1/3 Of All California Households Have Income Below $22,000 (Qualify For Government Paid Healthcare)

The State Is Now Reporting That 1/3 Of All California Households Qualify For Medi-Cal. That means that 1/3 of all California households have household income BELOW $22,000. $22,000!!! California, collectively, may be a "big economy" but when it is made up of millions and millions so poor and in poverty that they qualify for government healthcare such as Medi-Cal, well that is an economy that no one I know on the right or the left wants to live in. Taxes and regulations matter A LOT because they directly influence the formation and retention of HIGH-PAYING jobs. Right now, this state is an exporter of middle class jobs that pay more than $25 per hour. They are not being cited here do to regulatory, tax and related costs that our neighboring states don’t have.

Rainy Day Fund Ballot Initiative - Analysis

 

 

 

Governor’s Original Proposal Lacked Teeth. In January the Governor proposed a new rainy day fund (RDF) to replace ACA 4 (2010), which had already been scheduled for a vote on the November 2014 ballot. The Governor’s proposal relied solely upon the state’s capital gains revenues to make deposits into two reserves, one general account and one account for Proposition 98 expenditures. However, the focus on capital gains alone would have resulted in many good tax revenue years in which the state set aside no funds for a rainy day. The Governor’s proposal also left the door open for legislative Democrats to use the RDF as a slush fund rather than a true "locked box" reserve for economic downturns because it could have been raided by a majority vote.

 Real Improvements Made. Legislative negotiations improved upon the Governor’s proposal, and the resulting bipartisan compromise bill, ACA 2X 1 (Chapter 1, 2013-14 Second Extraordinary Session, Perez), reflects the following key improvements:

• Up-Front Annual Deposits. Provides for annual tax revenue transfers of 1.5 percent of all General Fund revenues to the general reserve or to debt reduction. In addition, the "windfall" capital gains in excess of 8 percent of revenue would also increase the reserve or reduce debt, after shifting the Proposition 98 portion to the education reserve. This greatly increases the funding available for reserves or debt reduction compared to the Governor’s proposal to use only capital gains over 6.5 percent of revenue.
• Objective Withdrawal Standards. Sets objective measures for when withdrawals can be made in order to ensure the RDF is a "locked box" for economic downturns, not a slush fund that could easily be raided on a majority vote. Also limits the amount that can be withdrawn to the lesser of 50 percent of the reserve balance if no funds were withdrawn the previous year, or the amount needed to maintain a "current services" budget adjusted for population growth and inflation.
• Ensuring the Reserve Is Built. For the first 15 years, requires half of the RDF transfer amount to go into the reserve fund while the other half is used to reduce budgetary debts, including unfunded pensions and other retiree benefits. After 15 years, all of the RDF transfer will go into the reserve by default, but the state still would have the option to use up to half the transfer to reduce the same debts or unfunded obligations.

Billions in Reserves Projected. The RDF bill (ACA 2X 1) was recently signed into law following a special session, rather than as part of the budget process, but the new requirements would not take effect until 2015-16 if voters pass the measure this November. (The 2014-15 budget does include a $1.6 billion deposit to the current Budget Stabilization Account, made under Proposition 58’s current reserve requirements.) However, as shown in the table on the next page, the Department of Finance projects rainy day transfers of $6.1 billion over three years beginning in 2015-16, including $3 billion for debt reduction and $3 billion for the general reserve. Notably, $5.3 billion of these combined amounts results from the up-front 1.5 percent set-aside that Republicans negotiated.

