By Karen Ocamb
January 9, 2010
Gov. Arnold Schwarzenegger submitted his proposed budget for 2010-11 on Friday, designed to close a $19.9 billion gap over the next 18 months. His budget called for revenues and budget cuts, and a re-definition of the state’s relationship with the federal government.
Schwarzenegger declared a fiscal emergency and called the legislature into a focused special session to prevent the shortfall from growing and to avoid further cuts.
However – perhaps responding to the growing pleas about the possible dire consequences if people with HIV/AIDS did not have access to medications, the governor not only spared the AIDS Drug Assistance Program (ADAP), but gave an $87.5 million increase from the general fund.
ADAP provides HIV/AIDS drugs to over 35,000 low-income uninsured or underinsured Californians each year. Demand for ADAP is expected to increase in the coming year, in part as a result of the national economic downturn. The $414 million program is funded by state general funds, $90 million in federal money and over $250 million in drug rebates the state earns from pharmaceutical companies.
Los Angeles County accounts for 40 percent of ADAP program expenditures.
Craig ThompsonAIDS Project Los Angeles (APLA) Executive Director Craig E. Thompson praised Schwarzenegger’s decision:
“Keeping ADAP whole is courageous in this budget environment — but it’s also smart, cost-effective public health spending. People with HIV/AIDS who rely on this program must have access to these drug therapies. Without treatment, they will get sick, or worse, and end up costing the state much more for catastrophic health care.”
With budget cuts that attempt to cover a $21 billion deficit, the governor’s proposed budget makes only one cut to the ADAP program – a reduction of $9.5 million in AIDS drugs for county jails. Said Thompson:
“This cut will put pressure on county jails to meet their legal obligation to provide inmates with the care and AIDS drug therapies they need. We will continue to monitor the situation in the jails to make sure inmates with HIV receive appropriate treatment.”
But Medi-Cal, CalWORKS, Healthy Families and Social Security Supplemental payments did not escape deep cuts, which has Thompson, among others, concerned:
“ADAP is vital to the population we serve, but so are Medi-Cal and other safety net programs. The state must find new revenues to sustain programs that provide income, assistance and healthcare to the state’s most vulnerable people.
ADAP is now in the hands of the legislature. The Assembly and Senate need to make sure this program remains fully funded when they deliver a final budget to the governor this spring.”
Last year, the governor demanded more reserve funds than the Assembly’s budget delivered, and at the end of the budget process vetoed some $550 million in proposed spending, including $85 million in HIV/AIDS funding. State spending for HIV prevention programs was completely eliminated. Thompson:
“Sacramento should restore those cuts as soon as fiscally possible. While ADAP saves lives and money, HIV/AIDS prevention remains the best way to reduce the cost of fighting this epidemic. We must prevent only 40 infections statewide for our prevention investment to pay for itself.”
The estimated lifetime cost of care for an individual infected with HIV is $600,000.
Full transcript of Schwarzenegger's remarks with a Q& A with reporters:
Good morning, everybody. Before we start, I think I want to just introduce a few people here that we have. “Steiny” is now saying, “Is he going to introduce me?” Of course, don’t worry about it. Senator Steinberg is actually the first one I have down here.
Thank you very much for being here today. Speaker Bass, is she here? Yeah, right there, exactly. Thank you very much. Senator Hollingsworth is here, yes. And then we have, of course, our Ana Matosantos, our Director of Finance, standing next to me here. Mike Genest is burned out, (Laughter) so he’s taking a little vacation, so you know. And then we have, of course, my Chief of Staff Susan Kennedy right here in the front row and my cabinet secretaries scattered all over here on this side, all pumped up, of course. Then I think we have here Senator Maldonado. Is he here? Yeah, he’s right over here. Very nice. Then our Budget Committee Chair Senator Ducheny is right here in the front row, good to see you. And then we have Senator Dutton also here and Assemblywoman Evans right there, OK. And then Assemblyman Nielsen right also here. And if I left anyone out I want to apologize but it’s not on my card, so I blame my staff for it.(Laughter)
Anyway, good morning everybody. And today I am presenting the legislature with my budget proposal for fiscal year 2010-11. Now, as you know, in just the last 12 months we have solved a $60 billion deficit. Yet our hard work is not finished. This year we face another 13 — or I should say $19.9 billion shortfall, which is $6.6 billion for the current year and $13.3 billion for next budget year.
