Tuesday, July 21, 2009

California Budget Not A Done Deal

Tens of thousands of California's poor children, welfare recipients and elderly will lose most of not all healthcare benefits as a result of a budget deal to close a $26.3 billion deficit brokered by Gov. Arnold Schwarzenegger and state legislative leaders. Prisoners will go free, property taxes collected by county governments will be snatched by the state and oil drilling will resume off the Santa Barbara coastline.

The good news, Schwarzenegger glowed, is no new taxes.

The entire legislature is scheduled to vote on the budget package as early as Thursday, a two-thirds majority required for passage. They will be bombarded by constituents and special interest groups right up to the minute they cast their votes.

Details of the plan are sketchy and incomplete. Here's a list provided by The Los Angeles Times:


  • K-12 and community college education -- $4.3 billion
  • Higher education -- $3 billion
  • Medi-Cal -- $1.3 billion
  • State worker pay -- $1.3 billion
  • Corrections -- $1.2 billion
  • CalWorks/welfare -- $528 million
  • Home health aides -- $226 million*
  • Healthy Families children’s insurance -- $124 million
  • Local transportation -- $1 billion*
  • Redevelopment agencies -- $1.7 billion*
  • (*) Incomplete totals


  • Accelerate income tax withholding -- $1.7 billion
  • Increase estimated tax payments for businesses and the self-employed -- $610 million


  • Sale of State Compensation Insurance Fund -- $1 billion
  • Assumed federal funds for Medi-Cal program -- $1 billion


  • Local government borrowing -- $2 billion
  • Education deferrals -- $1.7 billion
  • June 2010 state worker paycheck deferral -- $1.2 billion
"We've accomplished a lot in this budget," said Schwarzenegger, as he emerged from his office with legislative leaders Monday evening to announce the deal, after an all-day negotiating session of the "big five" -- the Republican governor and legislative leaders.

"It was like a suspense movie, but . . . we have accomplished a lot," Schwarzenegger said. "This is a budget that will have no tax increases, a budget that is cutting spending. . . . We're also very happy that in this budget we make government more efficient."

Senate Democratic leader Darrell Steinberg said "We have cut in many areas that matter to real people, but I think we have done so responsibly."

“I would characterize this budget as shared pain and shared sacrifice,” Karen Bass, the Democratic Speaker of the California Assembly, said.

The proposal to borrow $4.6 billion from the cities, counties and their redevelopment projects is "bad public policy and it is going to hurt a lot of people," Los Angeles County Supervisor Zev Yaroslavsky said.

Law enforcement advocacy groups said the $1.2 billion cut from the state prison system would require the release of 20,000 prisoners.

One of the revenue proposals is to privatize the state Compensation Insurance Fund to generate $1 billion but analysts say such a sale is unlikely, at least this year.

The education cuts are expected to lay off thousands joined by the 230,000 state workers who already are forced to take off three unpaid days per month. The furloughs amount to a 14% pay cut and now are scheduled to last through June 2010.

"Millions of Californians will live sicker and die younger as a result of these cuts (in the state's safety net programs)," said Anthony Wright, executive director of the nonprofit Health Access California. He called the plan a cause for "embarrassment and shame for California."

Older residents of Santa Barbara still have memories of the gigantic oil spill in 1969 off its coastline and the horrors of that disaster will be fought again as the state negotiates new drilling permits.

Since July 1 the insolvent state has issued 153,711 IOUs, worth a total of $682 million. The office of Controller John Chiang said it would need to evaluate the budget proposal before determining when it could stop issuing the warrants. The Wall Street Journal in its report wrote:

Economists said the spending cuts will bruise a California economy already slammed by rising unemployment and foreclosure rates. "It will certainly offset a fraction of the federal-stimulus effect this fall," said Roger Noll, a professor emeritus of economics at Stanford University. "That will mean the depth and duration of the recession [in California] will both be bigger than otherwise would've been the case," he said.

Some positive signs are emerging, such as a resurgence in housing sales in most of the state's markets. But most analysts predict California's recovery will be slow, and that state coffers will remain under pressure because they are highly dependent on personal income taxes, which are now down.

Believe it or not, the governor, known best for his movie roles as "The Terminator," announced a fire sale to help raise money. On his Twitter feed: “We’ll actually be having a CA Garage Sale at the end of Aug to auction cars and office supplies.” He will sign some of the items to increase their value.

Only in California ...

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