 

 

 

 

Rainy Day Fund Forecast Dollars in Millions
		2015-16	2016-17	2017-18	Total
	Annual 1.5% of General Fund Revenues	$1,699	$1,772	$1,851	$5,322
	Capital Gains Taxes in Exces s of  8% of General Fund Revenues	$174	$233	$341	$747
	Total Rainy Day Amount	$1,873	$2,005	$2,191	$6,069
	Debt Repaym ent (50%)	$937	$1,002	$1,096	$3,034
	Depos it to General Res erve (50%)	$937	$1,002	$1,096	$3,034
	Note : Capital gains amounts are net of amounts attributable to Proposition 98.  All estimates assume there are no budget shortf alls that w ould allow other uses of Rainy Day amounts to maintain spending.   S o urc e : Department o f Finance, Califo rnia State B udget - 2014-15

Source: Senate Republican Fiscal Office

California State Budget Analysis 2014-15

Key California Budget Findings for 2014-15*:
Budget Sets New Record High for State Spending. General Fund spending hits $108 billion, eclipsing the pre-recession peak of $103 billion. True General Fund program spending also hits a record $119 billion after accounting for fund shifts and other accounting maneuvers (see Expenditures page 11), which is $11 billion higher than last year. Lastly, total state spending (from all fund sources) is $254.4 billion – nearly $25 billion above the previous record of $230 billion.
More Spending and Less Debt Repayment. Legislative Democrats lost the battle to prop up higher state spending by using the Legislative Analyst’s riskier General Fund revenue forecast, which was $2.5 billion higher than the Governor’s estimate. Relative to the Governor’s budget plan, the final budget agreement increases baseline state spending by about $900 million, and reduces the amount of debt repayment by $700 million. However, it could have been much worse, given legislative Democrats’ initial proposal to increase state spending by $3 billion above the Governor’s plan.
Rainy Day Fund Starts but Everyday Reserve is Dangerously Low. The budget begins to fill the rainy day fund with a $1.6 billion transfer to the “Budget Stabilization Account” created by Proposition 58 (2004). However, the everyday reserve known as the Special Fund for Economic Uncertainties (SFEU), at $450 million, is less than half of the historical minimum target level of $1 billion. As budget deficits have been the norm for the past decade the SFEU has rarely ended up in the black by the end of the year, but ‘best budget practices’ suggest that a $108 billion budget should have more than $450 million in reserve. In fact the state Medi-Cal program alone has incurred deficiencies in excess of that amount for three years in a row.
Do Not Pass the Debt Burden to Future Generations. The final budget does pay down the “wall of debt” by $10.4 billion, which is about $700 million less than the Governor’s original plan and significantly less than most Republicans would like. Over the past decade or so the state has repeatedly taken actions to provide services without paying the full cost – as a result California has incurred debts and liabilities that exceed $340 billion according to the Legislative Analyst’s Office. The current debt load is nearly $9,000 for every single Californian. It is not responsible to create new spending commitments when the state cannot even pay for the commitments already made.
Fight to Fix Teacher Retirement Plan. Picking up on the Republican proposal contained in SB 984 (Walters), the budget includes a plan of shared responsibility among the state, teachers, and school districts to address the massive $74 billion shortfall in the California State Teachers’ Retirement System (CalSTRS) (see Employee Retirement page 23). When fully implemented, the additional contributions will cost about $5 billion more per year for about 30 years to eliminate the unfunded liability and guarantee our teachers the pensions they have earned.
Caltrans’ Overstaffing Diverts $500 million from Local Streets and Roads. The budget provides $1.7 billion and 9,894 full-time equivalent positions for the Capital Outlay Support Program (COS Program) within Caltrans despite a Legislative Analyst’s Office report that indicated the COS Program is overstaffed by 3,500 positions at a cost of more than $500 million annually. There is no logical explanation for the legislative Democrats’ lack of concern about this massive waste of money that could be used to fix streets and roads throughout California, but the fact that these are public employee union positions may shed some light on the matter.
Working Families Now Pay for Drug Felons on Welfare. The 2014 budget eliminates the common sense restriction against giving cash benefits to drug felons in both the CalWORKs and CalFresh (food stamps) programs. This foolish new policy is expected to cost taxpayers at least $40 million annually. In addition to being a terrible policy that likely wastes tens of millions of dollars to support the drug trade, allowing drug felons to be eligible for cash aid could actually hurt the children in these households. Currently, vouchers are used for rent and utility payments instead of cash to ensure the funds do not get used by the drug addicted adult, but with the drug felon now eligible to receive aid the cash will go to the drug felon, probably leaving these children worse off than they are now.

