The 2010-11 Budget: How the Special Session Actions Would Affect Social Services

POLICY BRIEF The 2010–11 Budget: How the Special Session Actions Would Affect Social Services MAC TAylor • l e g i s l A T i v e A n A l y s T • JAnuAry 29, 2010 The Governor declared a fiscal emer‑ For the special session, the Governor pro‑ gency on January 8, 2010, calling the poses solutions for social services programs Legislature into a special session to totaling $121 million in 2009‑10 and $2.6 billion begin taking action on the $19.9 billion in solu‑ in 2010‑11. Figure 1 (see next page) shows the tions he proposes to address the budget problem solutions by program area. The state Department and create a $1 billion reserve. Around 40 per‑ of Social Services (DSS) oversees most of these cent of the Governor’s budget solution relies on programs. The figure also displays the two main funding or flexibility to be provided by actions types of proposed solutions: expenditure reduc‑ of the federal government. Another 40 percent tions and fund shifts (federal, county, and special consists of reductions to state spending. The funds). In addition to the General Fund savings, remainder of the Governor’s proposals consists adoption of this package would result in the loss of various fund shifts. These include a proposal of about $3 billion in federal funds, assuming that that the Legislature put measures before voters in the American Recovery and Reinvestment Act June 2010 to allow use of a combined $1 billion (ARRA) is extended through June 30, 2010. Below, of Proposition 10 early childhood development we provide our analysis of the Governor’s propos‑ funds and Proposition 63 mental health services als, in some cases offer alternative approaches, funds to help balance the budget. and recommend the actions that we believe the Legislature should take on them at this time. CrossCutting issues Early Action Required. We recommend that using four separate automation systems, it gen‑ the Legislature act relatively quickly to address erally takes at least two months to implement some of the key proposals to reduce spend‑ policy changes. The federal government typically ing in social services programs because of the takes three months to modify grant levels in the lead time necessary to implement them. For Supplemental Security Income/State Supplemen‑ example, because most social services programs tary Program (SSI/SSP). Taking early action, in are administered by county welfare departments most cases by the end of March, would result An lAo reporT in achieving at least some savings in the current eral Fund savings the administration proposes, year and full savings in the budget year to ad‑ adoption of the Governor’s package would also dress the state’s sizeable budget problem. result in the loss of about $2.9 billion in federal Legislature Not Limited by the Choices Put funds, assuming that ARRA is extended through Forward by the Gover- Figure 1 nor. Although balanc‑ Governor’s Proposed Special Session Solutions ing the budget involves difficult decisions, the (In Millions) Legislature has a greater General Fund Savings Federal menu of options it can Program/Description 2009‑10 2010‑11 Funds Loss consider to address the Program Expenditure Reductions problem than just the In‑Home Supportive Servicesa Limit services to most severely $56.6 $650.8 $2,400.0 ones presented by the impaired Governor. Throughout Reduce state wage and benefit 21.3 271.8 — this report, we present support to $8.60/hour SSI/SSP more targeted approach‑ Reduce grants (1.8 percent) to the $13.7 $177.8 — es to reducing social federal minimum services programs. These CalWORKs Reduce grants by 15.7 percentb $9.4 $120.6 $468.9 alternatives achieve less Reduce maximum child care — 54.8 — savings than the Gover‑ reimbursement rates nor but attempt to ensure Eliminate Programs for Legal that the most vulnerable Noncitizens Cash Assistance Program for $8.1 $107.3 — recipients continue to re‑ Immigrants ceive some services. Ac‑ California Food Assistance Program 3.8 56.2 — CalWORKs grants and services 0.7 21.8 $33.6 cepting these alternatives Subtotals ($113.6) ($1,461.1) ($2,902.5) could mean, however, Funding Shifts that greater reductions Proposition 10 would have to be made Redirect reserves and revenues to — $550.0 — in other areas of the bud‑ offset General Fund get, or that it would have County Funding Redirect county savings to — 505.5 — to approve additional children’s programs revenue measures. The Foster Care Legislature should care‑ Increased federal eligibility for $7.5 86.9 — Foster Care fully consider these kinds Subtotals ($7.5) ($1,142.4) — of trade‑offs in address‑ Totals $121.1 $2,603.5 $2,902.5 ing the budget shortfall. a General Fund savings are overstated because figures include about $200 million in savings that would Impact on Federal be achieved under current state law, but have been enjoined in federal court. The federal fund loss is also overstated for the same reason. Funds. In addition to b These amounts reflect the total CalWORKs program savings. Some of these General Fund savings are the $2.7 billion in Gen‑ through fund shifts to other departments. 