Governor Jerry Brown echoed familiar themes in the release of his proposed 2017-18 State Budget with emphasis on prudence and caution due to reduced revenue expectations and a long list of unknowns facing California’s fiscal outlook. The proposed budget totals $122 billion in state General Fund expenditures, with just a 0.2% decrease from the last year’s January budget.
The Department of Finance (DOF) has reported revenues below forecast from the adopted 2016-17 budget with all of the “big three” general fund sources – income, sales and corporation taxes – showing weakness as part of an economic slowdown. The proposed budget seeks to cover what would be a $1.6 billion dollar deficit in the current budget and future deficits of $1-$2 billion annually. State revenues are still expected to grow by 3% in 2017-18, but this is inadequate to cover spending levels established in last year’s adopted budget.
The list of unknowns influencing spending reductions and freezing planned expenditures includes the ever-volatile source of major state funding from personal income taxes and capital gains; the impending sluggish economy following unprecedented growth over the last eight years; and a new Administration in Washington, D.C. that could make significant changes to federal programs and state funding levels.
The Legislative Analyst’s Office (LAO) put out their overview of the governor’s proposed budget on January 13. The LAO’s advice and analyses figure heavily into the debate on budget priorities during hearings and informational sessions during budget season. The LAO agrees with the Administration’s decision to simply assume the continuation of current law on the federal level. Until more detailed information about what Congress and the President plan to implement is known, it is impossible to model scenarios with any certainty. The LAO advises the Legislature to begin budget deliberations by setting a target level for the state’s reserves – preferably a target above even that of the Administration.
Generally, the LAO believes the Administration’s 2017-18 personal income tax (PIT) estimates are too low, based on historical growth and the Administration’s other economic projections. The Administration estimates 3.3% growth in the budget year, when PIT growth typically comes in around 5%. Since 2009-10, the average has been over 8%, and growth has exceeded 3.3% in 18 of the last 21 years. In 2017, the Administration estimates 6.3% growth to the S&P 500, but projects declining capital gains. Whether the PIT is up or down, the May Revision will provide some much needed clarity and direction. If PIT revenues are higher than expected, it is important to note that much of the funding would be dedicated by law to the Prop 98 minimum funding guarantee and the budget reserve and debt repayment requirements under Prop 2.
Many of the questions surrounding possible changes under President Trump, including those related to repeal of the Affordable Care Act, will not be addressed by DOF until greater certainty and next steps are known. This could be reflected in the Governor’s May Revision along with improved revenue returns and revised estimates.
Coordinated Care Initiative (CCI) and Elimination of the In-Home Supportive Service (IHSS) MOE
However, a significant program concern for counties is already reflected in the 2017-18 proposal. This includes the unwinding of the Coordinated Care Initiative (CCI) and elimination of the In-Home Supportive Service (IHSS) maintenance of effort (MOE) resulting in approximately $625 million in new county costs statewide for 2017-18 alone and at least $4.4 billion over the next six years. The cost is a result of shifting 35 percent of all costs related to the IHSS program to counties, including newly added costs due to state action to increase in minimum wage and pay sick leave to IHHS workers, as well as, additional cost due to federal action to require overtime pay.
In examining the dissolution of the Coordinated Care Initiative (CCI), the LAO has a couple of recommendations based on the understanding that much of the decision to discontinue the pilot was due to the increased cost to the state General Fund associated with the IHSS maintenance-of-effort (MOE). The Legislature should examine how IHSS costs should be shared between the state and counties. Should the state return to the same sharing agreement in place before the CCI, which was 35% counties and 65% state? Should counties maintain some MOE instead? How can the state assist counties in transitioning back to a sharing ratio which is projected to add $600 million in IHSS costs to their budgets? Because the Administration in essence, would like to continue the CCI without IHSS, the LAO urges the Legislature to consider whether and how removing IHSS from the CCI will impact the goal of the CCI which is to increase care coordination and reduce costs.
For Contra Costa County, the Employment and Human Services Department (EHSD) estimated that the FY 17-18 IHSS MOE payment would be approximately $22.3 million. Under a 35% county sharing ratio, the County costs would go up to approximately $27.3 million. Therefore, the estimated increase in County cost would be at least $5 million.
The California State Association of Counties (CSAC), the County Welfare Directors Association of California (CWDA), the California Association of Public Authorities (CAPA), the County Health Executives Association of California (CHEAC), the County Behavioral Health Directors Association (CBHDA), the Urban Counties of California (UCC), and the Rural County Representatives of California (RCRC), oppose the cessation of the Coordinated Care Initiative, the dismantling of the county In Home Supportive Services (IHSS) Maintenance of Effort (MOE) cost sharing arrangement, the dissolution of the Statewide IHSS Authority, and shifting collective bargaining for IHSS workers from the Statewide IHSS Authority to the seven CCI counties. Their joint letter of opposition is attached. (See Attachment A).
The Legislation Committee may wish to recommend to the Board of Supervisors that a similar letter be sent to the Legislature, opposing this proposal. |