California Family Resource Association

Governor’s FY 2017-18 Budget Projects Gap & Significant Uncertainty

Earlier this month, Governor Jerry Brown unveiled a $177.1 billion plan for FY 2017-18 budget, explaining that while this year’s budget protects what he perceives to be some of the state’s most important achievements it is also the most difficult that the state has faced in years. The difficulty is specifically referencing the uncertainty about the future relative to potential significant changes with the change in federal administrations. At its unveiling, the Governor urged restraint and responsibility in light of this uncertainty suggesting a $2 billion budget gap is on the horizon. In this regard, instead of focusing the details and specific proposals the Governor chose in his proposed budget plan this cycle to focus on broader principles to offer a sense of greater collaboration in the budget process. The overarching principles include maintaining a balanced budget, bolstering state reserves, increasing education funding, continuing health care expansion, counteracting poverty, strengthening transportation infrastructure and combating climate change. Further, the overall plan increases the state’s reserve fund from $6.7 billion to $7.9 billion, an increase of $1.2 billion.

In terms of the health and human services (HHS) portion of the proposed budget, the plan includes $154.6 billion ($34 billion General Fund and $120.6 billion other funds) for all HHS programs. Seemingly one of the most concerning areas of the HHS budget going into the New Year and federal administration is around California’s continued implementation of federal health care reform under the Affordable Care Act. Many Californians now have access to affordable, quality health care coverage through Covered California. Additionally, California also expanded Medi-Cal to cover childless adults and parent/caretaker relatives with incomes up to 138%of the federal poverty level, added coverage for undocumented children, and expanded Medi-Cal mental health and substance use disorder benefits. The Budget assumes costs of $20.1 billion ($888 million General Fund) in 2016-17 and $18.9 billion ($1.6 billion General Fund) in 2017-18 for the 4.1 million Californians in the optional Medi-Cal expansion.

The challenge, however, is the new presidential administration and leaders in Congress have taken steps to repeal the program without any clarity about what will replace it – if anything – much less how much support the federal government will continue to provide for such purposes. In this regard, the Governor’s budget merely reflects existing state and federal law as it existed on January 10th when the budget plan was released here in California.

More specific budget items of interest to CFRA and its network as characterized in the Governor’s Budget include the following:

Coordinated Care Initiative (CCI) – given the determination that CCI is not cost effective in allowing persons eligible for both Medicare and Medi-Cal (dual eligibles) to receive medical, behavioral health, long-term services and supports, and home and community-based services coordinated through a single health plan, the program will automatically cease operation this going into next year. The discontinuation of the program in 2017-18 are expected to have the following effects:

  • Removal of IHSS benefits from healthcare plan capitation rates. As part of CCI, IHSS costs were included in bundled payments to health plans, though the plans did not control this benefit.
  • Elimination of the statewide authority responsible for bargaining IHSS workers’ wages and benefits in the seven CCI counties. These counties would again be responsible for IHSS bargaining.
  • Re-establishes the state-county share of cost arrangement for the IHSS program that existed prior to the implementation of CCI. Counties will be responsible for the payment of 35% of the nonfederal portion of program costs through 1991 Realignment. Based on current estimates, growth in 2017-18 realignment revenues alone will not be sufficient to cover the additional IHSS costs. Therefore, this change is likely to result in financial hardship and cash flow problems for counties.

California Healthcare, Research and Prevention Tobacco Tax Act of 2016 (Proposition 56) – approved by California voters in November, Proposition 56 authorized increases in the excise tax rate on cigarettes and tobacco products – including electronic cigarettes – effective April 1, 2017. The excise tax, paid by distributors selling cigarettes in California, increases by $2 from 87 cents to $2.87 per pack of 20 cigarettes. Helpful, Proposition 56 requires backfills to Proposition 99, Proposition 10, the Breast Cancer Fund, and to state and local governments to address revenue declines that result from the additional tax ($37.1 million). In addition to the backfill, the measure specified allocations to various entities, including the University of California, Department of Justice, Department of Public Health, Board of Equalization, and State Auditor. Additionally, Proposition 56 requires 82 percent of the remaining funds be transferred to the Healthcare Treatment Fund for the Department of Health Care Services to support new growth in Medi-Cal expenditures as compared to the 2016 Budget Act. Of the remaining 18%, 13% is for the Department of Public Health and the Department of Education for tobacco prevention, and 5%goes to the University of California for medical research.

Continuum of Care Reform — includes $217.3 million ($163.2 million General Fund) to continue implementation of the Continuum of Care reforms outlined in legislation from 2015 (AB 403). The reforms emphasize home-based family care, improve access to services without having to change out-of-home placements to get those services, and increase the role of children, youth, and families in assessment and case planning. Although significant progress has been made for the transition of foster youth beginning January 1, 2017, assumptions on caseload movement were revised to more accurately reflect the pace of implementation.

Minimum Wage Increase — includes an increase in IHSS expenditures of $56.8 million ($26.4 million General Fund) and a decrease in CalWORKs expenditures of $5.3 million General Fund to reflect the impact of the state minimum hourly wage from $10.50 to $11.00, effective January 1, 2018.

Continue Consolidation of Statewide Automated Welfare Systems — includes $38.5 million ($7.5 million General Fund) for migration of 39 counties using the Consortium IV system to the LEADER Replacement System. The first year of funding for migration activities will be available after the county consortia negotiations are complete and the Department of Finance and the Department of Technology have reviewed and approved detailed project documents.

Maximum Family Grant (MFG) Repeal — includes $224.5 million ($198.2 million General Fund) to reflect a full year of increased grant costs resulting from the repeal of the MFG rule, effective January 1, 2017. The rule, for the purpose of calculating a household’s maximum aid payment, prohibited cash aid for any child born into a CalWORKs household ten or more months after initially receiving aid.

Housing and Disability Advocacy Program — due to fiscal constraints, the Budget includes one-time savings of $45 million General Fund in the current year from halting implementation of the Housing and Disability Advocacy Program included in the 2016 Budget Act.

Children's Mental Health Crisis Services Grants — includes the reversion of $17 million General Fund from 2016-17 funds intended for grants to local governments to increase the number of facilities providing mental health crisis services for children and youth under the age of 21. Nearly $11 million in Mental Health Services Act funding remains available for the program.

All in all, the Brown Administration is taking a very cautious approach to this budget cycle in light of so much uncertainty at the federal level as well as the fact that the Department of Finance has been forecasting the state being on the front end of another recession. That said, the nonpartisan Legislative Analyst’s Office (LAO) has suggested the Governor’s budget probably understates California income tax collections by billions of dollars. Overall, the Administration believes the state is facing a nearly $2 billion shortfall without changes. While the LAO acknowledges some costs have increased, they perceive the key issue is the administration’s belief that revenue from the state’s three main taxes will be $3.2 billion less through June 2018 than was assumed when lawmakers approved the current budget last June.

Going forward, budget committees in the Senate and Assembly will be ramping up hearings to begin to dissect the proposal, provide feedback and offer counter proposals – all culminating in mid-May when the Governor releases his May Revise budget proposal that reflects more current revenue and expenditure numbers leading up to the final decision making on budget details before the June 15th Legislative Constitutional Deadline to pass the budget and July 1st effective date. Stay tuned…

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