2 Legislative Analyst’s Office www.lao.ca.gov An lAo reporT June 30, 2011. ( The ARRA temporarily increases do not reflect another proposal for a permanent federal financial participation from 50 percent to increase in the federal share of Medicaid costs to 56 percent for foster care, and from 50 percent 57 percent proposed in the Governor’s budget. to 62 percent for In‑Home Supportive Services That is because, as we discuss in our recent [IHSS], while also providing a new 80 percent report, How the Special Session Actions Would funding stream for certain California Work Op‑ Affect Health Programs, while we believe it is portunity and Responsibility to Kids [CalWORKs] reasonable to assume that the state will receive costs.) The loss of federal funding would gener‑ an extension of the enhanced sharing ratio pro‑ ally be lower if ARRA is not continued. vided under ARRA, we believe it is unlikely that The General Fund savings amounts identified the state will be given an increase in the base throughout this report assume continuation of federal share of support. ARRA funding through the end of 2010‑11, but in-Home supportive serviCes The IHSS program provides in‑home care over 460,000 in the current year, as shown in for persons who may be at risk for institutional Figure 2. The Governor’s budget estimates that placement without such assistance. Assistance the caseload will reach nearly 490,000 cases in is provided with tasks such as cleaning, meal 2010‑11, an increase of 6.5 percent over the cur‑ preparation, bathing, grooming, and errands. The rent year. federal, state, and local governments share in the LAO Comments cost of IHSS. The administration’s budget plan proposes to achieve General Fund savings in the Actual Caseload Lower Than Budget Esti- IHSS program by (1) reducing state support for mate. Our examination of caseload data indi‑ the wages and benefits paid to providers and cates that the caseload is significantly below (2) imposing restrictions on eligibility. the Governor’s current estimate for the first six months of 2009‑10. Our own lower estimate IHSS C I o aSeload S verbudgeted shown in Figure 2, which takes into account Governor’s Budget Proposal for the most recent actual monthly caseload data from December 2009, shows that the total The revised budget proposal for IHSS for 2009‑10 assumes that the caseload will grow by Figure 2 7 percent over the previ‑ IHSS Caseload ous year. As a result, the Governor’s Budget and LAO Estimate budget estimates that, Difference Governor’s LAO absent any proposed Year Budget Estimate Amount Percent eligibility restrictions, 2008-09 429,786 429,786 — — the average number 2009-10 460,041 448,613 -11,428 -2.5% 2010-11 489,972 476,212 -13,760 -2.8 of IHSS cases will be www.lao.ca.gov Legislative Analyst’s Office 3 An lAo reporT caseload is overstated by 2.5 percent in the cur‑ reduction, which had been adopted as part of rent year and by 2.8 percent in the budget year. the 2009‑10 budget plan. Due to the injunction, Because the caseload is overstated, we estimate the state is still participating in wages and ben‑ that the IHSS caseload is overbudgeted by about efits up to $12.10 per hour. Compared to current $35 million from the General Fund ($141 million state law, the incremental savings from the Gov‑ for all funds) in the current year. ernor’s proposal to further reduce state participa‑ tion from $10.10 to $8.60 is about $192 million Analyst’s Recommendation in 2010‑11. For the reasons discussed above, we recom‑ County Discretion. The proposed reduction mend that the Legislature recognize a General would not limit the amount counties could pay Fund savings of $35 million in 2009‑10 in re‑ their IHSS providers, but rather would reduce the gard to IHSS caseload. It is also likely that there state’s level of support for the wages. Depending will be caseload savings in the budget year. We on county decisions, this proposal would either will continue to monitor the IHSS caseload and result in county General Fund costs (because a report at May Revision if additional caseload county elects to backfill