Saturday, February 16, 2008


"School kids did not cause this crisis. Cutting public education in the middle of the school year is going to be disruptive, and devastating in some communities." - California Federation of Teachers President Marty Hittleman

"It is kind of pathetic. At what point is someone going to say, 'We have a problem and we have to deal with it'?" - Christopher Thornberg, a partner at Beacon Economics

The cuts, which the governor is expected to sign into law today, mean that school districts would have to forgo $506 million that was given to them in the current year's budget, a move lawmakers said would not affect classroom instruction, though educators have disputed that. And reimbursement rates for doctors who provide healthcare to the poor under the state's Medi-Cal program would drop by 10%. - LA Times

"Today's action means doctors will simply stop seeing [poor] patients." - Sen. Sam Aanestad (R-Grass Valley)


By Harrison Sheppard and Steve Geissinger

San José Mercury News Sacramento Bureau

Article Launched: 02/16/2008 01:35:26 AM PST

16-Feb-08 - SACRAMENTO - In a prelude of even harsher cuts to come, lawmakers Friday chopped more than $2 billion from state programs, with schools, social services and health care providers that serve the poor taking the biggest hits.

Combined with making other cuts, borrowing, deferring payments and postponing cost-of-living adjustments to welfare families and the elderly and disabled, the state has covered a $3.7 billion deficit in the current fiscal year and has slashed almost half of the $14.5 billion deficit the state is facing through the 2008-09 fiscal year.

Or not. The state's independent budget analyst is releasing a report next week that - judging by the latest revenue estimates from the state controller - will likely show that the $14.5 billion deficit was actually underestimated.

If that's so, it would only add to what is already going to be an especially painful process for lawmakers to send a balanced budget to Gov. Arnold Schwarzenegger by June 30, when this fiscal year ends.

"If these cuts were serious, then the cuts coming our way in June and the summer are going to be devastating," said Assembly Speaker Fabian Núñez, D-Los Angeles, following the conclusion of the emergency session called by Schwarzenegger.

One of the biggest cuts authorized Friday was a 10 percent reduction in state reimbursements to Medi-Cal providers, starting July 1, which will save about $544 million in 2008-09.

Not only will doctors and hospitals receive less money, but there is also concern that fewer doctors will accept Medi-Cal patients.

Anthony Wright, executive director of Health Access California, called the decision "devastating."

"There are literally millions of people," Wright said, "who will have a harder time getting the care that they need."

Other cuts authorized by the Legislature included:

• Cutting education funding by about $500 million. But legislators insisted those cuts would be less painful because they are coming out of education funds that have remained unspent during the current and prior years. In any event, it's still money schools were expecting to receive.

"School kids did not cause this crisis," California Federation of Teachers President Marty Hittleman said in a statement. "Cutting public education in the middle of the school year is going to be disruptive, and devastating in some communities."

• Postponing the filling of 60 new judge positions, for a savings of $22 million this year and $54 million next year.

• Delaying nearly $5 billion in payments to local governments and the State Teachers Retirement System, and deferring cost-of-living adjustments for payments to the elderly and disabled, as well as some welfare recipients.

Those delays create savings only in the current year, however, and are seen more as a way to deal with the state's cash-flow problem this year than as a longer-term budget solution.

Núñez and other Democrats were especially disappointed Friday because, while there was bipartisan support to pass the cuts, Republican lawmakers in the Assembly voted down a proposal to close a loophole in the so-called "yacht tax," which allows people who buy yachts or planes to store them out of state for three months to avoid state use taxes.

Assembly Republican Leader Michael Villines of Fresno said the GOP plans to hold firm against all tax increases, believing they ultimately hurt the economy and are therefore counterproductive.

"We have to discuss new ways to do the budget that are not tax increases," Villines said.

That doesn't bode well for Democrats' insistence that "new revenues" - presumably, tax and fee increases - must be part of the eventual budget solution.

Tax increases must be approved by a two-thirds majority vote, so some Republican support is necessary. Friday, there was some Republican support for closing the loophole, and it even passed in the Senate, but it fell short in the Assembly.

