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2009-01-09 -- Health Access Statement on Schwarzenegger budget

BUDGET CUTS TO DENY COVERAGE TO THOUSANDS,
INCREASE HEALTH COSTS FOR MILLIONS

HEALTH ACCESS UPDATE Friday, January 9th, 2004

* Governor Arnold Schwarzenegger Proposes Medi-Cal Provider Rate Cuts,
Caps on Enrollment in Various Health Programs and Significant Changes
to Medi-Cal.

Governor Schwarzenegger unveiled his budget proposal for the 2004-05
year.

On health care issues, he re-affirmed his proposals from his mid-year
budget proposal, including cutting provider rates and placing
enrollment caps to deny coverage to children in Healthy Families,
immigrants in Medi-Cal, children with disabilities in California
Childrens Services, and others in various other programs.

Other announced cuts were generally on a smaller scale. Of particular
interest, the Governor is also proposing "reforms" to Medi-Cal that
are not fully detailed, that would not provide savings in the budget
year, but that are expected to yield "significant" savings in future
years.

SPECIFIC CUTS.

The cuts include proposals to:

 · MEDI-CAL PROVIDER RATES: Reduce Medi-Cal provider rates by another
10%. This would mean even fewer doctors and other providers would
refuse to take Medi-Cal patients; already half do not accept these
children, seniors, and people with disabilities. Last year's 5% cut
has been enjoined by Federal courts because of access issues.

 · ENROLLMENT CAPS: Deny coverage to children who are eligible to
enroll in Healthy Families, as well as children with disabilities in
California Children's Services, immigrants in Medi-Cal, people with
disabilities in the Genetically Handicapped Persons Program, patients
in the AIDS Drug Assistance Program, and other Californians.

 · INCREASED COSTS: Raise costs on the low- and moderate-income
families on Medi-Cal and Healthy Families, forcing them to pay higher
costs for various benefits, through increased co-pays, deductibles,
and other costs.

 · MAJOR MEDI-CAL CHANGES: Implement long-term changes to Medi-Cal,
which currently services over 6 million seniors, people with
disabilities, children, and their parents. These include not only
increasing costs onto families, but changing eligibility and
enrollment, and reducing benefits.

BUDGET DOCUMENTS

 * Interested advocates can get more detailed documents from the
Department of Finance, at:
http://www.dof.ca.gov/HTML/BUD_DOCS/Bud_link.htm.

 * An alternative analysis is available at the Senate Budget Committee
website, at:
http://www.senate.ca.gov/ftp/SEN/COMMITTEE/STANDING/BFR/_home/

 * A more specific budget overview from the Department of Health and
Human Services is at:
http://www.chhs.ca.gov/docs/2004-2005%20Budget%20Proposal%20Summary.pd
f

IRONY WATCH, CONTINUED:

 In presenting his budget, Governor Schwarzenegger continued to stress
that he will not raise taxes. Yet the budget raising costs (if not
taxes in name) on low- and moderate-income Californians to access
basic health care, yet it never asks wealthy Californians--like the
Governor himself--to share in the solution through restoring the upper
tax bracket. The challenge for advocates is to clearly identify these
stark choices.

More information and materials about the budget will be forthcoming.

-- Anthony E. Wright Health Access
1127 11th St., #234,
Sacramento, CA 95814
Ph: 916-442-2308,
Fx: 916-497-0921
awright@health-access.org



Pertinent comments from previous budgets:

Financial critics are saying Schwartzenegger's budget is fiscally sound,
depending as it does on an improved economy and voter approval of
bond measures to finance both past and future deficits.  California bond
ratings are the lowest in the nation.  To assure repayment, Wall Street
will almost certainly demand terms with automatic spending cuts if increased
costs or a poor economy threaten repayment.

To see how assuring on-time payment can work out in practice, let us
go back to the fiscal crisis of Summer 1994, which most people
remember when state workers were paid with IOUs for several weeks.

An international consortium of banks, lead by Bank of America, had
arranged to lend California $7 billion over the next fiscal year,
which was needed to help the state meet its expenses. During the
budget debate in Sacramento, the spokesman for the bank consortium, a
B-o-A managing director of municipal securities, told the legislators
that for the state to qualify for the loan, its new budget must
contain an automatic loan repayment law.

Under that law, if revenues ever fell below what was needed to repay
the loan in two years, state spending cuts would automatically kick
in. In other words, the banks would directly make decisions on service
cuts. Anthony Taddey, the bank's spokesman, told the legislators that
failure to enact the bank's program "would be ... viewed negatively by
the financial markets and would further jeopardize the state's ongoing
access to the credit markets at a reasonable cost.

