CDCAN REPORT #179-2011: State Controller releases state revenue report, prospect of "trigger cuts" increases

STATE CONTROLLER REPORT: SEPTEMBER STATE REVENUES $301.6 MILLION BELOW WHAT WAS HOPED FOR IN 2011-2012 STATE BUDGET

Prospects Increasing That State Budget "Trigger Cuts" Will Be Pulled In December Triggering Up To $2.5 Billion In New Additional Mid-Year Spending Cuts - Developmental Services, IHSS, Education All Could Be Impacted

SACRAMENTO, CA (CDCAN)  [Last updated 10/10/2011 08:05 PM] -  State Controller John Chiang released today his monthly analysis on the State's finances reporting that California's revenues for the month of September fell $301.6 million below what was projected in the 2011-2012 State Budget, making more likely the prospect that State budget "trigger cuts" will be pulled in December resulting in automatic spending cuts impacting a wide range of programs including developmental services, education and In-Home Supportive Services.  With economic troubles growing across the nation and around the world, the grim news by the State Controller was not unexpected.

Year-to-date, (meaning from the start of the 2011-2012 State budget year that began July 1, 2011), California is $705.5 million below what was projected in the budget and the news will not likely get better in the coming months according to the report.

State Budget "Trigger Cuts" Pulled If State Doesn't Bring in $88.5 Billion In Revenues This Year

Back in late June, with Legislative Republicans opposed to any tax increases, Legislative Democrats and the Governor opted for putting in higher  revenue numbers in the 2011-2012 State Budget tied to "triggers" that would impose automatic spending cuts later in December - rather than being forced to making additional massive spending cuts  then in June when the budget was passed.

The State budget "trigger cuts" would be pulled if it is determined that the amount of State revenues - $88.5 billion - will not come in as hoped for in the 2011-2012 State Budget.  The Governor's Department of Finance director will make that determination on or by December 15 this year, based on numbers from the department's own revenue analysis and information from the non-partisan Legislative Analyst Office (LAO). [CDCAN Note: see below for details on the State budget "trigger cuts" and summary of budget trailer bill, SB 73 that deals with health and human services related cuts if trigger is pulled - Marty Omoto]

The numbers released today by the State Controller suggests that the California economy, while showing some improvement, is not bringing in revenues as hoped for in the 2011-2012 State Budget - and that could mean, if the trend continues - that one or both of the State budget "trigger cuts" will be pulled in December (see below for details on how the State budget "trigger cuts" will work).

However some in the State Capitol believe, if revenues continue to drop, that the Governor could call a special session of the Legislature later in the year to re-open the issue of how to resolve the budget gap - and deal with additional mid-year spending cuts.  While nothing is certain yet, many budget watchers however are convinced now that some level of mid-year spending reductions are likely to occur.

"For better or worse, the potential for revenue shortfalls is precisely why the Governor and Legislature included trigger cuts in this year's State spending plan," said State Controller John Chiang, "September's revenues alone do not guarantee that triggers will be pulled. But as the largest revenue month before December, these numbers do not paint a hopeful picture."

Chiang (pronounced "Chung") is one of the eight statewide elected constitutional officials, and is responsible for collecting the State's revenues and paying the State's bills.  His office - like that of the Governor, California Secretary of State, California Attorney General, State Treasurer, Lt. Governor, Superintendent of Public Instruction and the Insurance Commissioner are independent of each other and elected by voters.

Not All News Grim

Chiang did caution however that "however, it is important to keep in mind that a single month does not constitute a trend" and that while revenues declined, there were signs that point to a continued economic recovery in the State - even if revenues fall well short of what is in the 2011-2012 State Budget.

The State Controller, noting that personal income  tax revenues came in slightly higher than expected in September, said that "income and income taxes continue to increase and the labor markets are improving slowly but surely. California still has a long way to go, but it is moving in the right direction."

Summary of State Controller's September Revenue Numbers

The "Year to date" refers to the beginning of California's state budget year - July 1 and the actual revenue numbers - meaning actual money the State took in - is measured against what the Legislature and Governor put in the enacted State Budget, in this case the one passed and approved in late June 2011.

