CDCAN REPORT #158-2011: State Controller reports state revenues down by $539 million in July; raises concern about state budget "triggers" in December

STATE'S REVENUES DOWN BY $539 MILLION IN JULY REPORTS STATE CONTROLLER

Chiang Hopes For Better News In Months Ahead But Expresses Concern That Any Drop In Projected Revenues Puts State Closer To Pulling State Budget "Trigger Cuts" That Could Go Into Effect January 2012 Impacting IHSS, Developmental Services, 3 Medi-Cal Programs, Education and Other Budget Areas

SACRAMENTO, CALIF (CDCAN)  [Last updated 08/09/2011 09:30 PM] - State Controller John Chiang today released his monthly report covering California's cash balance, receipts and disbursements in July, showing State revenues were down $538.8 million (-10.3%) below projections from the 2011-2012 State Budget that was signed into law by Governor Brown June 30th - a trend, if it continues - that could trigger additional sweeping State budget reductions impacting hundreds of thousands of people with disabilities, mental health needs, the blind, seniors and others across California.  [Note: See separate CDCAN Report for full report on Adult Day Health Care public stakeholder meeting held August 9th, and also budget update on various Developmental Services budget issues and other State Capitol updates]

While not indicating the drop in revenues at this stage represented a trend, Chiang did express concern that "... while we hope for better news in the months ahead, every drop in revenues puts us closer to the drastic [State budget] trigger cuts that could be imposed next year."

The Brown Administration expressed caution about the State Controller's July revenue report indicating that other revenue numbers coming in could show a more optimistic State budget picture

Why This News Is Important Now

• The State Controller is one of the eight elected State constitutional officers (not including the State Board of Equalization) and is responsible for taking in the State's money and paying the State's bills including checks for State employees and State tax refunds.
• Normally the State Controller's monthly financial reports - at least at this stage of the State Budget year -  attracts little attention, especially when a State Budget is passed on time as it was this year.
• However the issue of whether or not State revenues meet or exceed what is projected in the 2011-2012 State Budget is critical because if $4 billion in additional  revenues is not reached or is not likely to be reached during the 2011-2012 State budget year that ends June 30, 2012, a series of automatic "trigger cuts" that could total up to $2.5 billion in State general funds would go into effect on or after January 1, 2012 depending on how far short the projections end up being.
• [CDCAN Note: these State budget "trigger cuts" are different and separate from those in the agreement to raise the federal debt ceiling that the US Congress approved on August 2nd]

Summary Of July State Revenues

• State income taxes were above what was projected in the 2011-2012 State Budget by $89 million (2.9%) in July
• State sales and use taxes however were down by $139.4 million (-12.5%) in July then what the State budget projected
• Corporate state taxes were down $69.5 million (-19.3%) in July then what the State budget projected.
• Revenue projections for the "other revenue" category were down by $419 million then what was projected in the State budget.

Who Could Be Impacted By This News On State Revenues

• The determination of whether the "triggers" in the State budget will be pulled - and which ones - will be made by the Governor's Department of Finance director sometime in December 2011 after it reviews Department of Finance actual and revised spending and revenue numbers compared to numbers released November 2011 by the non-partisan Legislative Analyst Office (LAO).
• The first level or first tier of automatic "trigger cuts" - if pulled - would include an additional "across the board" reduction of $100 million in State general funding to In-Home Supportive Services (IHSS) and an additional reduction of $100 million in State general funding to developmental services would take effect sometime on or after January 1, 2012 and also cuts to three programs in Medi-Cal and additional cuts to higher education.
• Those reductions - if the State budget "trigger" is pulled - could impact hundreds of thousands of children and adults with disabilities, mental health needs, seniors, their families, community-based organizations and facilities and individual workers across the State.
• No details have been released yet by the Brown Administration on the specifics of how those reductions - and other State budget "trigger cut" reductions - would be implemented if pulled next year.
• Brown Administration officials and other policymakers including the State Controller indicated that while people should be concerned about the State budget "triggers" - there is no need yet to become alarmed or for panic, as the numbers can change over the next several months.
• Presumably the trigger cuts for IHSS and some of the developmental services and Medi-Cal reductions would require approval from the federal government - and issue not mentioned in any of the trailer bills.
• The actual total reductions in IHSS, developmental services and Medi-Cal - if the State budget "trigger" is pulled - could actually total twice the amount because in most cases, the State general fund reduction would result in a loss of federal matching funds (meaning the additional cut to IHSS could total $200 million all funds if the State budget "trigger" is pulled , the additional cut to developmental services would likely total $200 million all funds if the State budget "trigger" is pulled)

Background of the State Budget "Trigger Cuts"

In addition to the main State budget bill and other budget trailer bills, Governor Brown signed into law three budget trailer bills dealing with the so-called "trigger cuts" that are linked to about $2.5 billion in additional spending cuts to go into effect sometime after January 2012 if a certain level of revenues do not come into the State treasury as hoped for in the budget.
Here is a summary of the three budget trailer bills dealing with the State budget "trigger cuts":

AB 121 - BUDGET "TRIGGER" SPENDING REDUCTIONS AUTHORITY FOR DEPARTMENT OF FINANCE

AUTHOR: Assembly Budget Committee
CDCAN SUMMARY:  Gives the Governor's Department of Finance the authority to make up to $2.5 billion in additional spending cuts in State general funding for certain specified programs, should revenue collections fall short of budget projections in December 2011.