the decreased state funds) adjustments are warranted. or reduced provider wages (because a county does not backfill). This proposal would not imme‑ r S P eduCIng tate artICIPatIon In diately impact the 13 counties which are currently IHSS P W rovIder ageS paying providers $8.60 or less per hour. Governor’s Budget Proposal Impact on Federal Funds. The administra‑ tion assumes that this proposal will not result in Effective June 1, 2010, the Governor’s budget federal funds loss because it further assumes that proposes to reduce state participation in IHSS the counties will maintain wages at current levels provider wages and benefits to a combined by backfilling the lost General Fund with county $8.60 per hour (the $8.00 minimum wage estab‑ funds. However, to the extent counties decrease lished under state law, plus $0.60 for health ben‑ wages as a result of this reduction, there will be efits). This proposal is estimated to save $21 mil‑ federal funds loss for the state. lion in 2009‑10 and $272 million in 2010‑11, and Legal Risks and a New Federal-State Re- would eliminate potential costs beyond 2010‑11 lationship. Although the 2009‑10 Budget Act associated with future county wage increases. reduced state participation in provider wages LAO Comments and benefits, a federal injunction has prevented implementation of the reduction. The Gover‑ Impact of Current Law. We note that a nor’s proposal to reduce wages to $8.60 per portion of the savings shown by the administra‑ hour would likely face the same legal challenges tion in its budget plan would have resulted from and implementation would likely be delayed. the implementation of current law, which re‑ To address this issue, the Governor is requesting duced state participation in wages and benefits additional operating flexibility from the federal from $12.10 to $10.10 per hour. (We estimate government in order for proposed program re‑ this to be about $7 million out of $21 million in ductions to be made. This additional flexibility is 2009‑10, and $80 million out of $272 million in part of what it terms a new “federal‑state rela‑ 2010‑11.) A federal judge has issued an injunc‑ tion preventing the state from implementing the 4 Legislative Analyst’s Office www.lao.ca.gov An lAo reporT tionship,” involving federal intervention which IHSS e r lIgIbIlIty eStrICtIonS could potentially alleviate the legal risks associ‑ Governor’s Budget Proposal ated with this proposal. The services received by an IHSS recipient Impact on Supply of Providers. In the past, depend on their impairment as assessed by a we have noted that long‑term wage decreases county social worker. This is accomplished using could eventually impact the supply of quali‑ a uniform assessment tool to rank the recipient’s fied IHSS providers. However, given the current impairment on various IHSS tasks. The various recession, and the high unemployment rates ranks are averaged together to create a functional throughout the state, we do not believe that a index (FI) score. The score ranges from wage reduction proposal would have a signifi‑ 1 (least impaired) to 5 (most impaired). Effective cant impact on the availability of IHSS providers June 1, 2010, the Governor’s budget proposes at this time. This wage reduction would reduce to eliminate IHSS for recipients with FI scores of provider income, but is unlikely to significantly less than 4. This proposal is estimated to reduce impact services for IHSS recipients. the IHSS caseload by 87 percent and save about Analyst’s Recommendation $57 million in 2009‑10 and about $651 mil‑ lion in 2010‑11. (The administration proposes a Temporarily Reduce Wages to Minimum. further reduction—involving the total elimination Given the current recession, and the growing of IHSS—under his budget trigger proposal. This expense of the IHSS program, we recommend further action is assumed by the administration to that the Legislature temporarily reduce state result in $495 million in savings.) participation in IHSS provider wages and ben‑ efits to $8.60 per hour. We believe that a wage LAO Comments reduction would achieve IHSS savings in a way Impact of Current Law. A portion of the that moderates the impact to IHSS recipients. We savings reflected in the administration’s budget note that implementation of this wage reduction plan would come from the restrictions in current would depend on federal government interven‑ law on program eligibility (we estimate this to be tion or a decision by a federal judge in now‑ about $8 million out of $57 million in 2009‑10, pending litigation that such budget reductions are and $99 million out of $651 million in 