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California Democrats propose realignment to help address state's long-term budget deficits

by Greg Lucas, published

As part of budget deliberations, Senate Democrats propose shifting greater responsibility for several state social programs, including welfare, to counties.  The added costs to counties -- $4.3 billion within four years -- would be paid for with tax increases and the earmarking of current state taxes. 

“No budget plan on the table today addresses California’s lingering, long-term deficit,” said Senate President Pro tempore Darrell Steinberg, a Sacramento Democrat, in announcing the plan on June 21.  “Our restructuring proposal is not a panacea. But it begins to think and act in California’s long-term interest.” 

It’s not the first time California has attempted to redefine the roles and responsibilities of state and local government – the process has been going on for 30 years.  The passage of Proposition 13 in 1978 restricted the ability of local governments to raise property taxes by more than 1 percent each year, cutting local property tax revenue in half and reducing local autonomy.  In response, the state passed various bailout programs for counties to cover the lost local revenue. 

Thirteen years later, facing a large budget shortfall, GOP Gov. Pete Wilson proposed what he called “realignment,” in which $1.7 billion worth of programs and responsibilities were state-transferred to counties. The transfer reduced the state’s budget gap by the same amount.  Under the proposal, several mental health, social services and health programs previously run by the state were put under the control of counties. For other programs, the cost-sharing ratios were altered.   Counties were given more flexibility in how they operated the programs and two sources of revenue – a one-half cent increase in the sales tax and 25 percent of vehicle license fees – were dedicated to covering the added costs to counties.   

The genesis of the idea was a series of recommendations from a 1985 task force convened under then Gov. George Deukmejian.  Over the past 20 years, the shift in responsibility has generally been positive, county and state officials say except where state lawmakers expanded eligibility for programs without sending additional dollars to counties.  “What we’ve learned from our experience would lead me to conclude that we got it more right than we got it wrong but we didn’t get it totally right,” said Frank Mecca, executive director of the County Welfare Directors Association

Because of state-initiated expansions in various programs, realignment revenue sent from the state runs $1 billion behind costs.  A key example of why is In-Home Supportive Services, which provides home care to low-income elderly Californians. It is one of the fastest growing programs in the state.  Costs and caseload have sharply increased.  The cost of the program nearly doubled from $1.4 billion to $2.6 billion from the fiscal year beginning July 1, 1998 to the fiscal year ending June 30, 2003. The program now spends $5.5 billion. 

Before realignment, 97 percent of the program’s costs were borne by the state. After realignment, counties were given 35 percent of the cost – but lacked a commensurate amount of power over controlling costs.  “If you’re going to have a shared program, each level of government participating should bear roughly the same cost as they have policy control over. You don’t want to give counties 90 percent of the cost if they only have 25 percent of the control,” said Marianne O’Malley, the Legislative Analyst Office’s realignment expert. 

Again facing a rough budget year, Wilson tried again in 1995, proposing the county share of welfare costs increase from 5 percent to 50 percent, an increase in county welfare costs of $1.2 billion. The plan failed to win legislative approval.  Since then, other smaller scale restructuring efforts have occurred. The state assumed the cost of trial court operations and, in 2009, transferred some responsibility over juvenile offender probation to counties. 

The current proposal by Senate Democrats would shift more juvenile probation services to counties as well as transferring prison inmates convicted of drug and property crimes to county jails.  More than half of the new costs to counties would come from them paying a greater percentage of the grants paid to welfare recipients – an increase from 2.5 percent to 25 percent.  All childcare provided under the state’s welfare program, called CalWORKS, would be transferred to counties, a $1.1 billion expense during the fiscal year beginning July 1.  “There’s some nervousness about that because a lot of people need child care and it’s expensive and raising money at the local level for child care is difficult,” said Yolo County Supervisor Helen Thomson.  “Our share of grants would rise from 2.5 percent to 25 percent at a time when I just spent January to June figuring out how to cut the hell out of the Department of Employment services that administers the program. The same with probation officers, the same with the sheriff’s office, public health nurses.” 

It’s unclear what the future of the program shift is. 

In 1991, Wilson introduced the idea of restructuring in his January budget and, within one month, had convened working groups of lawmakers and administration officials to hash out details and find compromise.  Senate Democrats have introduced their plan nine days before the beginning of the fiscal year.  Among the revenues Senate Democrats propose giving to counties is an as-yet enacted tax on oil extraction.  Like other taxes, it would require a two-thirds vote, which means several Republicans would need to join with Democrats to back it. 

Republicans, both in the Senate and the Assembly, have vowed to back no spending plan containing tax increases. Included in their definition of tax increases is postponing the effective date of two tax breaks benefiting mainly large corporations approved as part of the 2009 budget compromise.  “Raising taxes to pay for the shift of programs isn’t shrinking government, it’s just avoiding the inevitable: state government has to get smaller and more efficient,” Senate GOP Leader Dennis Hollingsworth of Murrieta. 

Gov. Arnold Schwarzenegger has also said he won’t sign a budget with tax increases. And, like Republican lawmakers, he considers postponement of the tax breaks, which will eventually cost the state nearly $900 million annually, to be a tax increase.  “We’re open to restructuring government and will have a serious debate about the proposal but increasing taxes and discouraging private sector growth would be a mistake,” said Aaron McLear, Schwarzenegger’s press secretary.  “We’re also encouraged that Senator Steinberg agrees that we need to consider long-term fixes, which is why budget, tax, and pension reform must be part of any solution.” 

County representatives hold the opposite view of the GOP governor and Republican lawmakers. Any restructuring plan must contain a “viable, stable and ongoing funding stream,” the counties said in a statement.  Yolo County Supervisor Mike McGowan said the governor’s budget proposal “exacerbates our problems,” shifting as much as $4 billion in additional costs to counties, according to estimates by the California State Association of Counties.  Steinberg’s proposal is the start of a “long-overdue discussion,” McGowan said. 

“We’re between a rock and a hard place,” said Thomson of the fiscal choices for counties. “This will be a daunting task. I’m certainly not celebrating yet.”

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