• The trigger reduction sections - Sections 3.94 (b) and (c) in this bill (AB 121) shall only be operative if neither the Legislative Analyst's November 2011 or the Governor's Department of Finance's December 2011 revenue forecast, projects 2011-2012 State General Fund revenues to equal or exceed $87,452,500,000.
• By December 15, 2011, the Department of Finance director shall produce an updated revenue forecast for 2011-2012 State General Fund revenues.
• The Department of Finance director shall determine whether the Legislative Analyst's November 2011 or the Department of Finance's December 2011 revenue forecast for 2011-2012 State general fund revenues is higher and then notify the Joint Legislative Budget Committee.
• TIER 1 "TRIGGER CUTS": If the higher forecast projects revenues, less than $87,452,500,000 (which is an expected growth of at least $3 billion above the Governor's May Revision revenue projection) [meaning if less than $3 billion of the $4 billion in additional revenues comes in], then Section 3.94 (b) in AB 121 will become operative, and on or after January 1, 2012, the Department of Finance director shall implement the additional reductions in State general fund spending in the following budget areas:
  • Reduce the University of California budget by not more than $100 million in State general funds
  • Reduce the California State University budget by not more than $100 million in State general funds.
  • Reduce the Department of Developmental Services by not more than $100 million in State general funds
  • Reduce the Department of Education Child Care by not more than $23 million in State general funds..
  • Reduce funding to California State Libraries by not more than $15,866,000 in State general funds, and as a result would eliminate all state funding to libraries.
  • Reduce the Department of Corrections and Rehabilitation by not more than $20 million in State general funds..
  • Reduce the California Emergency Management Agency Vertical Prosecutions Grants by not more than $15 million in State general funds..
  • Reduce the (Department of Social Services) In-Home Supportive Services (IHSS) anti-fraud grants by not more than $10 million in State general funds. [Note: there is additional cut to IHSS of $100 million in State general funds authorized in SB 73 if this "trigger" is pulled]
  • Reduce Community Colleges by not more than $30 million in State general funds and increase Community College fees by another $10.
  • Section 3.94 (b) would also enact reductions outlined in SB 73 [see details below], the health and human services trailer bill language, for IHSS ($100 million reduction in State general funds), Medi-Cal ($15 million reduction in State general funds), Juvenile Justice and Community College fees. 
• TIER 2 "TRIGGER CUTS":  If the higher forecast projects revenues, less than $86,452,500,000 (which is an expected growth of at least $2 billion above the Governor's May Revision State Budget projection) [meaning if less than $2 billion of the $4 billion in additional revenues actually comes in], then Section 3.94 (c) of AB 121 will become operative, and on or after January 1, 2012, the Department of Finance director shall implement the following additional reductions in State general fund spending in the following budget areas:
  • Reduce the Department of Education Home-to-School Transportation by not more than $248 million, and as a result eliminate the transportation service completely.
  • Reduce the California Community College Apportionment by not more than $72 million State general funds
  • Also a part of Section 3.94 (c) in AB 121 is a reduction of  $1,500,000,000 to education by cutting seven days of school. 

PREVIOUS ACTION 06/28/2011: PASSED State Senate by vote of 23 to 17. PASSED Assembly by vote of 51 to 28. Sent to Governor at 07:30 PM.
LATEST ACTION 06/30/2011: SIGNED by Governor.
EFFECTIVE DATE: Immediate upon signature of Governor.
CDCAN COMMENT:

• There are a total of three bills dealing with the budget "trigger" . AB 121 gives the authority to the Governor's Department of Finance to determine whether sufficient level of new revenues are coming in as projected by January 2012 and outlines specific cuts to certain budget areas (some are included only in SB 73) and then to implement certain levels of cuts up to $2.5 billion if it is determined that the $4 billion in additional State revenues will not come in as projected.
• The other two bills deals with the specific levels of reductions that would occur in K-12 education and health and human services should the triggers be pulled in January 2012.
• As of August 9th, there is no need yet to become alarmed or for panic, as the numbers can change over the next several months.
• Presumably the trigger cuts for IHSS and some of the developmental services and Medi-Cal reductions would require approval from the federal government - and issue not mentioned in any of the trailer bills.