Reserve Restrictions Hurt Schools and Children. This budget imposes onerous new restrictions that impact school districts’ ability to maintain rainy-day reserves. Once their reserves are gone, their ability to deal with unplanned fiscal events will be weakened, such that any economic downturn could push them into insolvency. These restrictions have been condemned by every major education advocacy group in the state, with the exception of the teachers’ unions. Others have said:

• The ACLU, Children Now, the Education Trust West, and Public Advocates have jointly declared that “we are opposed to this proposal and see it as inconsistent with the principle of local control. It will have a disproportionate impact on schools serving low-income students, English learners, and foster youth.”
• The Education Management Group has called the restrictions “fiscally irresponsible and counter to the concept of subsidiarity” and observed that they ignore recent history, when many school districts were able to survive the great recession only because prudent management of their reserves allowed them to avoid having to make even greater cuts.
• Megan Reilly, chief financial officer of the Los Angeles Unified School District, may have put it most succinctly when she said, “I think it’s stupid.”

 

A Blank Check for High Speed Rail. The Budget includes $250 million in Cap and Trade funding for the high speed rail (HSR) project in 2014-15. Additionally, it allocates 25 percent of future Cap and Trade revenues, beginning in 2015-16, to the project through a continuous appropriation. This equates to hundreds of millions of dollars spent annually on HSR without future votes of the Legislature, despite LAO warnings that it is legally risky to link the bullet train to Cap and Trade funds. The people of California no longer support the high speed rail project because it has become clear that it is an ill-conceived ‘boondoggle’ that will drain billions away from more worthwhile projects such as fixing schools and the state’s crumbling transportation infrastructure.

 

Medi-Cal Growth Devours the Budget. Writer P.J. O’Rourke could not have been more correct when he said: “If you think health care is expensive now, wait until you see what it costs when it’s free.” Nearly one-third of Californians (11.5 million people) will be enrolled in the state Medi-Cal health program at a cost of over $90 billion (all fund sources). The rapid expansion of Medi-Cal associated with Obamacare is driving explosive enrollment and cost growth far beyond anything that was anticipated. The budget includes $17.3 billion General Fund for Medi-Cal, which now projects 2.7 million new enrollees associated with Obamacare. This massive cost will divert funds from other core programs such as education, courts, public safety, and the social welfare safety net.

 

 

*Senate Republican Fiscal Office

LAO Says Expect Large Surplus in May

The non-partisan Analyst predicts “several billion dollars” in additional revenues at the May Revision. This surplus combined with the $5 billion surplus identified by the Governor in his January proposal means $8 to $10 billion in surplus revenues likely will be on the table. However, a significant portion of the recent revenue surge probably results from capital gains-related PIT caused by large increases in stock prices throughout 2013. As such, permanent commitments of these funds will set the stage for the next budget crisis in California. For the full review by the non-partisan Legislative Analyst's Office go to:      

http://www.lao.ca.gov/Publications/Detail/2819

Tom Sheehy
January 2014

California’s Fiscal Outlook 2014-2015 — A Multi Billion $$$ Opportunity or Headache?

Just three years after taking office and inheriting a $26.6 billion budget deficit,  Governor Brown now has a projected general fund SURPLUS of over $5 billion, or more, depending on how you count it, and what happens to the cash receipts between now and May when the economic forecast and budget is revised and finalized. Year to year revenue growth of the $100 billion general fund is projected at 6% or $6 billion dollars, but December estimates are already $2.3 billion higher than previously projected. Under current estimates, the year‑to‑year gaps between spending and revenues have been erased for the foreseeable future. Strong stock market performance is driving significant increases in capital gains and this is driving a revenue bonanza for the state of California. The stock market surge, combined with the November 30, 2012 passage of Proposition 30 that raised personal income tax (PIT) by 3% on the wealthiest taxpayers in the state, is responsible for this surplus. Top PIT bracket payers in California now pay 13%.

