hospitalization and institutionalization resulting from medication noncompliance among high-risk Medi-Cal recipients. This was expected to achieve approximately $140 million in annualized savings.

³This demonstration was authorized by SB 208 (2010). The term Dual Eligible refers to those individuals who are eligible for both Medi-Cal and Medicare.

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