In the words of the SF Chronicle, 7-1-94, "The emergence of the
stern-faced Taddey as a key figure has led some lawmakers to call him
'Governor Taddey' and compare California to a developing nation
seeking loans from the International Monetary Fund."

No budgetary magic can assure us stable services while The corporate
share of taxes has fallen from 33 percent in the 1940's to 15 percent
in the 1990's, or where the richest 1 percent of Americans own 40
percent of the nation's household wealth.



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Sacramento Bee, May 16, 2003

Lenders support budget

But experts say the state's real solution is structural change.

By Alexa H. Bluth -- Bee Capitol Bureau

The lenders and Wall Street analysts who will play a key role in
helping fill California's giant deficit called the governor's newly
revised budget plan credible, but warned it lacks insurance that the
state won't burrow deeper into a budget hole in future years.

California officials will meet with bankers over the next several days
to try to sell the $100 billion plan. But analysts say, at first
blush, it appears to lack the necessary structural reforms to bring
the state's income and spending into balance.

"If you go out and borrow $10 billion and you didn't fix the problem,
all you did was dig your hole even deeper," said Claire Cohen, vice
chairwoman of Fitch Investors Services. "You only get the $10 billion
once."

Gov. Gray Davis and his financial advisers have stressed the
importance of pleasing Wall Street as lawmakers negotiate a final
state budget designed to fill a deficit estimated to reach $38.2
billion.

Steve Peace, Davis' finance director, said lawmakers must approve a
budget on time this year -- by the July 1 beginning of the fiscal
year -- to convince bankers that the state has a grip on its financial
problems.

He also has said that the governor's entire budget relies on Wall
Street's approval of a plan to pay off deficit bonds with a sales tax
increase -- a strategy that Republican lawmakers would have to accept
despite vows against supporting tax hikes.

Also, Controller Steve Westly has said an on-time budget is vital for
California to engage in billions of dollars in short-term borrowing to
keep the state operating.

The revamped budget plan that Davis unveiled Wednesday consists of
$18.8 billion in spending cuts, a menu of tax increases and
significant borrowing to fill a budget shortfall expected to reach
$38.2 billion by next fiscal year.

He is calling for a boost in the state's cigarette tax -- 63 cents a
pack phased in over two years -- and for individuals making more than
$150,000 annually and married couples making more than $300,000 to pay
a higher percentage of state income taxes than they now do. The
Democratic governor's plans also call for drivers to pay an average of
$124 more a year for car license fees.

A key part of the budget is a plan to spread $10.7 billion of the
deficit out over about a half-decade by selling deficit bonds -- which
would be repaid by revenue from a new half-penny sales tax increase.

Analysts offered generally positive reviews of the borrowing plan --
saying that it has worked for other large governments in fiscal
trouble, including New York City in the 1970s.

"It's kind of understandable at this point that they have to take
extraordinary steps," said John Hallacy, managing director of
municipal bond research at Merrill Lynch.

In an initial analysis of the Davis budget, Hallacy called it a
"well-thought-out plan" with reasonable assumptions.

But he and other analysts warned that the new budget proposal still
leaves the state strapped with billions in debt and hundreds of
millions in interest payments and with a fragile outlook for the long
term.

"It's not the panacea, it doesn't absolve everybody of taking other
difficult steps," Hallacy said. "What it does is it provides some
breathing room."

At the heart of the issue is overhauling the way that California fills
its state treasury. The state is highly dependent on personal income
taxes, and its fiscal fortunes are tied directly to the volatile stock
market.

During the high-tech boom in the midst of Davis' first term, lawmakers
and the governor poured money into social service and health care
programs, education and tax breaks. But the ensuing market bust left
the state billions short, and revenues have yet to recover.

"A compromise where you have high services and low taxes is not
sustainable," said David Hitchcock, a director in the state and local
government group of Standard & Poor's. "The state has to make a choice
here."

Davis in January vowed that he would not sign a budget that did not
include significant reforms to the state's volatile revenue-collecting
structure. His revised budget lacks any major structural changes,
though he urged lawmakers to quickly take up the task.

"If it doesn't get done this summer, then the state will be facing
problems down the road," Davis said Wednesday.