However, let me first start on a positive note, which is that we do see signs that our economy is beginning to stabilize. California’s unemployment rate has begun to slowly tick downward. And while personal income fell 2.8 percent in 2009, it’s projected to grow by 2.4 percent in 2010 and 3.6 percent in 2011 and 4.8 percent in 2012. So, for our economy, recovery is on the horizon.
And I wish I could say this about our budget but I can’t. Tough times still lie ahead. Big picture — next budget year we expect to have $85 billion in available revenues. Now, when I signed the budget last July, the operating shortfall for next budget year was projected to be $6.9 billion.
That gap has now grown to $19.9 billion for several reasons. These include:
• $3.4 billion in lower revenues,
• Court decisions and litigation that have cost us $4.9 billion,
• And $2.3 billion in lost savings largely due to the smaller prisons package that the legislature has passed,
• And $1.4 billion in higher program costs and caseload growth due to the continued effects of the recession.
Then we include the $1 billion reserve. That leaves us a $19.9 billion hole that we must fill over the next 18 months.
The solutions I propose can be broken down into three pieces:
The first piece is $8.5 billion in spending cuts, mostly to health and human services, employee compensation and prisons. And in the fiscal emergency special session that I am calling today I am asking the legislature to start many of these cuts in the current fiscal year.
In health and human services I propose $2.9 billion in cuts. This includes:
• $1.1 billion in cuts to Medi-Cal from increasing cost-sharing and reducing eligibility and combating fraud,
• $950 million in cuts to In-Home Supportive Services by reducing the state’s contribution to wages and reducing services,
• And $130 million in cuts to Cal Works by reducing grants so they’re more in line with other high cost-of-living states.
Now, in employee compensation I propose $1.6 billion in cuts. This includes a 5 percent payroll cap, a 5 percent salary reduction for all state employees and a 5 percent increase in employees’ retirement contributions.
In prisons I propose $1.2 billion in cuts. The bulk of these cuts: $811 million comes from making our prison health care system more efficient and funding it at a level comparable to New York.
I also propose to continue reducing our juvenile justice population as well as our prison population by housing some non-serious, non-violent offenders in county jails rather than state prisons.
I know many of these cuts are painful. Believe me, these are the hardest decisions a Governor must make. Yet there is simply no conceivable way to avoid more cuts and more pain.
However, when it comes to cuts, let me make one point very clear: Our state, our economy and our future is so dependent on education that, as far as I’m concerned, we must protect education.
For K-14, my budget fully funds the Proposition 98 guarantee, which is $50 billion. It also maintains the same level of funding for schools next year as we had this year.
For higher education, my budget is funding a $225 million increase. It is my hope that with this funding level we can avoid any further fee increases.
This brings me to the second piece of my budget, which is $4.5 billion in fund shifts and alternative revenues. This includes:
• Redirecting $1 billion from Proposition 10 and Proposition 63 to existing programs,
• Redirecting $500 million that counties will save from our Human Services cuts to help fund foster care,
• And $200 million from my Emergency Response Initiative to help fund Cal-Fire,
• And $200 million from the Trankean Ridge offshore drilling project to fund state parks,
• And I also propose $986 million in revenues from a transportation funding swap which, of course, Ana will then discuss in the details later on.
The third and the final piece of my budget is the $6.9 billion in federal funds. As I’ve said in my State of the State Address, federal funds must be part of our budget solution because the federal government is part of our budget problem.
During the Clinton Administration California got back 94 cents on the dollar. We now only get 78 cents on the dollar. Texas is getting 94 cents, Florida, 97 cents and New Mexico gets more than $2.00.
This should be more equitable. For example, right now there are discriminatory formulas that force California to subsidize other states. In Medi-Cal, our matching fund rate is the lowest of any state. We get 50 percent; the national average is 57 percent. My budget proposal increases California’s rate to the national average, which means an extra $1.8 billion.
We are also asking the federal government to pay us what they owe us. My budget includes $1 billion for Medi-Cal costs that should have been paid by Medicare. It also includes $1 billion that Washington owes us for various federal education mandates.
Another big item, of course, is immigration. Immigration is a big item. The federal government alone controls immigration policies and border security. Therefore, my budget includes the $900 million in federal funds to cover the costs of incarcerating undocumented immigrants.