Núñez is expected to bring a similar yacht-tax bill back up for a vote again next week.

Most of the cuts authorized Friday were for programs in the current, 2007-08 fiscal year, which ends June 30. Approved as urgency measures, they take effect as soon as Schwarzenegger signs them, which he has said he will do today.

"The Legislature should be commended for working together - both Republicans and Democrats - to make difficult decisions and take this first step toward fixing our state budget," Schwarzenegger said in a written statement.

In addition to the cuts, the state this week borrowed an additional $3.3 billion that was authorized by a bond measure approved by voters in 2004 to help balance the budget that year.

The cuts approved Friday also will carry over into the full 2008-09 year. In total, lawmakers conclude they now have to address a remaining shortfall of about $7.4 billion in next year's budget - but they are also aware that number will rise if revenues are indeed below projections.

The Legislature avoided one potentially thorny issue Friday by not proposing a cut to the state prison system. Schwarzenegger has proposed granting the early release of 22,000 non-violent prisoners who are within 20 months of parole to save money.

Republicans, however, adamantly opposed the idea and it was clear, said Assemblyman John Laird, D-Santa Cruz, who chairs the Assembly budget committee, that there would not be two-thirds support for such a bill.

The issue, however, is almost sure to come up during the future budget discussions, as will the governor's pitch to close dozens of state parks in the next fiscal year.

But Friday's decisions certainly were not without controversy - or the money-shifting that critics have described as shell-game gimmicks.

A successful lawsuit filed by transit advocates could have forced the state to take $400 million it shifted from transportation to the general fund and give it back to transportation.

But legislative budget analysts found what they believe is a legal way to shift the money. They intend to use the money for school bus transportation, which is funded in the education budget. They will then cut that same amount of money from the education budget.

Transit advocates called it a "deliberate end-run around the court's decision."

'Rather than work with us to implement the judge's decision, it looks like the governor and the Legislature have instead decided to thumb their noses at the court," said Joshua Shaw, executive director of the California Transit Association and primary plaintiff in the suit.

But Department of Finance spokesman H.D. Palmer said it was clear from the judge's ruling that such a shifting of funds was "legal and proper."


from The Associated Press

02/15/2008 - Here are some of the actions taken Friday by the California Legislature to begin to address a $14.5 billion deficit:

• Cut $167.6 million from the budgets of various departments and state agencies.

• Delayed $1.1 billion in payments to public schools from July to September, but exempted some school districts that would be so short of funding they would qualify for an emergency appropriation from the state.

• Adopted a 10 percent cut in payments to doctors and other health care providers who serve patients in Medi-Cal, a health care program for the poor.

• Delayed cost-of-living increases for welfare families and elderly and disabled poor until Oct. 1.

• Cut school spending by $506 million.

• Reduced funding for regional centers, which provide services for people with developmental disabilities.

• Deferred gasoline tax payments to cities and counties for April through August until September.

• Delayed appointment of 60 new judges.

• Delayed payment of state support for the teachers' retirement fund until November.

The Senate also approved a bill that attempts to prevent wealthy Californians from avoiding the sales tax when they buy cars, planes or boats out of state, but it was blocked by Republicans in the Assembly. Assembly Democrats said they would try again next week to pass the measure.


Source: Assembly Budget Committee



By Evan Halper, Los Angeles Times Staff Writer

February 16, 2008 -- SACRAMENTO -- The Legislature passed a package of emergency budget measures Friday, which lawmakers touted as swift, responsible bipartisan action that averts a cash crisis and erases nearly half the state's $14.5-billion deficit.

But their move would not actually reduce spending on that scale; rather, it would push most of the red ink forward with accounting maneuvers and borrowing.

The lawmakers' measures would put taxpayers on the hook for more debt and would, at best, allow the state to hobble through the next few months, said budget experts outside the Capitol. What are the legislators waiting for? some asked. With the state in its worst financial shape in years, the emergency actions amount to little more than nibbling around the margins.

"Yet again, they are dodging and weaving and hoping . . . they don't have to make any tough decisions," said Christopher Thornberg, a partner at Beacon Economics, a consulting and research firm in Los Angeles. "It is kind of pathetic. At what point is someone going to say, 'We have a problem and we have to deal with it'?"

