UDW FY 2013-14 Budget Report

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Overview

As a result of massive spending cuts in the last two years and new temporary revenue provided by Proposition 30, California no longer faces a budget shortfall in the coming fiscal year. This is a dramatic improvement from just two years ago, when the budget deficit was estimated at $26.6 billion. On January 10, 2013, Governor Jerry Brown submitted a balanced budget for FY 2013-2014 that entails $97.7 billion in General Fund expenditures (an increase of 5% from the current year) and $98.5 billion in General Fund revenue (an increase of 3.3% from the current year). It creates a $1 billion reserve fund and pays down $4.2 billion in budget-related debt. State debt at the end of the current fiscal year (FY 12-13) is expected to be under $28 billion, down from $34.7 billion in FY 10-11.

Importantly, under current projections, the budget is expected to remain balanced in future years. The Governor’s proposed budget reflects an improving economic forecast in California, fueled in part by real estate conditions, job growth, and consumer attitudes. Existing home sales and median home prices have increased since 2011. The state gained an average of 21,200 jobs per month in the first eleven months of 2012, and the budget predicts non-farm employment to grow 2.1 percent in 2013, 2.4 percent in 2014, and 2.5 percent in 2015. At this predicted rate of job growth, jobs lost during the recession should be recovered by mid-2015. However, the Governor warns that this positive economic outlook could be threatened in the future by federal fiscal challenges and rising health care costs.

The proposed budget does not make new cuts to many programs that have seen significant reductions over the past few years, including education, CalWORKs, child care, Medi-Cal, and In-Home Supportive Services (IHSS).

Proposition 30

On November 6, 2012, California voters approved Proposition 30, Governor Brown’s revenue initiative. It increases the personal income tax rate on annual individual earnings over $250,000 through 2018 and increases the state sales tax by one-quarter cent through 2016. UDW members and staff were instrumental in the passage of this important ballot initiative, which is estimated to yield roughly $6 billion in new state revenue in the General Fund for FY 13-14. Proposition 30 is estimated to continue to yield around $6 billion in revenue through FY 16-17, with smaller amounts in FY 17-18 and FY 18-19. As a direct result of Proposition 30, the Governor’s budget projects a 1.8% increase in personal income tax revenue and a 12.3% increase in sales and use tax revenues from the current year.

Proposition 30 allocates this increased revenue toward K-12 education and community colleges. Additionally, it guarantees funding for public safety services realigned from state to local governments. This revenue relieves the state of significant strain in the General Fund and helps eliminate the deficit in the coming fiscal year.

Medi-Cal expansion and health care reform

On March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act (ACA) into law. The ACA creates a framework to increase access to health care coverage for many Americans. UDW is closely monitoring the implementation of health care reform in California to determine its impact on UDW members.

To accommodate this expanded coverage mandate, the ACA empowers states to create health insurance exchanges. These exchanges are intended to function as public marketplaces where individuals can purchase more affordable health insurance. Additionally, the ACA expands Medicaid eligibility requirements to include more lower-income individuals. Medi-Cal, California’s Medicaid program, currently insures approximately 8 million Californians, including virtually all IHSS recipients.

Nationally, California has been at the forefront of implementing both the health exchange and the Medicaid expansion. Covered California is the state’s new health insurance marketplace that will allow many Californians to purchase coverage. Enrollees whose incomes fall below 400% of the Federal Poverty Level (FPL) may qualify for a government subsidy to help offset the cost of purchasing insurance. Open enrollment for Covered California begins October 1, 2013, and health coverage will begin January 1, 2014.

California continues to work on expanding the Medi-Cal program to comply with the ACA. The FY 13-14 budget discusses the following options:

  • The Governor’s proposed state-based expansion would enroll newly-eligible Californians directly into Medi-Cal and would provide the full range of Medi-Cal benefits, except for long-term care benefits including IHSS. This option would require the state to negotiate budget details with the counties, which currently provide basic medical coverage to extremely low income adults.
  • The proposed county-based expansion would build on the existing Low Income Health Program (LIHP), but the LIHPs would be required to meet statewide eligibility requirements and follow the guidelines for coverage established by Covered California.