As I said in my State of the State, we are not looking for a federal bailout, we are looking for federal fairness. And we seek not just money. We also seek more flexibility to prioritize our own resources and manage our own budget. Right now the federal government is forcing us to spend money we do not have. The federal court-appointed Receiver is forcing us to spend three times more per inmate on medical care than other states. Various federal rules are tying our hands and preventing us from reducing costs in some state programs.
I want to remind the federal judges and politicians that California is not Washington. We do not have the luxury of printing money or running trillion-dollar deficits.
I know that many previous governors have tried very hard to get California a fair share from Washington and they were not successful. Yet I promise the people of California that I will be relentless, that I will be fighting for that. In fact, later on this month we will be traveling to Washington with the four legislative leaders here from California to fight for California. And I call upon California’s congressional delegation, Democrats and Republicans alike, to join us in that fight. Together we can be a powerful voice that Washington cannot ignore.
However, I want to be clear that we are prepared, in case any of these federal solutions do not materialize. For each federal dollar that we fall short we have a trigger list of additional cuts and revenues, which then Ana again will be eloquently explaining in the details later on.
Now, I know the budget I have laid out today is difficult and it is painful. But California is resilient. We know we will once again get through these tough challenges.
And it’s also important to note that all states are struggling in this economic crisis. As a matter of fact, all countries around the world are struggling with this economic crisis. As a matter of fact, there are many of the states in worse shape than us. But this is no reason for us to celebrate, because in California we always strive to be the best and to set the standard.
And the fact is that right now there are many states that are in better shape than we are, facing deficits that are far more manageable. These states aren’t talking about draconian cuts, they’re not talking about gutting state programs. That is because those states have smart and more stable budget and tax systems.
The reality is that California’s broken budget and tax systems are the root of so much of this budget evil. Ever since I was elected governor I have been trying to get budget reform and to get a Rainy Day Fund. We haven’t done it yet. We haven’t accomplished those goals. But I will continue pushing for that and fighting for that.
In my State of the State speech I also talked about our broken tax system. Last year California’s economy dropped by 2.8 percent, yet our tax revenues were down eight times that much. That is no way to run a state.
The Tax Commission did its work and proposed major, radical reforms, so I ask the legislature to work with me to get this done. We can do it. Because think about this. If my budget and tax reforms had been in place over the last ten years, this year’s deficit would have been $8 billion less.
Now, another major area that we must reform is our pension system, whose costs have gone up by more than 2,000 percent in the last ten years, from less than $150 million a year to more than $3 billion a year and growing fast.
Also, we have to look at allowing private prisons to compete with public prisons, which would save billions of dollars.
And we must also repeal the law that prohibits schools from entering into public-private partnerships for construction, maintenance and transportation services at the lowest possible cost.
For years Sacramento has failed to act on all of those reforms and the people are paying a painful price. That is why in this budget I refuse to raise taxes, because there are so many other areas where Sacramento can be smarter, more efficient and save precious taxpayer dollars.
We have a responsibility to take action here because we have two choices. More and more of the same dysfunction, the same monster deficits and the same budget roller-coaster ride, or real reform. I say, let’s choose real reform.
It won’t be easy. But California is the greatest state in the greatest country in the world. It is worth fighting for. And that’s what the people expect us to do, fight for California and fight for them. Now, I read a headline last week in the San Francisco Chronicle that read, “Angry voters tell their Government: Do Something!” “Do something.”
So I ask the legislators to join me. Let’s do something. Let’s show to the people that by working together what we can accomplish, that we can accomplish great things.
Thank you very much. And now, if you have any questions about that, feel free to ask.
QUESTION: Governor, I have a question over here. I have a question really quickly about the — is it on? — about the federal money. Oh, you’re walking with the microphone.
GOVERNOR: Yes, we have the technology. No problem. (Laughter)
QUESTION: I want to ask you about the federal money that you’re trying to get.
QUESTION: You alluded to the fact that you’ve tried to get it before, you called yourself “The Collectinator” in 2003, haven’t been able to get it yet. I talked to an economist this morning who said what you really should be doing is asking for a second federal stimulus program and joining with other governors across the country in saying we need it, rather than trying to complain about something that California hasn’t gotten for all these years.