2010‑11). permissible. Current law generally eliminated IHSS for recipi‑ If the Legislature reduces state participation ents with FI scores of less than 2 (with exceptions and it is deemed federally permissible, the Legisla‑ for recipients with certain services). However, a ture should monitor whether wages are sufficient federal judge has issued an injunction prevent‑ to attract an adequate supply of providers. To this ing the state from implementing the reduction, end, the LAO will analyze monthly reports that which was adopted as part of the 2009‑10 bud‑ document the number of IHSS hours that are be‑ get plan on the basis that the FI scoring system is ing authorized and claimed each month. We will not an accurate measure of a recipient’s level of report to the Legislature if the utilization of autho‑ impairment. The incremental additional savings rized hours appears to be affected by the reduc‑ estimated by the administration in its 2010‑11 tion in state participation in wages. budget proposal is about $552 million. www.lao.ca.gov Legislative Analyst’s Office 5 An lAo reporT Legal Risks and a New Federal-State Rela- the Governor’s proposal to eliminate services to tionship. The Governor’s proposal to eliminate recipients with a FI score below 4 saves about IHSS for recipients with FI scores of less than 4 $650 million General Fund, but results in a loss would likely face the same legal challenges as of about $2.4 billion in federal funds in 2010‑11. current law and implementation would likely be This loss of federal funds would not be as signifi‑ delayed. Similar to the reduction in state partici‑ cant if ARRA is not continued, as shown in the pation in wages described above, this is another figure below. reduction where the administration is relying on LAO Recommendations federal intervention to implement the reduction or a favorable court decision. Potential Short-Term Solutions Are Risky. As Governor’s IHSS Reduction Goes Too Far. we have explained above, it is possible to adopt As we have explained in our January report, smaller, more targeted reductions without creat‑ Considering the State Costs and Benefits: In‑ ing additional costs in other programs that more Home Supportive Services, the complete elimina‑ than offset the savings that would be achieved in tion of IHSS (or the dramatic reduction in eligi‑ IHSS. For example, the Legislature could elimi‑ bility proposed in the Governor’s budget plan) nate services for recipients with a FI score of less would likely lead to offsetting costs that more than 2.5. The magnitude of any reduction is a than outweigh the savings from its elimination. fiscal and policy decision for the Legislature that Given the magnitude of this proposed reduc‑ should balance such factors as the state’s fiscal tion, we find that it would likely result in costs difficulties against the value of the program in in developmental services and skilled nursing improving the quality of life of recipients. How‑ facilities that would more than offset the savings ever, it would be risky to assume savings from in IHSS. (While the Governor’s budget includes such actions in the current and budget years. $50 million for increased costs for developmental This is because the state would need to receive services relating to IHSS reductions, our analysis a favorable federal court decision or obtain new indicates that these impacts are understated.) flexibility from Congress or the federal admin‑ Reductions to the IHSS program are possible, istration to implement such program changes. as long as they are smaller and are targeted to Given these risks, we recommend that the Leg‑ reduce the cost of services for those recipients islature focus its work in the special session on who are least likely to enter institutional care. developing a better measure of impairment for Substantial Federal Funds Loss. Because the IHSS recipients. Such a new measure would fa‑ federal, state, and county governments all have a cilitate future legislative action on reforms which share in the costs of the IHSS program, a reduc‑ tion of the magnitude proposed by the admin‑ Figure 3 Comparing Costs of IHSS With and istration would result in a substantial additional Without ARRA loss of federal funds. As shown in Figure 3, the state General Fund share of the IHSS program is Share of IHSS Program Costs currently about 25 percent, due to the enhanced Under ARRA Without ARRA federal funding received under ARRA. The fed‑ Federal 61.6% 50.0% State 25.0 32.5 eral share is about 62 percent, with the remain‑ County 13.4 17.5 ing portion, 13 percent, borne by counties. Thus, 6 Legislative Analyst’s