Looking for answers amid the state’s growing spending

For months, we have heard story after story about the state’s fiscal woes. Revenues have  plummeted so far that Gov. Arnold Schwarzenegger introduced a budget last week with cuts that advocates have called “beyond draconian.”

But looking at the numbers, one might surmise that California is not in much of a crisis at all. In fact, new revenue estimates released by the Department of Finance this week place the state’s general fund revenues at $85.9 billion – nearly $4 billion higher than they were just five years ago.

Even with the depleted funds caused by plunging home prices and a global economic slowdown, Gov. Schwarzenegger’s budget is still larger than his first budget in the 2004-05 budget year.

But in that first budget year, state spending was at $79.8 billion. Over the next two years, state spending jumped by more than 21 percent, to more than $101.4 billion in the 2006-07 budget year.

Now, lawmakers are trying to dial back those huge recent spending increases in the state budget. Many of the increases have been formula driven in areas like education. Increases in prison costs and growing public assistance programs, have also added to the state’s financial woes.

The bulk of the spending increases have been in education.

In the 2004-05 budget year, spending on K-12 schools was $30.3 billion. In 2009, it was $39.4 billion. But during that same period, K-12 enrollment stayed flat. In 2003-04, there were 6.3 million students in public schools. In 2007-08, there were 6.28 million students, according to stats from the state Department of Education.

So, where has the money gone?

Capitol budget sources say the education funding for that particular year are artificially low. That’s because 2004-05 was the year the Legislature suspended the Proposition 98 guarantee to schools as part of a larger deal with the education coalition. So, some of the payments in subsequent years reflect natural growth in the state’s education budget.

In that time, salaries for teachers have increased by about 14 percent. In 2003-04, the average California teacher made $56,444. In 2007-08, the average teacher’s salary had jumped to $65,808. That accounts for about $3 billion of the additional spending.
But much of the increased “education spending” has nothing to do with education at all. Much of that money goes to backfill money to local governments for the cut in the vehicle license fee.

The bonds that were passed by voters in 2004 also come out of the education budget, thanks to the magic of the state’s Kafkaesque budget process. In 2005, the state passed the so-called triple-flip, which effectively shifted ¼ cent of the property tax to pay off the state’s debts – property tax money that is normally earmarked for schools.

The conflation of the state’s debt payments in the education budget underscores the difficulty the state has in making various budget cuts. Since the state is required to make debt service payments a priority, getting the budget back into balance is not as simple as just going back to 2004 levels.

Other pieces of the budget have also skyrocketed since Schwarzenegger took office.

Health and Human services spending has jumped dramatically during the Schwarzenegger years. In 2004, the state spent $24.6 billion on health programs. By 2009, that number jumped to $29.3 billion.

Most of that $4.7 billion increase has been in Medi-Cal. In 2004-05, the state spent $11.6 billion on Medi-Cal programs. In 2008-09, that spending was estimated to be more than $14.4 billion.

Capitol sources often point to increased use of Medi-Cal services as a major reason for increased state spending. “Caseload growth” is cited time and again in budget analyses of the state’s health care spending.

But comparing the 2004 numbers with the current year, that growth in Medi-Cal is hard to see. The 2004 administration analysis of the health care budget found that “more than 6.8 million” Californians used Medi-Cal services – about the same number as the LAO estimates will use Medi-Cal in the current budget year.

“It’s actually stayed pretty steady with a slight uptick in the last several months because of the recession,” said Anthony Wright, executive director of Health Access California.

Wright says the jump in Medi-Cal spending has been driven by the rising costs of health care, and an aging Medi-Cal population that is using more health care services.

But, he pointed out, “The increase in Medi-Cal costs pale in comparison to private health care costs. Increases in Medi-Cal costs have been sufficiently lower than the rate of health care inflation generally.”

State policies – most of which were approved during Gov. Gray Davis’s tenure – expanded Medi-Cal eligibility for the elderly, the disabled, working parents and children, contributing to some of the rising costs. While there have not been any significant expansions of eligibility or benefits over the last five years, the legislative analyst found the state offered “34 optional services, such as outpatient drugs and adult dental care,” in a 2004 analysis of health care spending.

“California provides more optional Medi-Cal services than any other large state,” the 2004 analysis states. “Currently, Medi-Cal provides more comprehensive benefits than most employer-funded comprehensive health care programs.”

But new money from Washington has complicated the state’s efforts to cut spending. In Medi-Cal, for example, the Obama administration is requiring the state to provide the same level of service for recipients as it did in 2005. That was the year that overall state spending began to spike.

“We can’t just recreate that 2004 budget,” said Fred Silva, a budget analyst for California Forward. “There are all sorts of complicating factors. Unfortunately, it’s never just that simple.”

Increased spending on long-term care services, regional health centers and mental health services make up the rest of the increase in the state’s health budget.

The other major increase in state spending has been on prisons. In 2004, the state was spending $5.7 billion annually on corrections. By 2009, that spending spiked to $10.3 billion – a 45 percent increase.

While prison population growth has been rampant since the state began passing tougher sentencing laws in the early 1990s, the state’s inmate population has only grown slightly over the last five years. In 2004, there were 168,000 inmates – just 3,000 fewer than estimates for the current budget year.

But the costs of housing those inmates has increased as the prison population ages.

Prison guard pay and court mandates are also part of the explanation for increased corrections spending, a February LAO report states.  Salary increases “have added more than $1 billion to CDCR’s budget over the past decade.” Federal court decisions, such as mandates to provide better inmate health care have “increased state costs by over $1.5 billion.”

The battle lines are quickly being drawn for the summer budget stand-off, with Republicans hoping to hold the line on revenue increases and new state borrowing. The governor has outlined deep cuts, including eliminating welfare programs and health care for hundreds of thousands of children, while some Democrats are still talking about new revenues.

Assembly Budget Committee chairwoman Noreen Evans, D-Novato, s
aid she does not want to support a cuts-only budget.
“I will look under every rock and every leaf so that we can make sure women and children are fed and their medical needs are taken care of,” Evans said. “We’re looking at a California where we neglect our elderly, our disabled, our women and our children. This used to be the golden state. Now it’s a sorry state. And this is not my California.”