Total State General Fund Revenues (corporate, sales and personal income taxes)

September : $301.6 million (-4.0%) BELOW what was in the 2011-2012 State Budget
Year To Date: $705.5 million (-3.6%) BELOW what was in the 2011-2012 State Budget

Corporate Tax Revenues Only

September:  $190.3 million (-17.1%) BELOW what was in the 2011-2012 State Budget
Year To Date: $213.1 million (-13.6%) BELOW what was in the 2011-2012 State Budget

Sales Tax Revenues Only

September: $56.8 million (-3.8%) BELOW what was in the 2011-2012 State Budget
Year To Date: $187.6 million (-3.5%) BELOW what was in the 2011-2012 State Budget

Personal Income Taxes Only

September:  $285.4 million (7.0%) ABOVE what was projected in the 2011-2012 State Budget
Year to Date:  $501.8 million (4.9%) ABOVE what was projected in the 2011-2012 State Budget

Last year in September 2010, the State's revenues were down by $938 million (-4.8%) then what was project in the 2010-2011 State Budget last year in September.  The comparison however is tricky to use as a real comparison to other years because it compares that year's actual revenues with that year's specific budget - and each year the assumptions or projections in a State budget varies, sometimes dramatically.

State Budget "Trigger Cuts" Differ From Washington DC "Trigger Cuts"

The State budget "trigger cuts" are different from the federal "trigger cuts" that will be pulled if a special joint Congressional committee in Washington, DC - known as the "Super Committee" - does not come up with a recommended list of at least $1.2 trillion in spending cuts or if Congress fails to approve their recommendations in a straight up or down vote, if they do.  If Congress fails to act by the late November and December deadlines, automatic spending cuts of $1.2 trillion will take effect January 1, 2013, though some programs - including Medicaid and Social Security are exempted from those automatic cuts (but not exempted from cuts the "Super Committee" can recommend).

In California, the State budget "trigger cuts" will be pulled - triggering up to $2.5 billion in automatic spending cuts in specific budget areas - if the State's $88.5 billion in projected revenues do not come in at a certain level as budgeted.

• If State revenues are forecast in December 2011 to be lower by $1 billion to $2 billion, the first State budget "trigger" is pulled, triggering  $600 million in automatic spending cuts for specific programs, effective on or sometime after January 1, 2012.
• If State revenue numbers in December 2011 are forecast to be lower by more than $2 billion,  then the second State budget "trigger" is pulled, triggering spending cuts of up to $1.9 billion

Outline of the State Budget "Trigger Cuts" Process

• Requires the Governor's Department of Finance to provide notification to the Joint Legislative Budget Committee by December 15, 2011, with an updated revenue forecast for the 2011-2012 State Budget that is based on the higher of either the November 2011 Legislative Analyst’s revenue forecast, or the Department of Finance’s December 2011 revenue forecast.
• Requires that the Director of Finance notify the Joint Legislative Budget Committee of any trigger reduction within 10 days of the reduction.
• There are some questions - and differences of opinion - under just what conditions can a trigger be pulled - or not - and if pulled, the effective dates of cuts and whether or not all of the savings (reductions) have to be achieved before the end of the 2011-2012 State Budget year (that ends June 30, 2012).
• In addition there are OTHER "trigger cuts" in the 2011-2012 State Budget, including a different one impacting In-Home Supportive Serivices if it is determined in 2012 that a certain level of savings will not be achieved via proposals that hope to bring down $140 million in new federal matching funds. That "trigger cut" is not part of the "trigger cuts" tied to the overall State Budget projected revenues described below.