 What Does History Tell Us? The state’s fiscal history is riddled with budgets that made permanent obligations of both spending increases and tax cuts based on temporary revenue increases driven by capital gains. After these spikes in revenues disappeared, as they always do, the state was forced to cut programs and raise taxes.  This danger is exacerbated by the fact that 2/3’s of all general fund revenues come from the PIT and almost 50 percent of all PIT collected in the state come from only 1 percent of the taxpayers.  So when this handful of highly affluent individuals gets a financial cold, the state budget gets a severe case of influenza – or worse. And that is what happened to previous governors when the capital gains tax bubble burst – they had a fiscal roller coaster on their hands.

Despite the recent improvements in California’s budget situation, there remain a number of major risks that threaten the state’s new found fiscal stability, including billions remaining in budgetary debt, hundreds of billions of dollars in longer term liabilities for unfunded state employee retiree health care and pensions as well as demands for new program spending. In addition, a quarter‑cent sales tax increase under Proposition 30 will expire at the end of 2016, and the higher income tax rates on the state’s wealthiest residents will expire at the end of 2018. The combination of the fleeting capital gains surge and the temporary Proposition 30 revenues should leave no doubt that the state’s modest surplus must be carefully guarded or fiscal ghosts of budgets past will haunt California.

So, What Can We Expect Out of Sacramento in 2014?  Governor Brown introduced his state budget on January 9, 2014 and provided a road map for the Legislature to follow for what the Governor believes will keep the state finances on track. His plan includes fully funding all current state government commitments to education, health and welfare, public safety and environmental and natural resources programs. He also proposes some modest restorations of previous cuts in health and welfare and education spending. In addition, he proposes to take the projected $5 billion surplus and pay off bond debt early & build a rainy day fund ($3.2 billion), increase discretionary higher education spending ($1.2 billion) prepay various state loans, pay down deferred maintenance costs in various areas like transportation and state parks as well as addressing other state liabilities. The key element to the Governor’s surplus allocation proposal is to make each one of the initiatives “one-time” in nature and not commit the state to on-going future spending it cannot afford.

The pressure to increase state general fund expenditures is enormous and the state Capitol is controlled by Democrats who are inclined to expand existing programs and create new ones. Many in the Capitol tend to see this temporary budget surplus as an opportunity to achieve their policy and spending agendas. For example, on January 7th, 2014 the Senate Democrat Caucus introduced legislation that would make all four-year-olds in the state eligible for pre-kindergarten classes. This proposal, when fully phased in, will cost the state over $1 billion annually in new general fund spending.  It is these types of new spending commitments, made when times are good, that drives the fiscal roller coaster of boom-bust cycles in state budgets.

How Does Governor Brown and California Avoid Repeating History?  Maintaining the new found fiscal stability will require considerable restraint. There are numerous risks, each of which could hit the state’s budget to the tune of hundreds of millions, or billions, of dollars. These include the threat of future recessions, changes in federal spending policy, on-going litigation related to redevelopment and other programs, and so on. As part of his 2014-15 budget plan, the Governor has proposed to put a constitutional amendment on the next ballot as a step in that direction. It would divert peak capital gains revenues, like we have had in the past and which are currently projected, away from the general fund and deposit them instead into a rainy day fund so legislators and future governors could not commit them to ongoing program spending. It would make sure the funds stayed in the rainy day account unless and until it was actually “raining” and California needed the funds to stabilize the budget in times of economic downturn. This proposal, like previous attempts made by past governors, will be subject to being “watered down” by the various spending interests in the Capitol that do not favor additional controls on spending. It will be a fiscal battle with very high stakes. We believe the most likely scenario is that the current surplus of around $5 billion will grow even more before budget negotiations are completed. This will likely increase pressure on the Governor to cave in to more permanent spending demands by the Legislature.

