Happy Birthday ARRA!

February 17, 2010

One year ago today, President Obama signed the American Recovery and Reinvestment Act of 2009 (ARRA) into law. The ARRA provided a lifeline to families in California who were struggling through what turned out to be the longest and deepest recession in the post-World War II era. While the effects of the economic downturn continue to linger, it’s worth remembering that the ARRA helped to mitigate the impact of the recession in California. The consensus of leading economists is that without the ARRA, the recession would have been even more severe. For example, the ARRA has:

  • Boosted economic activity and employment. Research indicates that the state of the economy and the job prospects of many Californians would be worse without the ARRA. The President’s Council of Economic Advisers estimates that as of the fourth quarter of 2009, the ARRA boosted employment relative to what it otherwise would have been by 1.5 million to 2 million jobs, including approximately 250,000 jobs in California. According to widely respected economist Mark Zandi, the ARRA “is doing what it was supposed to do: short-circuit the recession and spur recovery.”
  • Helped California to close a massive state budget shortfall. Last year, California faced a $59.5 billion budget shortfall in 2008-09 and 2009-10. Policymakers used $8.5 billion in ARRA dollars to cover program costs that otherwise would have been supported by the state’s General Fund. Absent this fiscal relief, balancing the budget would have required deeper spending cuts or larger tax increases.
  • Protected low-income Californians’ access to key safety-net programs. The ARRA temporarily increased the federal government’s share of cost for Medicaid (Medi-Cal in California) and prevented states that accepted this increased funding from restricting eligibility for the program. The ARRA also included funding to help states pay for rising costs in their welfare-to-work programs. While California policymakers cut funding for CalWORKs last year, the program would have been vulnerable to even deeper cuts absent the additional federal funds.
  • Increased benefits for workers affected by the recession. The ARRA boosted unemployment insurance and food stamp benefits, provided subsidies to help laid-off workers maintain their health coverage, increased funding to prevent homelessness, and boosted funding for a range of other benefits and services to help struggling workers and their families.
  • Mitigated the impact of state funding cuts to education. ARRA dollars partially filled the gap created by state cuts to K-12 and higher education. For example, K-12 districts received $1.2 billion in ARRA funds in 2008-09, and districts will receive an additional $3.6 billion in 2009-10 and $1.2 billion in 2010-11, according to the Legislative Analyst’s Office.

While the ARRA has helped California weather the worst of the downturn, most of the measure’s funding, including assistance for states, ends in 2010 or soon thereafter. Meanwhile, Governor Schwarzenegger has proposed deep cuts to help close a projected $18.9 billion budget gap. The proposed reductions not only would cause additional hardship for families, but also would threaten the state’s fragile economy. Additional federal funding is needed to help California avert another round of deep spending cuts that would further weaken the state’s economy and potentially impede the national recovery.

– Scott Graves

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Dark of Night Tax Deal To See the Light of Day

February 10, 2010

Late last week, press reports noted that an initiative to repeal the September 2008 and February 2009 “dark-of-night” tax deals would be going forward. We’ve since independently confirmed reports that the California Teachers Association plans to gather signatures to restore California’s corporate tax laws to where they were prior to the midnight mischief.

A June 2009 CBP Brief documents the impact of the massive tax breaks that would go to a handful of the state’s largest and most profitable corporations under the two sets of changes. Repeal of these tax breaks would increase revenues by an estimated $600 million in 2010-11, rising to $1.7 billion in 2011-12, the first year the dark-of-night tax breaks would be fully in effect. While that wouldn’t solve the state’s budget woes, the additional money would provide much needed funds that could be used to offset spending reductions in the Governor’s Proposed Budget. In 2010-11, for example, the additional $600 million would be enough to “buy out” the Governor’s proposed reductions to CalWORKs’ cash assistance grants, reimbursement rates for child care providers, the Healthy Families Program, and programs that provide assistance to legal immigrants. The $1.7 billion cost of the tax breaks at full implementation approximately equals the combined savings from the Governor’s proposed 2010-11 cut to funding for schools and community colleges and student aid plus the state’s savings from elimination of the Healthy Families Program.

We’ve said it before and we’ll say it here again before a new budget is inked into law. Budgets are about values and choices. And this one offers voters a particularly stark choice. And last, but not least, regardless of the ultimate outcome on election day, should the proposed measure qualify for the ballot, these tax breaks may get the one thing they didn’t get prior to enactment: A public hearing. That’s because the Legislature is required to hold a hearing on measures headed to the voters.

–Jean Ross

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Dollars and Sense

February 9, 2010

Among the many reductions in the Governor’s January budget, one that has vexed many is a proposed cut to reimbursements paid to providers of family planning services in the Family PACT Program. The cut would save the state $15.5 million, but cause the state to lose nearly five times as much in matching federal dollars. Forgoing $73.4 million in federal dollars for this program through the end of 2010-11 runs contrary to the Governor’s stated goal of reeling in additional federal dollars for California, particularly for programs that work.