Office www.lao.ca.gov An lAo reporT would base service delivery on the severity of ment no later than January 10, 2011. In develop‑ impairment. ing the new measures, DSS should be directed Developing a Better Measure of Impair- to convene at least two stakeholder meetings ment. As we have noted in this report and in our including, but not be limited to, provider organi‑ January report on IHSS, the most fiscally sound zations, consumer organizations, social workers way to make reductions to this program is to who conduct assessments, county representa‑ reduce services for recipients who are least likely tives, and legislative staff. The new system for to enter an institution in the absence of those measuring impairment should require that a services. The current system of FI scores was not social worker make a specific finding whether designed to measure the likelihood of a client the client needs IHSS services in order to avoid entering a nursing home. In fact, one key argu‑ institutional placement. ment in the federal case which enjoined the state Basing Service Delivery on the Level of from implementing a targeted reduction was that Impairment. In our January report on IHSS, we FI scores were an inadequate measure of impair‑ outlined a tiered approach to delivering IHSS. ment and risk of institutionalization. We believe Service levels would be correlated to the new a better measure should be developed for two measure of impairment and risk. Such an ap‑ reasons. First, it will better enable the Legislature proach could provide a continuum of care which to target services to those most at risk of insti‑ would help all Californians delay or avoid the tutionalization. Second, it will strengthen the need to enter an institution while better targeting state’s position with respect to legal challenges services to those with the greatest impairment. in federal court. Accordingly, we recommend Although subject to federal approval, we believe enactment of legislation requiring DSS to present this approach would have a better chance of the Legislature with a new system of measuring surviving potential legal challenges. impairment and the risk of institutional place‑ supplemental seCurity inCome/ state supplementary program The SSI/SSP provides monthly cash grants for r g eduCe rantS to tHe low‑income aged, blind, or disabled individu‑ F M ederal InIMuM als and couples. The SSI portion of the grant is Governor’s Budget Proposal supported by federal funds and the SSP portion The Governor’s plan reduces SSP grants for is a state‑only supplement to the federal grant. individuals to the minimum levels allowed under Federal law requires that the SSP portion of the federal law. (Grants for couples were reduced grant be “maintained” at or above its 1983 level. to the federal minimum as part of the 2009‑10 Failure to comply with this requirement would Budget Act.) As seen in Figure 4, the SSP por tion result in the loss of all federal Medicaid health of the grant would be reduced to a maximum care program funding (the program is known as of $156 per month for individuals, effective June Medi‑Cal in California). Under current law, a fed‑ 2010. This would result in a $15 (1.8 percent) eral cost‑of‑living adjustment (COLA) is applied monthly grant reduction. Although grants would to the federal portion of the grant every January. www.lao.ca.gov Legislative Analyst’s Office 7 An lAo reporT be reduced under this proposal, as shown in provides monthly benefits to low‑income house‑ Figure 4, grants for individuals and couples are holds and individuals to assist them with food expected to increase in January 2011 due to the purchases. The cost of the federal food benefits federal COLA. Reducing grants to the federal is borne entirely by the federal government, minimum would make about 8,900 recipients while the associated administrative costs are ineligible for SSI/SSP. Generally these recipients shared among the federal government, the state, are receiving grants of less than $15 per month. and the counties. Beneficiaries receive a debit They become ineligible because their income card which reloads each month with their food would exceed the revised income eligibility stan‑ stamps allotment. dards for SSI/SSP associated with the grant reduc‑ In California, recipients of SSI/SSP are not tion. This proposal is estimated to save about eligible for federal food stamp benefits. This is $14 million for the General Fund in 2009‑10 and because California has opted to increase the SSP $178 million in 2010‑11. portion of the grant (by $10 monthly) rather than administer food stamps to SSI/SSP recipients. This