GOVERNOR: Well, first of all, because California hasn’t gotten it for a few years doesn’t mean that we shouldn’t complain and we shouldn’t try to get the money. I think that it is my responsibility and I promised the people of California that I will be fighting for California and I will go and do everything that I can to get the federal money that we deserve.
I think that the first stimulus package that we got was terrific but it is one-time revenue. We are not looking for one-time revenue. We are not looking for two-time revenue. We are looking for fairness. We are not looking for a bailout, either. We’re just looking for fairness and it is not fair for California to get 78 cents on the dollar and to have New Mexico get $2.03. That has to stop.
And as I said, it’s the federal government’s responsibility to take care of immigration policies and of our borders. So for them not to take care of their job well and then for us to get stuck with the bill of incarceration of undocumented immigrants, of $900 million, is unfair.
So we are all in sync, Democrats and Republicans alike here, that I can tell you. We’re going to fly to Washington and we’re going to fight for that money. And this is no reason, because we didn’t get it, or because something hasn’t been done, not to do it.
Now, of course, as you said, there’s someone else that had a different idea. You know something? That you see here, maybe 100 or 200 people in here, they all maybe have different ideas. But this is the right thing to do, to fight for that money.
And I never give in because something hasn’t been done, or we haven’t accomplished it yet. Remember, my Uncle Teddy fought his entire life for health care reform and he passed away and never saw it being reformed. So it doesn’t mean that he should have stopped 20 years ago, 30 years ago. He was relentless.
And I will be relentless to get money for California because it’s our money. We are paying for it. We’re not asking the federal government to give us something. It’s our money. And I expect our Congressional delegation, bipartisan delegation, to fight for California rather than for the federal government. That’s it.
QUESTION: Governor, the cost of our prisons is so much higher than other states, in part because they’re far larger than any other state prisons and they’re very overcrowded. Why not — why not spare some of these drastic cuts to health and human services and instead comply with that federal court order to reduce the prison population?
GOVERNOR: Well, first of all, we are working with the federal judges. And it has not come full circle yet. So we’ve been working with them, we try to resolve this. We try to have, you know, those reforms and to get some of those that are not high risk, that are low risk, nonviolent offenders, to go to local institutions and all of this. So we are working on all of this stuff. So I think that you have seen and when you look at the budget you will see certain cuts in prisons that are reasonable and I think that we can manage. And as you know, that we are having a problem here of almost $20 billion. So you can talk about the 500 million here, the 300 million there but $20 billion –
The reality of it is, is let’s focus on one thing and that is we are making all of these cuts that we don’t really want to make because we have a lack of money, because we have a flawed budget system and we have a flawed tax system. And so we’ve got to fix those things, because I’m more concentrating now not just on fixing the budget for this year but to think about how do we protect ourselves from the future?
Because this is a state, if you compare it to an intersection, it’s like seeing people crashing into each other and never building a stop sign and never building a traffic light and see them over and over hurting themselves and killing themselves. That’s what’s going on in California right now. Year after year we know that our budget system doesn’t work.
As I have said, you know, we have a drop in the economy, an economic drop of 2.8 percent and then all of a sudden we have a 24 percent drop in our revenues. There’s something terribly wrong. We are relying too much on income tax and on capital gains tax and that is relying on the Wall Street economy rather than on California’s economy. So we’ve got to change some of those things.
QUESTION: Governor, can I ask you about state worker cuts?
QUESTION: Why are you ending the furloughs? And is that an admission that they were wrong-headed? And also, do you plan to negotiate your pay cuts with the union groups?
GOVERNOR: Well, I don’t think that it says anywhere we are ending anything. The year, the furlough is for one year. The year, the fiscal year, is over in six months from now and then the other things will be kicking in. So everything is in the program. There were some losses and some gains when it comes to the furloughs which, of course, you know, always happens.
And I think that those lawsuits that are sometimes hurting our budget and hurting programs, they’re always good for the people that filed the lawsuits but they’re not good for the state of California, that I can guarantee you.
And when it comes to state employees, let me make on thing clear, that I appreciate very much the hard work that state employees do. They work very hard and they’re doing a great job to make this state run.
But at the same time, we have had a drop because of the economic crisis worldwide, where everything all of a sudden became one-third less in value. And the private sector got hit very hard, people got unemployed, we have a 12.5 percent unemployment rate. People had to take reductions in their salaries and all of those things and so the public sector also has to take a haircut.