If the December 15, 2011, updated forecast of revenues predicts revenues less than $87.5 billion, the following additional  spending cuts - called “Tier I” reductions, which total about $601 million, shall occur up to the amount that is specified. These reductions, if triggered, would take effect on or after January 1, 2012:

• $100 million to the University of California.
• $100 million to the California State Universities.
• $100 million to the Department of Developmental Services.  (Can be reduced from the developmental services system, including State administration,Developmental Centers, and Regional Center expenditures. A "variety of strategies" may be used for purposes of identifying savings, including, but not limited to, savings attributable to caseload adjustments, changes in expenditure trends, or other administrative savings or restructuring according to the budget trailer bill language).
• $110 million to the In-Home Supportive Services program, including $100 million in service hour cuts, and $10 million for local anti-fraud efforts (an across-the board reduction in IHSS services of 20% beginning January 1, 2012, with specified notice requirements and exceptions. According to legislative budget analysis of this cut, if this trigger is pulled, the resulting reduction would affect about 374,000 IHSS recipients and would generate approximately $100 million in State general fund reductions in 2011-2012 and $242.8 million in State general fund reductions (or savings) in subsequent full budget years.)
• $92 million to the Department of Corrections and Rehabilitation (CDCR), including
• $72.1 million in increased county charges for youthful offenders sent to CDCR.
• $30 million to the California Community Colleges backfilled with a $10 per unit fee increase.
• $23 million to the Department of Education related to childcare funding.
• $16 million to the California State Library related to library grants.
• $15 million to the California Emergency Management Agency related to local vertical prosecution grants.
• $15 million to Medi-Cal from extending the March 2011 cuts to all managed care plans.

If the December 15, 2011, updated forecast of revenues (the higher forecast by either the Legislative Analyst Office or the Department of Finance) projects revenues less than $86.5 billion, then the second trigger is pulled and ADDITIONAL round of automatic spending cuts of $1.9 billion - called "Tier 2" reductions - on top of the $601 million would be implemented on or after January 1, 2012; however, the reduction impacting schools to the 2011-2012 school year would take effect on or after February 1, 2012:

• $1.5 billion from reducing the 2011-12 school year by up to 7 days.
• $248 million from eliminating dedicated funding for home-to-school transportation.
• $72 million to the California Community Colleges related to an apportionment decrease.

Summary of Budget Trailer Bill Dealing With Health and Human Services Trigger Cuts

For specific information about the trigger cuts as it relates to health and human services program cuts, see SB 73 (one of the 18 budget trailer bills that make up the 2011-2012 State Budget as passed and signed into law in June):

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 $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".  Would make $15 million in reductions to Medi-Cal impacting PACE (Program for All Inclusive Care for the Elderly, AIDS Foundation and Senior Action Network; $100 million in State general fund cuts to developmental services to be identified by the Department of Developmental Services from across the developmental services system and $100 million in across the board cuts in State general funding to In-Home Supportive Services.
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.
COPY OF BILL (CHAPTERED VERSION AS APPROVED BY GOVERNOR) - HTML:  http://www.leginfo.ca.gov/pub/11-12/bill/sen/sb_0051-0100/sb_73_bill_20110630_chaptered.html
COPY OF BILL (CHAPTERED VERSION AS APPROVED BY GOVERNOR) - PDF: http://www.leginfo.ca.gov/pub/11-12/bill/sen/sb_0051-0100/sb_73_bill_20110630_chaptered.pdf
CDCAN COMMENT:

• There are a total of three bills dealing with the budget "trigger" - including one (AB 121) that gives 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 then to implement certain levels of cuts up to $2.5 billion if it is determined that revenues are not coming in as projected.  AB 121 only lists budget area numbers and spending reduction amounts and the conditions that those reductions would be made)
  • For HTML version of AB 121:  http://www.leginfo.ca.gov/pub/11-12/bill/asm/ab_0101-0150/ab_121_bill_20...
  • For PDF version of AB 121: http://www.leginfo.ca.gov/pub/11-12/bill/asm/ab_0101-0150/ab_121_bill_20110630_chaptered.pdf 
• The other two bills deals with the specific levels of reductions that would occur in K-12 education and  - this bill (SB 73) - on health and human services should the triggers be pulled in January 2012.

PRIORITY:  VERY HIGH