Should California Cut Its Way to a Balanced Budget?

CFT President Marty Hittelman prepared these excerpts from the California Budget Project regarding the Governor’s budget proposal.
Two Steps Back: Should California Cut Its Way to a Balanced Budget?
Excerpts from California Budget Project, February 2008
How Does the Governor Balance the Budget?
The Governor proposes to close the state’s $14.5 billion budget gap by:

#          Cutting General Fund spending by $9.3 billion;

#          Issuing $3.3 billion of additional deficit-financing bonds;

#          Shifting $2.0 billion in 2009-10 income tax revenues to 2008-09 for accounting purposes;

#          Reducing 2007-08 K-14 education spending by $400 million; and

#          Eliminating a $1.5 billion supplemental payment on the outstanding deficit-financing bonds.

Governor Would Make Deep Cuts to Schools, Health Care, and Human Services
The Governor’s proposals include:

#          $4.825 billion of cuts to spending covered by the Proposition 98 school funding guarantee. Proposed 2008-09 cuts to K-12 education, including the loss of federal matching funds, translate into a reduction of $786 per student.

#          $1.126 billion of cuts to state Medi-Cal spending. The largest share of the savings would come from reducing payments to providers of a number of health services by 10 percent.

#          $463 million of reductions to the CalWORKs Program. The largest share of the savings would come from terminating aid to certain children who receive assistance through the state’s “safety net” program.

#          $324 million in savings from suspending the June 2008 and June 2009 state cost-of-living adjustments (COLAs) for cash assistance grants for low-income seniors and persons with disabilities in the SSI/SSP Program.

#          $372 million in reductions to the Department of Corrections and Rehabilitation. These savings are largely due to proposals that would expedite release of more than 20,000 nonviolent offenders from state correctional facilities.

The Vehicle License Fee Tax Cut Equals Nearly Half of the Deficit
The 1998 reduction in the VLF rate will cost the state an estimated $6.1 billion in 2008-09. This is more than the combined savings generated by the Governor’s proposed:

#          State park closings and reductions;

#          Cuts to environmental protection programs;

#          CalWORKs policy changes;

#          Reductions in K-12 education spending; and

#          Cuts to CSU, UC, and Community Colleges.

What Does the Increased Spending Pay For?

#          Education for 275,846 students, the increase in K-1 2 enrollment between 2000 and 2007.

#          Affordable health coverage for 514,846 children in working families, the growth in Healthy Families enrollment between June 2000 and June 2007.

#          Higher education for 30,943 students at the University of California, 49,793 students in the California State University system, and 60,468 community college students, the increase in enrollment between 2000 and 2006.

#          In-home care for 141,313 low-income seniors and persons with disabilities, the increase in the In-Home Supportive Services Program caseload between 2000-01 and 2007-08.

#          Adoptions of 35,418 children with special needs, the increase in the Adoption Assistance Program caseload between 2000-01 and 2007-08.

California’s Tax System Contributes to the Budget Gap
Tax policies and economic trends contribute to the state’s budget problems:

#          Tax cuts enacted between 1993 and 2006 will cost the state $12 billion in 2007-08. The largest reductions include the $4.8 billion reduction in Vehicle License Fees, the $1 billion expansion of the dependent tax credit, and the $562 million 1996 corporate tax reduction.

#          Corporate income taxes have declined over time as a share of General Fund revenues and as a share of corporate profits. If corporations had paid the same share of their profits in corporate taxes in 2005 as they did in 1981, corporate tax collections would be $7.3 billion higher.

#          The yield of the state’s sales tax has declined over time, reflecting the shift in economic activity from goods to services andthe rise of Internet and mail order sales that escape taxation. If taxable purchases accounted for the same share of personal income in 2008-09 as the did in 1966-67, the state would collect an additional $15.9 billion in sales tax revenues.

#          The phase-out of the federal estate tax will cost the state over $1.1 billion in 2008-09. Current law reinstates the tax in 2011. However, the President proposes making the repeal permanent.

