Memo to Counties:
You'll pay less and you'll get it back sooner!

IHSS Wage Increases and County Realignment
May 26, 2004

Good news is coming to California's counties. According to Administration sources, federal support for California's IHSS population will increase dramatically as of July 1, 2004, when the federal government is expected to provide a 50% match for the IHSS residual caseload. Health and Human Services Secretary S. Kimberley Belshe's efforts to obtain this federal waiver will bring an additional $340.4 million in federal funding to California, saving $216.5 million in state funds and an additional $123.9 million in county realignment fundsin the coming fiscal year.

This $123.9 million in local savings means that counties can finally grant IHSS worker wage increases. Even if these residual savings are used to cover the 8.5% projected statewide caseload growth, counties will still have over $100 million more in IHSS funds during 2004-05 than in the current year!

County Boards of Supervisors should use this residual waiver windfall to fund IHSS worker wage increases - increases long overdue, and recognized by Counties as being urgently needed. County Supervisors have long acknowledged that IHSS workers deserve wage increases and health insurance and that higher compensation is necessary to stabilize the workforce and improve the quality, safety and reliability of care. Wages of $6.75 per hour, with no benefits, cannot support a program affecting the safety-indeed the lives-of 350,000 Californians. And, because of the new federal match, allocating these savings to fund wage increases won't cost counties any new money.

Five years ago, the California Governor and Legislature reformed the IHSS program to provide more state and federal funding for worker improvements, including wage increases and health care. Realignment Trust Fund laws were enacted to guarantee repayment of county contributions, and where these laws are inadequate, corrective legislation has always been enacted-usually with unanimous votes.

The reduced county cost for 2004-05 IHSS services is only one major benefit of the federal waiver. It will also shorten the time period for county matching funds to be returned to them through the Realignment Trust Fund. Because counties will spend fewer of their own dollars, in turn fewer realignment trust fund dollars will be needed to repay them. Thus, the realignment trust fund will have more dollars (the pool is fixed by statute) to pay counties back for previous spending on IHSS and other realigned programs. The repayment lag began to lengthen in the 2001-04 period but now, the rebounding economy and the Administration's federal waiver mean the repayment period for county IHSS investments will begin to shorten. The Legislative Analyst's office projects a $2,372,000 increase in realignment sales tax revenue for 2003-04 and $2,512,000 for 2004-05. The totals are given in Table 2.

Summary. The increase in Realignment Trust Fund monies generated from new sales tax revenue and the acquisition of the federal waiver mean that county support for IHSS worker wage increases is now even more advisable than in past years. In addition, because of the multiplier effect, IHSS wage increases will boost county consumer spending, business income and local tax receipts far beyond the actual cost of the pay raises. These positive economic impacts have been illustrated in previous UDW materials, presented at the bargaining table and distributed to boards of supervisors. Counties should take advantage of the opportunity created by these residual waiver savings to make the IHSS worker and program improvements they have long indicated a desire to achieve.

¹ These amounts differ from that given on p. 56 of the Governor's Budget 2004-05 May Revise, according to Nick Buchen, IHSS Department of Finance Analyst, because those amounts contain other adjustments. These amounts are carried in the California Department of Social Service's Budget Change Proposal. After all adjustments, the additional Title XIX funds are $264.9 million, of which 65% or $172.2 million is state funding and $92.7 million in county realignment funding.
²Full, on-time return of county IHSS payments with Realignment funds occurred until 2001-02. In that year, realignment revenues were insufficient even to fund the base (funding only about 97.2% of the base), and no funds were available for growth at all. In the 2002-03 fiscal year, the Legislature enacted AB1716, which ensures that this 2.8% shortfall will be repaid. But the continuing shortfall in funding available to pay the 2001-02 and 2002-03 growth funding continues to generate massive anxiety in California's counties.
³Last year, despite the major fiscal crunch, the Legislature enacted AB1716 (Committee on Human Services) and AB294 (Daucher). AB294 was enacted on unanimous vote; AB1716 passed the Assembly 79-0. The Senate vote was 25-9. Both bills were chaptered September 22, 2003.
⁴Personal communication, Mark Ibele, Economics, Taxation and Fiscal Forecasting Analyst, Legislative Analyst's Office, May 26, 2004. The improved economic climate means these figures are larger than the earlier revenue estimates provided on p. 30 of the 2004-05 Governor's Budget.