LINK TO LATEST VERSION OF BILL - HTML: http://www.leginfo.ca.gov/pub/11-12/bill/asm/ab_0101-0150/ab_121_bill_20110630_chaptered.html
LINK TO LATEST VERSION OF BILL - PDF: http://www.leginfo.ca.gov/pub/11-12/bill/asm/ab_0101-0150/ab_121_bill_20110630_chaptered.html
PRIORITY:  VERY HIGH

SB 73 - BUDGET TRIGGER: HEALTH AND HUMAN SERVICES

AUTHOR: Senate Budget and Fiscal Review Committee
CDCAN SUMMARY:Makes changes in State law to allow for implementation of over $200 million in reductions in State general fund spending in the health and human services budget, that is part of the $2.5 billion in "trigger cuts" authorized in AB 121 as follows:

• Medi-Cal Program (Impacting Program of All-Inclusive Care for the Elderly, Senior Care Action Network and AIDS Health Care Foundation) - Would implements total  additional reductions of about $15 million in State general funds if the "Tier 1 State Budget Trigger" is pulled [Section 3.94 (b) of AB 121] due to imposing Medi-Cal Physician "soft caps", Medi-Cal provider  reimbursement cuts, and  imposing Medi-Cal enrollee co-payments for services and contracts provided under the Program of All-Inclusive Care for the Elderly (PACE),  the Senior Care Action Network, and the AIDS Health Care Foundation - all who are currently exempted from these reductions.
• Department of Developmental Services - if the "Tier 1 State Budget Trigger" [Section 3.94 (b) in AB 121] is pulled (operative), directs that the Department of Developmental Services may utilize input from the stakeholder workgroups to develop the proposals for the required additional $100 million in State general fund reductions (or savings). Specifies the Legislature's intent that the State general fund savings (or reductions) - if the trigger is pulled -  to come from within the overall developmental services system, including savings or reductions from state administrative support, operation of the developmental centers, and operation of the regional centers.  States that a variety of "strategies" may be used for purpose of identifying savings or reductions.
• In-Home Supportive Services (IHSS) - if the "Tier 1 State Budget Trigger" [Section 3.94 (b) in AB 121] is pulled (operative), the Department of Social Services shall implement $100 million in State general fund reductions during the remaining months of the 2011-2012 State Budget year, achieved through an across-the-board reduction in In-Home Supportive Services of 20%, beginning January 1, 2012, with specified notice requirements and exceptions

PREVIOUS ACTION 06/28/2011: PASSED Assembly by vote of 51 to 28. PASSED State Senate by vote of 23 to 17. Sent to Governor at 09:50 PM.
LATEST ACTION 06/30/2011: SIGNED by Governor.
EFFECTIVE DATE: Immediate upon signature of Governor.
CDCAN COMMENT:  This is one of three budget trailer bills dealing with the State budget "trigger cuts". See comments for AB 121.
LINK TO LATEST VERSION OF BILL - HTML:  http://www.leginfo.ca.gov/pub/11-12/bill/sen/sb_0051-0100/sb_73_bill_20110630_chaptered.html
LINK TO LATEST VERSION OF BILL - PDF: http://www.leginfo.ca.gov/pub/11-12/bill/sen/sb_0051-0100/sb_73_bill_20110630_chaptered.pdf
PRIORITY:  VERY HIGH

AB 114 - EDUCATION BUDGET TRIGGER CUTS & EDUCATION TRAILER BILL

AUTHOR: Assembly Budget Committee
CDCAN SUMMARY:  Would make changes to existing State law to K-12 education, higher education and child care programs necessary to implement the revised main budget bill.  Includes $1.8 billion in "trigger cuts" if venues fall below projections by $2 billion or more.
PREVIOUS ACTION 06/28/2011: PASSED State Senate by vote of 23 to 16.  PASSED Assembly by vote of 51 to 28.  Sent to Governor at 10:45 PM.
LATEST ACTION 06/30/2011: SIGNED by Governor.
EFFECTIVE DATE: Immediate upon signature of Governor.
CDCAN COMMENT:  This is one of three budget trailer bills dealing with the State budget "trigger cuts". See comments for AB 121.
LINK TO GOVERNOR'S SIGNING MESSAGE:  http://gov.ca.gov/docs/AB_0114_Signing_Message.pdf
LATEST VERSION OF BILL - HTML: http://www.leginfo.ca.gov/pub/11-12/bill/asm/ab_0101-0150/ab_114_bill_20110630_chaptered.html
LATEST VERSION OF BILL - PDF: http://www.leginfo.ca.gov/pub/11-12/bill/asm/ab_0101-0150/ab_114_bill_20110630_chaptered.pdf
PRIORITY:  VERY HIGH