California’s Family PACT program offers low-income women and men, and teenage girls – regardless of income – comprehensive family planning services, including contraception and pregnancy testing, as well as testing for sexually transmitted diseases and some cancer screening services. In 2007-08, the program served 1.7 million clients. One of the key goals of the program is to reduce unintended pregnancies. The University of California, San Francisco Bixby Center for Global Reproductive Health estimates that the program helped to avert nearly 250,000 unintended pregnancies in 2005-06, the last year for which this analysis was performed. The program does not provide abortions.

The economics of this program make sense. First, for certain services and clients, the state receives a $9 federal match for every $1 it spends. Second, a University of California, San Francisco study showed that the state saved a total of $2.2 billion in reduced medical and social service costs over five years for pregnancies averted in 2002, when approximately 1.5 million clients were served. That amounts to $5.33 in state savings for every $1 spent helping families avoid unintended pregnancies that year.

The Administration often argues that while it does not like having to reduce programs, California can no longer afford them. But reviewing the real economic benefits of a program such as Family PACT, the question should really be: Will California be better able to afford such a program five years from now, after the social and personal costs of not having such a program mount?

– Hanh Kim Quach

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Options for Closing the Budget Gap

February 4, 2010

At a hearing yesterday that lasted well into the evening, the Senate Budget and Fiscal Review Committee reviewed revenue-raising options that could be used to help close the budget gap. We offered some basic principles and potential options, as did the Legislative Analyst’s Office (LAO). The Department of Finance presented the Governor’s proposed tax cuts that, it is worth noting, aren’t “scored” in the Governor’s Proposed Budget. That means that enactment of his proposals, most notably the expansion and extension of the homebuyers’ tax credit, would further widen an already gaping budget gap.

In light of support for continuing the credit offered by several senators at the hearing, it is worth reminding readers of what we’ve written about the homebuyers’ credit here before.  Budget Bites readers and lawmakers may also wish to read the Riverside Press-Enterprise editorial that appeared Tuesday entitled “Tax Posturing” which notes that the fact that buyers “snapped up” tax credits doesn’t mean that they were an effective or appropriate tool for stemming construction industry job losses:

“But a tax break on home sales misreads the factors behind those job losses. New home construction fell because land values and housing prices tanked. Developers could not build new homes cheaply enough to compete with the flood of inexpensive foreclosed houses coming on the market. Foreclosed homes, for example, accounted for 41 percent of the houses sold in California in December…No tax break on home sales will change those conditions. And where is the sense in urging new home construction when the state already has a surplus of vacant houses?”

As I noted at yesterday’s hearing, the first thing you should do when you are in a hole is to stop digging.

–Jean Ross

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Healthy Children, Healthy State

February 3, 2010

For the second straight year, Governor Arnold Schwarzenegger has proposed scaling back or completely eliminating the state’s Healthy Families Program. Healthy Families provides health, vision, and dental benefits to children whose family incomes are too high for them to qualify for Medi-Cal. The Governor’s recent proposals would result in 203,300 children in families earning more than $36,620 — 200 percent of the poverty line — losing coverage. The remaining 680,000 would lose their vision benefits, meaning they would no longer be able to see an eye doctor or fill a prescription for eyeglasses. In the worst case, the Governor’s proposals would completely eliminate the program, leaving all 880,000 children currently enrolled without health coverage. Ironically, just a few short years ago, this Governor had proposed universal children’s coverage in his comprehensive health reform proposal.

There are quantifiable impacts to the Governor’s proposals, such as the fact that the state would lose nearly $826 million in federal matching dollars for the $222 million in state dollars saved by whittling down, and eventually eliminating Healthy Families. This means that the impact of the Governor’s proposed cut on the California economy would be more than triple the amount of the state savings.

Beyond the dollars, there are also the impacts that cannot be easily counted, such as the lost opportunities for children who, without eyeglasses, will not be able to see the chalkboard. Without proper treatment of health conditions, others may find it difficult to concentrate in class. The Managed Risk Medical Insurance Board, which administers the Healthy Families Program, has studied the impact of the Healthy Families Program. It found that after two years, newly enrolled children initially considered “at risk,” with the lowest parent-reported health status, saw improvements in their physical health. More dramatically, however, the study reported that these children showed sharp improvements in their ability to pay attention in class, as well as their ability to keep up with school activities.

Tightening the vice on the Healthy Families Program, and thereby limiting children’s ability to be healthy and productive, comes at a time when policymakers are discussing ways to improve academic performance for all children. As we begin our discussion of the state’s spending priorities, it will be important to consider not just the dollar savings of today, but the investment we could make in tomorrow.

– Hanh Kim Quach

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