The Governor has called a special Legislative session for January 2013 to explore Medi-Cal expansion and other aspects of the ACA. The Governor’s budget creates a $350 million placeholder for Medi-Cal expansion while details are being finalized.

In-Home Supportive Services

The Governor submitted a $97.7 billion spending plan. Of this amount, $28.4 billion General Fund is allocated toward Health and Human Services (HHS). This represents a 4.6% increase in HHS spending from the prior fiscal year ($27.1 billion).

When all sources of funding are considered (including Special and Federal Funds), total proposed spending for Health and Human Services is $105.1 billion ($28.4 billion General Fund). Of that amount the Medi-Cal program comprises the vast majority of spending ($60.9 billion or 58%). The second largest source spending is the IHSS program, with total proposed funding of $6.2 billion or 5.9%.

The proposed state share of funding for IHSS in FY 13-14 is $1.8 billion. This represents a roughly 6.5% increase from what the state appropriated for IHSS in the current year, due primarily to changes in Community First Choice (CFCO) eligibility standards. The FY 13-14 budget does not propose any new cuts to the IHSS program. Average monthly IHSS caseload for FY 13-14 is estimated at approximately 419,000 recipients, down 1% from the current year’s projections.

The Governor proposes the following budgetary adjustments for IHSS in FY 13-14:

  • An increase of $92.1 million in IHSS spending as a result of more restrictive federal requirements for IHSS recipients to qualify for the federal Community First Choice Option (CFCO). Beginning July 2013, only recipients who meet the standards for nursing home level of care will be eligible for the enhanced federal matching funds. Hence, the federal matching funds received by the state as a result of CFCO will be lower than originally projected. This increase will supplement that difference.
  • An increase of $59.1 million to reflect restoration of the 3.6% across the board reduction to IHSS recipient hours. The 3.6% cut is scheduled to end on June 30, 20131.
  • An increase of $47.1 million in IHSS spending as a result of the recently enacted county maintenance of effort (MOE) requirement2. Effective July 1, 2012, a county’s share of the non federal portion of IHSS costs is based on the county’s actual expenditures in FY 2011 12. Therefore, starting in FY 13-14, counties will pay less into the IHSS program and the state will be required to pay more.
  • A decrease of $30.2 million as a result of the health care certification requirement enacted in 2011 12, which requires all IHSS recipients to obtain a written certification from a certified health care professional that the individual is unable to independently perform one or more activities of daily living, and that one or more of the services available under the IHSS program is recommended for the applicant or recipient, in order to prevent the need for out-of-home care. This certification has led to a slight decrease in IHSS caseload.
  • A decrease of $113.2 million in IHSS spending to reflect implementation of a 20% across the board cut to recipient hours on November 1, 2013. As mandated in SB 73 (2011), this reduction was originally supposed to take effect January 1, 2012; however, it has been stalled as a result of a court injunction3. The FY 13-14 budget assumes the Administration will be successful in its efforts to overturn this injunction. The savings amount identified in the FY 13-14 budget is lower than what was projected in the prior year, reflecting a delay in implementation. The FY 13-14 budget assumes all hours will be restored for severely impaired recipients who would otherwise be placed in nursing homes.

Other Pending Lawsuits

The Governor’s budget assumes the continuation of litigation currently pending in Federal court that seeks to allow the state to implement program reductions enacted as part of the FY 09-10 budget.

SBX3 6 (2009) mandated the reduction of state participation in provider compensation to $9.50 an hour for wages and maintains $0.60 an hour for health benefits. UDW and other stakeholders responded by filing a lawsuit in US District Court in May 2009 (Dominguez et. al. v Schwarzenegger). The Court issued preliminary injunctions halting implementation of this mandate. The FY 13-14 budget assumes this reduction will be implemented on July 1, 2015, resulting in a General Fund savings of $100 million annually.

ABX4 4 (2009) mandated service reductions based on recipient functional index scores. Stakeholders responded by filing a lawsuit in US District Court in October 2009 (Oster et. al. v Wagner). The Court issued preliminary injunctions blocking the implementation of the new eligibility guidelines. The FY 13-14 budget assumes this reduction will be implemented on January 1, 2015, resulting in a General Fund savings of $26 million in 2014-15 and $64 million annually thereafter.

