California Budget Committee Report - 6.22.2009

Background

For the past several weeks, the Budget Conference Committee has been reviewing the Governor’s proposed plan to fill the State’s ongoing Budget Deficit, now pegged at almost $24 billion.  Yesterday the Committee completed its work, adopting many of the cuts proposed by the Governor, but also rejecting many of the major ones.  The committee also proposed, on party-line votes, to impose several new taxes.

Summary of the Conference Committee Report

Overall, the Conference Committee adopted $11 billion in spending reductions, almost $7 billion in new taxes and revenue accelerations, and $5 billion in “other solutions.”  The proposal would leave the State with a reserve of $3.8 billion, which is important to protect the State against ongoing economic uncertainty.

Spending Reductions

Education and Higher Education continued to take the biggest hit in the proposed spending reductions, totaling more than $7 billion.  Health and Human Services cuts totaled more than $2.5 billion.

Importantly for health care, the Committee rejected the Governor’s proposal to completely eliminate the Healthy Families program.  They did, however, agree to reduce eligibility for the program from 250% of the Federal Poverty Level (FPL) to 200%, and to make an additional $70 million reduction to funding for the program.  The Committee is assuming that this latter reduction will be backfilled from other, non-General Fund sources.

The Committee did adopt a proposal by the Governor to eliminate $24.8 million from Proposition 99 that is usually shifted into the Maddy Fund.  Although this is termed a “shift,” it effectively removes about one-third of the Maddy Fund, putting emergency care in many California counties at risk.  CMA continues to work to find a way to replace this money, and has sent out a Key Contact Alert asking physicians to contact their legislators about it.

Finally, the Committee approved a proposal by the Governor to assume $1 billion in Federal “flexibility” in the Medi-Cal program.  This piece of the proposed Budget is ominous for physicians, as the Schwarzenegger Administration is actively pursuing a State Plan Amendment that would allow them to get around CMA’s court injunction, and reduce provider rates.  Some portion of this $1 billon is based on this assumption.  CMA is continuing to work both at CMS and in the halls of Congress to ensure that this flexibility is not granted.

New Taxes and Revenue Accelerations

The Committee proposed to raise $900 million from a new tax on oil extraction, and $1 billion from an increase in the tobacco tax of $1.50 per pack.

The proposal also increases revenues in 2009-10 by $5 billion from changing various rules around income tax withholding, increasing payroll tax withholdings, suspending some corporate tax breaks, and imposing sales taxes on sales made by out-of-state companies that pay commissions to California firms (like Amazon.com).

Other Solutions

Finally, the Budget proposes to raise $5 billion from other various fund shifts and asset sales.  For example, the June 30th, 2009 state employee paychecks would be delayed to July 1, 2010 (pushing it into the next fiscal year).  Also, $1 billion would be raised by selling off policies currently held by the State Compensation Insurance Fund.

Next Steps

The work of crafting the final State Budget will now move to the “Big Five” (Governor, President Pro Tem of the Senate, Speaker of the Assembly, and the Minority Leaders of the Senate and Assembly).  That group will hopefully finalize their deal before the State begins to run out of available cash at the end of the month.

Contact: David Ford or Lisa Folberg, 916-444-5532