Governor Brown will have to use all of his political and negotiating skills to avoid history repeating itself. If he fails in that, his reelection bid in 2014 as the 39^th Governor of California could get interesting.

 

Thomas L. Sheehy

January 2014

FINAL DETAILS - Government Shut Down

Highlights:

GOVERNMENT SHUTDOWN: Ends immediately, finances federal agencies through Jan. 15. Workers furloughed without pay when the shutdown began Oct. 1 receive back pay.

DEBT CEILING: Government’s authority to borrow money is extended until Feb. 7. No constraints on Treasury Department’s ability to move funds among accounts once debt limit is reached, thus extending the government’s ability to avoid default several weeks beyond Feb. 7 if needed. However, this is subject to a “resolution of disapproval” by Congress – a procedural exercise through which one or both chambers can express disapproval for a measure without actually blocking it.

HEALTH CARE LAW (ACA): Department of Health and Human Services must certify it can verify income eligibility of people applying for government subsidies for health insurance. By next July 1, the department’s inspector general must report on the agency’s safeguards for preventing fraud.

LONGER-RANGE BUDGET ISSUES: In accompanying agreement, House and Senate leaders will negotiate over issues such as budget deficits and spending levels. They must issue report by Dec. 13, but they are not required to come to agreement.

REIMBURSMENT OF STATE GOVERNMENT and other Grantees: The measure clarifies that the federal government will reimburse states and grantees for the costs that states incurred during execution of federal programs that would normally be paid by federal appropriations.  This authority applies to any period in fiscal year 2014 in which a lapse in appropriations has occurred

OTHER ITEMS IN THE BILL: No pay raise for Members of Congress in 2014; $636 million for firefighting for the Interior Department and the Forest Service; allows work to continue on Olmstead lock in the Ohio River between Kentucky and Illinois; lets Federal Highway Administration reimburse Colorado up to $450 million for flood-damaged roads, exceeding usual $100 million cap; extra $294 million for Department of Veterans Affairs to reduce backlogs of benefits claims; funds for National Oceanic and Atmospheric Administration to continue work on two weather satellites; extends expired authority for Defense Department to support African forces hunting warlord Joseph Kony, leader of rebel group Lord’s Resistance Army.

Key Dates and Vote Tally

The bipartisan measure, which was approved on October 16 by both the Senate (81-18) and the House (285-144), funds the government through January 15, 2014, and suspends the debt limit through February 7, 2014

Government Shutdown Day 16 - Fiscal Deal Announced by Senate

Senate leaders Harry Reid and Mitch McConnell announced on the Senate floor that they have reached a deal to reopen the federal government, raise the debt ceiling, and hold bicameral budget negotiations.

 

The deal reached allows the federal government to reopen through Jan. 15 and lifts the debt ceiling through Feb. 7.

A conference would be created to negotiate a fiscal 2014 budget agreement, with directions to report a deal by Dec. 13 so Congress would have time to get it passed before the stopgap spending plan expires in mid-January. Dec 13^th is key to avoiding another potential shutdown when the proposed new continuing resolution expires Jan. 15, the same day that the next round of across-the-board spending cuts known as sequestration is scheduled to take effect.

Treasury officials would still be allowed to use “extraordinary” measures to extend borrowing when the government approaches the debt limit in early February. As with previous deals, the debt limit would be lifted and the new one would encompass the amount of new borrowing that occurs in the meantime.

The deal, as it stands now,  would require greater steps to verify the incomes of individuals who apply for subsidies under the Affordable Care Act (PL 111-148, PL 111-152).

As of now, House Republicans are expected to meet at 3 pm today. The Senate is expected to vote early this evening.

If the House passes the deal first, it would allow the Senate to avoid at least one cloture vote to proceed when it arrives in that chamber. But it appeared that the Senate will be able to expedite passage of the deal under any circumstance after Sen. Ted Cruz, R-Texas, said he will not filibuster its consideration.

To be continued…