Some of what lawmakers did would help close the state's budget gap. But the savings would amount to only $2 billion over the next year and a half. Most of the cuts made to achieve those savings would affect schools and doctors who treat the poor.

Despite previous assertions by lawmakers and the governor that they had cut up the state's credit cards for good, the package approved Friday also included $3.3 billion in borrowing authorized by voters years ago to deal with an earlier deficit but never undertaken.

The difficulty of making even $2 billion in cuts partly explains why lawmakers fell back on deferrals, delays, transfers and other accounting shifts to keep the state afloat.

The cuts, which the governor is expected to sign into law today, mean that school districts would have to forgo $506 million that was given to them in the current year's budget, a move lawmakers said would not affect classroom instruction, though educators have disputed that. And reimbursement rates for doctors who provide healthcare to the poor under the state's Medi-Cal program would drop by 10%.

Some of the same legislators who have argued passionately in favor of balancing the budget entirely through spending cuts -- as opposed to tax hikes -- couldn't bring themselves to vote for cutting subsidies to doctors.

"Today's action means doctors will simply stop seeing [poor] patients," said Sen. Sam Aanestad (R-Grass Valley), an anti-tax crusader who suggested that healthcare cuts were disproportionately large.

A reduction measure that failed was aimed at buyers of yachts, airplanes and luxury recreational vehicles. The state Senate passed a bill to close a loophole that allows many of those buyers to avoid paying sales tax by keeping their new vessels out of state for 90 days.

Assembly Republicans, calling the measure a tax hike, blocked it. Legislative budget analysts estimated that eliminating the loophole would raise $26 million.

Assembly Speaker Fabian Nuñez (D-Los Angeles) called on Republicans to join the effort to "close this 'sloophole' once and for all." He said he would put the measure to another vote in the Assembly early next week.

Most of this week's budget moves would not create lasting savings. They involve either borrowing or doing such things as delaying payments for various programs into the next budget year. These actions may give the appearance that part of the deficit has been eliminated, but the payments aren't canceled. They are simply made later.

"A lot of this stuff is shell games," said Ryan Ratcliff, an economist at the UCLA Anderson Forecast. "We are just sort of pushing obligations around to create an accounting statement that looks nice but does not really change the reality of the deficit."

Ratcliff said lawmakers are exhibiting their usual reluctance to take substantial action until after the governor releases his revised budget plan in May. "We've got hard choices to make, but it appears we are not going to make them now," he said.

Delay could prove costly.

With the deficit so large, the Capitol's partisan divide so deep and three of the Legislature's four leaders now lame ducks, few in the capital expect an agreement on how to eliminate the rest of the deficit by the July 1 deadline for enacting a new budget.

If there is no budget deep into August, as occurred last year, the state will be unable to sell billions of dollars in short-term bonds that finance officials are planning to use to keep from running out of money. Such bonds are routinely sold to "even out" the state's cash flow; they provide funds to cover the cost of programs early in the fiscal year and are repaid when tax revenue surges in the spring.

But the bonds cannot be sold without a budget in place. The alternative is a costly bridge loan from investment bankers.

State Treasurer Bill Lockyer warned in a letter to lawmakers recently that such a move would probably be frowned on by credit-rating agencies and could trigger a downgrade.

A downgrade would increase the amount of interest the state must pay on its borrowing. Lockyer said that could cost taxpayers as much as $128 million in fiscal 2008-09 and $319 million more the next year.

Taxpayers won't need to wait to assume more debt, however. The $3.3 billion in borrowing in Friday's package would add two years to the repayment schedule for the debt that voters approved in 2004.

Schwarzenegger had promised never again to borrow to balance the budget. But his administration argues that it is appropriate for him to use what remains of the 2004 package.

Stephen Levy, director of the Center for Continuing Study of the California Economy, in Palo Alto, said the $3.3 billion in borrowing might have been justified as part of an overall plan that included spending reductions and new revenues that would close the budget gap.

"But so far they are using it just to kick the problem down the road," he said.


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