LAO Alternative is known as the food stamp “cash‑out” policy. No Pass-Through of Federal COLA. As The Legislature has the option of reversing noted above, the federal government applies a the cash‑out policy to allow SSI/SSP recipients COLA to the federal SSI portion of the grant each to apply for food stamps. Reversing the cash‑out January. One possible alternative to the Gover‑ would benefit some SSI/SSP recipients by mak‑ nor’s proposal would be to reduce the state SSP ing them eligible for food stamps, while reduc‑ portion of the grant by the dollar amount that the ing food stamp benefits for others. Generally, SSI portion of the grant increases due to the Janu‑ those who would benefit from the reversal of the ary 2011 federal COLA. This option is known cash‑out would be those with lower income who as “not passing through the federal COLA.” As live in households comprised only of SSI/SSP seen in Figure 5, this option would reduce SSP recipients. The households most likely to experi‑ monthly grants for individuals by about $13 to ence a reduction in food stamp benefits would $158 effective January 2011. This would keep to‑ be in cases where SSI/SSP recipients reside with tal grants for individuals Figure 4 at current levels ($845) SSI/SSP Maximum Monthly Grants: Governor’s Proposal until January 2012, when the next federal COLA Governor’s Budget Current is scheduled. Assuming Levels June 2010 January 2011 a January 1 implemen‑ Individuals tation date, this would SSI $674 $674 $687 SSP 171 156 156 result in General Fund Totals $845 $830 $843 savings of about $51 mil‑ Percent of Poverty 94% 92% 93% lion in 2010‑11. Couples Option to Make SSI/ SSI $1,011 $1,011 $1,031 SSP Recipients Eligible SSP 396 396 396 for Food Stamps. The Totals $1,407 $1,407 $1,427 Food Stamp program Percent of Poverty 116% 116% 118% 8 Legislative Analyst’s Office www.lao.ca.gov An lAo reporT other existing food stamp recipients whose total · About 35,000 households would lose income tends to be higher. an average of $209 per month in food Preliminary analysis from the DSS indicates stamps and become ineligible. that in 2009 there were roughly 956,000 SSI/ After accounting for the increases and de‑ SSP households in California (representing about creases in food stamp benefits for households, 1.25 million recipients). If all eligible food stamp it is estimated that reversing the cash‑out would recipients applied for and receive benefits, DSS result in a net increase of about $125 million estimated the reversal of the cash‑out would in additional food stamp benefits for California have the following effects: households. The General Fund administrative · Over 300,000 households would be cost of reversing the cash out is estimated to be newly eligible for between $16 and $17.4 million in the first year and $6.8 million an‑ $69 per month in food stamp benefits. nually thereafter. · About 120,000 households would retain Analyst’s Recommendation food stamps benefits and would experi‑ Reduce Grants to Minimum and Consider ence an average increase of about Reversing Food Stamp Cash-Out. Given the cur‑ $15 per month. rent fiscal situation facing the state, we recom‑ · About 425,000 households would remain mend reducing the SSP grant for individuals to ineligible for food stamps (because their the federal minimum. Because this reduction total grant, Social Security, and other only impacts the state portion of the SSP grant, income is above the food stamp income it does not result in the loss of federal funds. We eligibility thresholds). note that grants for individuals and couples will increase (by an estimated $13 for individuals and $20 for couples) in January 2011 due to an Figure 5 estimated COLA. SSI/SSP Maximum Monthly Grants: Additionally, we recommend that the Leg‑ No Pass‑Through Option islature examine the potential net benefits of No Pass‑ reversing the food stamp cash‑out policy. This Current Through Levels January 2011 would result in additional federal food stamps for lower‑income California households and, Individuals SSI $674 $687 in some cases, offset the SSP grant reduction. SSP 171 158 Although some households would lose food Totals $845 $845 stamps eligibility as a result of the reversal, these Percent of Poverty 94% 94% are households with higher combined income Couples levels than the households that would gain food SSI $1,011 $1,031 stamps as a result of reversing the cash‑out. The SSP 396 396 Totals $1,407 $1,427 key implementation issue is the development of a Percent of Poverty 116% 118% streamlined eligibility process for former SSI/SSP recipients. Such a process would most likely