Indeed, even with a menu of solutions included in Davis' plan to wipe
out the deficit by the end of the next fiscal year, the state will
face a nearly $8 billion deficit in 2005 unless the Legislature enacts
changes in the way the state collects its revenues or makes permanent
cuts to spending obligations.

"If the answer is 'We are going to wait for things to get better,' "
Cohen, of Fitch Investors Services, said, "that's the wrong answer."

Despite warnings, however, banks and investment firms have an interest
in helping California.

As Hallacy put it, "There is no real recovery in the nation without
recovery in the state of California."

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(Long Island, NY) Newsday, May 15, 2003

Davis' finance model: New Yorkers still paying 1975 debt

By TOM CHORNEAU Associated Press Writer

SACRAMENTO -- A New York City bond program, the model for Gov. Gray
Davis' plan to finance part of the state's budget deficit, has been
overtaken by the city's recent financial problems and may require the
sale of new bonds to pay off the old ones.

So, as New York taxpayers are still paying off the debt run up the
city's famous bout with insolvency nearly 30 years ago, they may be on
the hook for another 10 years before they pay off the remaining
obligation.

That experience has New York financial experts wondering about the
wisdom of the 1975 bond program and Davis' plan to mimic it to solve a
big part of California's $38.2 billion deficit.

"How many generations do you want to keep paying what is essentially a
debt problem from one point in time?" asked Doug Turetsky, spokesman
for the New York City Independent Budget Office, a city oversight
agency. "It's generally not a good idea to start borrowing money to
pay your debts."

While experts point out differences between New York's problem in the
mid 1970s and California's current crisis, there are many similarities
between both fiscal crises and methods of fixing them.

Davis' revised budget, released Wednesday, calls for $8.3 billion in
new taxes and more than $18 billion in cuts and savings. But the
centerpiece of the proposal is the plan to sell bonds to pay off the
state's existing deficit.

By June 30, the end of the current fiscal year, the state will have
spent about $10.7 billion more than it has taken in. If unchecked, the
shortfall will reach $38.2 billion by July 2004.

Like New York 30 years ago, California's fiscal crisis is the product
of declining revenues and rising costs of services. In New York, the
shortfall was hidden for years behind questionable bookkeeping
practices and budget gimmicks. In California, the downturn was
painfully swift on the heels of recession and the collapse of the
stock market.

When New York faced bankruptcy in 1975, the city was unable to borrow
more money to pay its bills. So city and state leaders created the
Municipal Assistance Corp., a public-trust agency established outside
city government. Back by the state treasury, the agency sold bonds
that were paid off by city sales taxes.

Between 1975 and 1984, the corporation issued nearly $10 billion in
bonds to bail out the city. Still outstanding is $2.5 billion of the
total _ which costs city taxpayers about $500 million a year in
interest payments.

The last bonds are set to expire in five years, but budget problems
brought on by recession and the aftermath of the Sept. 11, 2001,
attacks led New York Mayor Michael Bloomberg to ask the state to help
refinance the remaining debt over 30 years.

New York Gov. George Pataki rejected Bloomberg's idea this week but
offered to help pay off the notes in 10 years.

Now, Davis wants to follow New York's lead by creating a separate
agency to sell $10.7 billion in bonds and pay them off with money from
a half-cent sales increase.

Unlike New York in 1975, California can still borrow money, although
the state has one of the nation's lowest credit ratings. But Davis
said California must create a special agency to control the repayments
to skirt constitutional requirements that some of that money be shared
with schools.

The administration also contends that bankers have insisted they would
need a guaranteed source of repayment before they would consider
buying the bonds.

Also unlike New York, Davis plans to pay back the bonds in five to
seven years. Most banking experts say seven years is a short enough
period for the state to pay off its bonds without having to refinance
them.

Nevertheless, borrowing money to pay for the costs of operating state
government is a bad habit that lead fuel more deficits, said Fred
Silva, a senior adviser at the Public Policy Institute of California.

Because Californians "expect a high level of service, but are
reluctant to raise taxes," Silva said, the state "has to come to grips
with either raises taxes to provide the service or reduce services."

State Controller Steve Westly said he is comfortable with the
governor's plan because the terms of loan will be locked in.

"There are two requirements for borrowing _ that you have a dedicated
money stream for paying it back and you commit to when you will pay it
back," Westly said. "It's a simple standard and that's what we need to
do."

Stephen Levy, director of the Center for Continuing Study of the
California Economy, said that California has a track record for using
temporary taxes to solve budget problems. "There always been the fear
that when government gets an increase in revenue that they will not
impose the discipline, but that's not been the experience."