And I have made it very clear to the labor leaders that I don’t want to see anyone get laid off, I don’t want anyone to get fired. But instead, let’s all reduce the wages. Let’s go and have furlough days and let’s go and reduce our wages and just spread the pain evenly, because I just didn’t want to see anyone go home without their paycheck and being able to take care of the family. And so that was the idea of the furloughs, that we all take a little bit of the pain and the haircut. And so this is how we will go on, where everyone is going to chip in and do something so we don’t have to go in the direction of laying people off and firing people and all that.
QUESTION: So will you be negotiating these proposals directly with the unions? GOVERNOR: No, I will be working with the legislative leaders and with the legislators and we will be working together and we will get this done.
QUESTION: Are you bringing back property tax?
QUESTION: The property insurance tax, are you bringing that back?
GOVERNOR: Say again?
QUESTION: Are you bringing back the surcharge on the property insurance premiums? And if so, why are you not calling that a tax?
GOVERNOR: No, because — you mean you’re talking about the $200 million, the Emergency — you’re talking about the Emergency — yeah. That is — it’s a fee. We consider it a fee. I mean, that’s again, I let some people debate over that, what’s a fee and what’s a tax. But I mean, I call it a fee and it’s going to be — we look for that increase because it will help CAL FIRE and it will help our Emergency Response Initiative and our Emergency Services. We have more and more fires now and therefore we need the extra money.
QUESTION: Governor, you’re proposing — Governor, you’re proposing to eliminate the sales tax on gasoline and replace it with a higher excise tax and the net effect would — one of the net effects would be to reduce the Proposition 98 guarantee by almost a billion dollars. Is that consistent with your pledge to hold the line and protect education funding?
GOVERNOR: It is holding the line on our priorities. Remember what I said in my State of the State speech. This is the year where priorities will be very important and I think my priority is to protect education funding and to make sure that we have enough for higher education, because this is the future. The children are our future.
And I think that the key thing for us is to manage this crisis and this reduction in revenues in such a way where we go and look creatively in other areas and this is why I pointed out, for instance, to look at the pensions of public employees where we can save money by, you know, working to find a way of changing the formula for new employees. And to go in that direction so that we can go and fulfill our commitment that we made to them but lower the costs and so that the taxpayers don’t have to pay these extra billions of dollars, which then is money that is being taken away from other programs.
And the other thing that you see in this budget is that I refuse to raise taxes in this budget, because there’s no reason for us to raise taxes when there is all this extra money still around out there, especially in the prison system and in the public pensions where we can save billions and billions of dollars. So this is why we’re going in that direction.
And I am again, like I said, looking forward to working with the legislators. They will have different ideas about a lot of those things. But, you know, Democrats and Republicans last year did an extraordinary job, $60 billion we worked out on solutions. And so this is $20 billion and it’s going to be tough. But because there is a will there to make it work, we’re going to make it work. And so I’m looking forward to working with the legislators.
And I think that the key thing also is, as I said earlier, that we start making mid-year cuts now. I mean, I wish we could just sit down for the next two weeks and work that out very quickly, because the faster we make the cuts now — because this year is $6.6 billion that we are spending too much. This is $600 million a month, right now that we are spending, that we do not have. So the faster we can make mid-year cuts the more we can then help the budget year for the coming budget year that’s starts on July 1. So this is — there’s a lot or work ahead, so I’m looking forward to that. So again, thank
QUESTION: If the children are our future, how can you eliminate (Inaudible) and shred the safety net for all those poor children? You say children are our future but you obviously don’t mean poor children.
GOVERNOR: As you just identified, that yes, you’re right. I did say that children are my priority and they will continue being my priority. As a matter of fact, I was so excited yesterday that we showed that the state of California showed to the children our priority when we had education reform, reform in education that no one thought would be possible. But the legislators did it. It was a huge, huge victory, where Democrats and Republicans came together.
And when you have a $20 billion loss in revenues, then you have to again have priorities and you have to make choices. And let me tell you something, a lot of the cuts that you see in this budget, under normal circumstances we wouldn’t make those cuts. We would not make those cuts because, like I called them draconian cuts, very painful cuts. And so this is why I think we have to fix our budget system and we have to fix our tax system. So thank you very much, everybody. Thank you.
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