www.lao.ca.gov Legislative Analyst’s Office 9 An lAo reporT include making SSI/SSP recipients automati‑ from an existing fingerprinting requirement. This cally eligible for food stamps (subject to benefit streamlined approach would increase the likeli‑ determination based on income), waiving the hood that all newly eligible recipients actually in‑person interview sometimes required for food receive the food stamp benefits. stamp recipients, and providing an exception CalWorKs: reduCe grants by 15.7 perCent Governor’s Budget Proposal associated with this grant reduction. To convert the TANF funds into additional General Fund Grant Reduction. Effective June 2010, the savings, the Governor transfers these funds to the Governor proposes to reduce maximum monthly Department of Developmental Services (DDS) CalWORKs grants by 15.7 percent, which would ($43 million) and the Student Aid Commission amount to a reduction for a family of three of ($18 million). This results in identical General $109 in the high‑cost counties and $104 in the Fund offsets in these departments. low‑cost counties. The proposed reduction would result in General Fund savings of $9 mil‑ LAO Comments lion in 2009‑10 and $121 million in 2010‑11 for a Comparison to Poverty. Food stamp al‑ total of $130 million in combined General Fund lotments depend on income, including grant and federal Temporary Assistance for Needy income. When grants are decreased, food stamp Families (TANF) block grant savings. According benefits increase for most families. Figure 6 to DSS, the 15.7 percent grant reduction would shows the maximum monthly grants and esti‑ make the maximum grant in California equal to mated food stamps benefits under current law the average grant in the ten states with highest and Governor’s proposal. As the figure shows, rental housing costs. relative to the 2009 federal poverty guideline, Interaction With Maintenance-of-Effort combined maximum monthly benefits would (MOE). The Governor’s proposed grant reduc‑ decline to 73 percent of poverty in high‑cost tion results in total savings (General Fund and counties and 71 percent in low‑cost counties. TANF block grant funds) of $130 million. In Figure 6 2010‑11, proposed CalWORKs Maximum Monthly Grant and Food Stamps CalWORKs spending ab‑ Family of Three, June 2010 sent this grant reduction Change Current Governor’s exceeds the federal Law Proposal Amount Percent CalWORKs MOE re‑ High‑Cost Counties quirement by $69 mil‑ Grant $694 $585 -$109 -15.7% Food Stamps 498 526 28 5.6 lion. Thus, only $69 mil‑ Totals $1,192 $1,111 ‑$81 ‑6.8% lion of General Fund Percent of Poverty 78% 73% savings can be achieved Low‑Cost Counties in CalWORKs. This Grant $661 $557 -$104 -15.7% Food Stamps 508 526 18 3.5 leaves $61 million in Totals $1,169 $1,083 ‑$86 ‑7.4% TANF block grant funds Percent of Poverty 77% 71% 10 Legislative Analyst’s Office www.lao.ca.gov An lAo reporT Savings Tied to Federal Fund Assumptions. would now fall below the revised eligibility Pursuant to ARRA, TANF Emergency Contin‑ thresholds associated with the grant reduction. gency Fund (ECF) provides 80 percent federal Analysts’ Recommendation participation in increased grant costs above each state’s base costs in 2007. This funding stream We recommend that any CalWORKs reduc‑ is scheduled to sunset on September 30, 2010. tion be adopted on a contingent basis, whereby The Governor’s budget assumes it will continue the cut is made only when the federal TANF ECF until June 30, 2011. Under the Governor ’s as‑ expires. Once this funding expires, a CalWORKs sumptions, the proposed reduction results in grant reduction could be achieved with no loss General Fund savings of $120 million in 2010‑11 in federal funds. Given there is no loss in federal and a corresponding federal funds loss of about funding and the reduction is partially offset by an $470 million. We note that, if ARRA is not ex‑ increase in food stamps, the Legislature should tended, the Legislature could delay this reduction target significant savings in this area on a contin‑ until October 1, 2010 and achieve General Fund gent basis. savings of approximately $440 million with no If ARRA is not extended, CalWORKs Gen‑ loss in federal funds. eral Fund spending would be well above the Criteria for Setting Grant Levels. In setting MOE requirement. All the savings from any grant the maximum grant level, the Legislature will reduction adopted by the Legislature could be have to prioritize among the competing goals of achieved within the CalWORKs General Fund achieving budgetary savings, providing income budget. There would be no need for any TANF maintenance to