Coordinated Care Initiative (CCI)

The Governor’s Coordinated Care Initiative (CCI) was passed into law as part of the FY 12-13 budget. The CCI aims to improve service delivery for all Medi-Cal recipients, but particularly for the 1.1 million people eligible for both Medicare and Medi-Cal coverage (“dual eligibles”) and the 160,000 Medi-Cal-only beneficiaries who rely on long term services and supports (LTSS).

The CCI is comprised of two main components. First, it expands the Dual Eligible Demonstration, which was previously passed into law in 2010. This Demonstration will combine all medical, hospital, and long term supports and services (including IHSS) for dual-eligible individuals into a coordinated care model. The Demonstration will financially and administratively unify the Medicare and Medi-Cal programs. Second, the CCI will also enroll all Medi-Cal recipients into managed care for their long term supports and services (including IHSS). Most IHSS recipients who only receive Medi-Cal (non-duals) are already enrolled in managed care for their health care. By including long term supports and services as a managed care benefit, the State hopes to create a more coordinated and efficient system of care.

The FY 13-14 budget makes several significant changes to the CCI from what is contained in the FY 12-13 budget:

  • The budget has been revised to reflect the decreased population participating in the demonstration. This includes beneficiaries enrolled in the Developmentally Disabled waiver, those enrolled in a Kaiser Plan, and those with other health coverage.
  • The budget changes the implementation timeline. The final FY 2012-13 budget assumed beneficiaries would phase into the CCI over a 12-month period beginning in March 2013. According to the new budget, beneficiaries in the first eight pilot counties will now enroll in managed care beginning in September 2013. Los Angeles County will phase in beneficiaries over 18 months. San Mateo County will enroll all beneficiaries at once. Orange, San Diego, San Bernardino, Riverside, Alameda, and Santa Clara counties will phase in over 12 months. Once enrollment is complete in a pilot county, collective bargaining for IHSS provider wages will move to the new California In-Home Supportive Services Authority (otherwise known as the “Statewide Authority”), which will become the new “employer of record” for IHSS providers.
  • The Governor’s budget projects a revised General Fund savings of $170.7 million in FY13 14 as a result of the CCI. Savings are now projected to grow to $523.3 million General Fund annually. This is a decrease from the final FY 12-13 budget, when the CCI was projected to generate approximately $611.5 million in General Fund savings in FY 12-13 and $880.9 million when fully implemented.

The State Department of Health Care Services is working to reach an agreement with the federal government on a number of issues surrounding the CCI, including the amount of savings from the CCI that will go to the state vs. the amount that will go to the federal government. UDW will continue to closely monitor these negotiations.

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

SSI/SSP is a federal and state funded income program that provides a monthly cash benefit to low-income aged, blind, or disabled individuals or couples who depend on SSI/SSP grants for their subsistence. SSI/SSP beneficiaries receive an annual cost-of-living adjustment in benefits based on the Consumer Price Index (CPI). The CPI projected growth is 1.7% for 2013 and 1.1% for 2014.

The Governor’s budget includes $2.8 billion General Fund for SSI/SSP benefits in FY 13-14, a 1.9% increase from the FY 12-13 budget. The caseload is expected to be 1.3 million recipients in FY 13-14, a 1.3% increase from the FY 12-13 projected level.

Cash Assistance Program for Immigrants (CAPI)

CAPI provides a monthly cash benefit to aged, blind, and disabled individuals who are not eligible for SSI/SSP due to their immigration status. By statute, this assistance is equivalent to SSI/SSP program benefits, less $10 per individual and $20 per couple.

The Governor’s budget estimates $143.8 million for CAPI in FY 13-14, up from $126.4 million in FY 13-14. This is a result of an annual cost-of-living adjustment and a projected increase in caseload. The average monthly CAPI caseload is estimated to be 14,371 in FY 13-14, an increase from an estimated 12,813 cases in FY 12-13.


1. SB 1041 (Statutes of 2012)
2. SB 1036 (Statutes of 2012)
3. Oster, et al v. Lightbourne et al

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