The Basics
The Governor’s Proposed 2008-09 Budget:

#          Would spend $101.0 billion from the General Fund and assumes receipt of $102.9 billion in General Fund revenues and transfers.

#          Would spend $1.3 billion (1.2 percent) less from the state’s General Fund than the 2007-08 Budget signed in August. Spending would decline for K-1 2 and Higher Education and Health and Human Services, but increase for Business, Transportation, and Housing and Corrections and Rehabilitation.

#          Would end 2008-09 with a reserve of $2.8 billion.

The Governor Proposes to Suspend Proposition 98

#          The Governor proposes to suspend the 2008-09 Proposition 98 guarantee, cut 2008-09 funding for K-14 education by $4.825 billion, and reduce current year K-14 education spending by $400 million.

#          The Governor’s proposal translates into K-12 Proposition 98 per pupil spending of$8,458 in 2008-09, down from $8,558 in 2007-08, a 1.2 percent decrease.

#          The Governor’s proposed cuts to K-12 education include:

#                                  A reduction in the “workload” or “baseline” budget of $142.4 million to reflect a projected enrollment decline of 0.52 percent;

#                                  Reducing revenue limit funding by $2.6 billion by eliminating the 4.94 percent COLA for school districts and county offices of education;

#                                  Eliminating COLAs and reducing rate allocations for a number of categorical programs to save $1.1 billion; and

#                                  Reducing special education funding by $357.9 million.

#          The Governor also would eliminate the COLA and limit the adjustment for enrollment growth on the general purpose allocation provided to community colleges. The Governor also would cut funding for categorical programs.

How Do California’s Schools Compare?
                                                                        California Rank           California        US
K-12 Per Pupil Spending (2006-07)                           35                    $9,156             $10,212
K-1 2 Spending as a Percentage of                              40                    3.76%              4.13%
Personal Income (2006-07)
Number of K-1 2 Pupils                                             49                    19.9                 14.4
Per Teacher (2006-07)
K-1 2 Per Pupil Spending, Adjusted for                     48                    $7,081             $8,973
Regional Cost Differences (2004-05)
Percentage of K-1 2 Pupils in Districts with              49                    3.0%                46.1%
Adjusted Per Pupil Spending at or Above
the US Average (2004-05)
The Governor’s Budget Proposals Would Drop More Than 150,000 Children from the CalWORKs Program
The Governor’s proposal would:

#          Eliminate “safety net” cash assistance for certain children after their parents have reached the state’s 60-month time limit.

#          Eliminate cash assistance after 60  months for certain children whose parents are ineligible for CalWORKs.

#          Drop more than 150,000 children from the CalWORKs Program in June 2008 as a result of these two policy changes.

In addition, the Governor’s proposals would:

#          Reduce, and then eliminate, cash assistance for children if their parents do not comply with CalWORKs requirements within 12 months.

The Governor’s Budget Proposals Would Reduce Funding for Child Care, Preschool, and After-School Programs
The Governor’s proposals would:

#          Reduce funding for preschool and certain child care programs by $198.8 million in 2008-09. This reduction includes the proposed elimination of the 2008-09 COLA and “growth” funding.

#          Reduce funding for the After School Education and Safety Program, for savings of $59.6 million in 2008-09. This change would require voter approval of a ballot measure to amend Proposition 49, which substantially increased funding for after-school programs.

#          Freeze the income eligibility limit for child care services at the 2007-08 level in 2008-09.

The Governor’s Budget Proposals Would Decrease Access to Health Care
The Governor’s Proposed 2008-09 Budget would:

#          Result in more than 150,000 fewer children and adults with health coverage by requiring them to submit paperwork four times annually to retain access to Medi-Cal services.

#          Reduce payments to most Medi-Cal providers by 10 percent. Discontinue dental and other services for adult Medi-Cal recipients.

#          Reduce dental benefits, raise family premium contributions, and increase copayments for children covered by Healthy Families.

Prepared by M. Hittelman