Background on California Budget 2009-2010

The new budget agreement follows the general outlines of proposals originally made by the Governor and the Democrats, with budget solutions ($11.3 billion in the current fiscal year and $30.3 billion projected as deficit in FY 2009-10) reached through the following mechanisms:

1. $14.9 billion in spending reductions;
2. $12.5 billion in increased revenues;
3. $7.9 billion in federal funding from the economic recovery bill signed by President Obama last week;
4. $5.4 billion in new borrowing ; and
5. $957.2 million in line-item vetoes by the Governor.

Health and Human Services cuts “on hold”
The fiscal crisis is partially offset by the funds expected to flow into the state under the federal economic stimulus effort.  In fact, some cuts originally proposed in the budget to health and human services are on hold in hopes that their costs will be offset by federal funds, and the budget agreement includes a “trigger” that is linked to state receipt of federal funds.  Cuts totaling almost $950 million (including $129 million in Medi-Cal cuts) and $1.8 billion in tax increases will be triggered only if the state fails to receive at least $10 billion in federal funds to offset state General Fund expenditures.  The state must be assured by April 1, 2009 that the federal funds will be received by June 30, 2010 in order to turn off the trigger.  At present, it appears that the state’s funding threshold will not be met by the deadline, triggering the additional cuts, but this situation could change.

There are a number of cuts and eligibility reductions proposed by the Governor that are not part of the budget agreement, which is good news for many children and families.  For example, the budget agreement does not include the proposed elimination of over 500,000 children and adults from Medi-Cal through reduction in eligibility for people (including children) who are in Aged, Blind and Disabled Medi-Cal categories, who are recent legal immigrants, or who are immigrants in the PRUCOL category (Permanently Residing Under Color Of Law).  In other good news, the federal stimulus package forbids states from making reductions in their Medicaid eligibility standards, and as a result, as of July 1 this year, California will restore 12-month Medi-Cal eligibility for children. 

What Lies Ahead?
The future of the budget agreement depends on three factors:

1. the size of the federal stimulus share received by California (either pulling or stopping the trigger);
2. passage of all the ballot initiatives slated for the May 19, 2009 ballot; and
3. the status of state revenues in May, when the Administration proposes its May Revision.

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