low‑income families with chil‑ transfers to DDS or the Student Aid Commission. dren, giving adults an incentive to work, and Finally, if the Legislature rejects the Governor’s meeting federal TANF work participation require‑ proposal, General Fund backfills must be pro‑ ments. The Governor’s proposal would make vided to the respective budgets of DDS and the about 8,400 families with significant earnings Student Aid Commission. ineligible for the program because their income CalWorKs: CHild Care reimbursement rates CalWORKs child care is administered in budgeted with the state Department of Educa‑ three stages. Stage 1 child care is provided by tion (including funding for CalWORKs Stages 2 the county welfare departments to CalWORKs and 3). However, funding for CalWORKs Stage 1 recipients as soon as a family needs child care child care is budgeted within DSS. so that the parent can meet participation require‑ Governor’s Budget Proposal ments. After the family’s child care situation is “stable,” the family may move into Stage 2 where Rate Reductions. Currently, California will their child care is guaranteed for two years after pay up to the 85th percentile of the regional leaving CalWORKs cash aid. Stage 3 provides market rate (RMR) (as determined by surveys child care to former CalWORKs families who of providers) for child care in each county. The have exited Stage 2. Most child care funding is Governor proposes to reduce the maximum www.lao.ca.gov Legislative Analyst’s Office 11 An lAo reporT reimbursement rate to the 75th percentile of the Analyst’s Recommendation RMR. He also proposes to reduce the reimburse‑ Given the state’s fiscal situation, we support ment rate for certain child care facilities that the concept of reducing reimbursement rate are exempt from licensing from 90 percent to ceilings. A more complex issue is whether to 70 percent of the reimbursement rate for family use more recent survey data to update the RMR. child care homes. These changes would result in The Governor proposes to use the 2005 survey General Fund savings of $55 million in Stage 1 data and indicates that using the more recent child care, and $77 million in the Department of survey would substantially reduce savings. We Education child care. The Governor also pro‑ recommend that any legislative actions taken on poses to reduce funding for Stage 3 child care by child care reimbursement rates in CalWORKs be $123 million. consistent with the decisions made in the De‑ partment of Education. elimination of programs for legal nonCitizens California provides cash assistance and food CalWORKs Assistance. Finally, through the stamps to legal noncitizens through several pro‑ CalWORKs program, California provides grants, grams, as described below. child care, and welfare‑to‑work services to legal Cash Assistance Program for Immigrants immigrants who have been in the United States (CAPI). The CAPI provides state‑only funded for less than five years. Although such immigrants benefits to legal noncitizens who would other‑ are typically not eligible for regular TANF block wise be eligible for SSI/SSP but for their citizen‑ grant funding, they may be funded by state MOE ship status. The CAPI recipients include two funding. Moreover, their grant costs are eligible for groups. Those in the “base” CAPI group arrived 80 percent TANF ECF funding. before 1996, or have a sponsor who is dead, Governor’s Budget Proposal disabled, or abusive. Generally, the “extended” CAPI group is comprised of sponsored immi‑ Effective June 2010, the Governor proposes grants who have been in the U.S. in excess of the to eliminate CAPI, CFAP, and CalWORKs for ten‑year deeming period whereby the income of recent legal noncitizens. For 2010‑11, these their sponsor was deemed to the immigrant for proposals would result in savings of $107 million, purposes of financial eligibility. $56 million, and $22 million, respectively. California Food Assistance Program (CFAP). LAO Alternatives The CFAP provides state‑only funded food stamp benefits to legal noncitizens who are not eligible for Rather than eliminate these programs, the federal food stamps. The federally ineligible group Legislature has a number of options which would is comprised of adults age 18 to 64 who have been achieve less savings but limit the potential ad‑ in the United States for less than five years (all other verse impacts on recipients. Because these are legal immigrants are federally eligible). state‑only funded programs, the Legislature has 12 Legislative Analyst’s Office www.lao.ca.gov An lAo reporT significant flexibility in setting benefit levels and $18 million in 2010‑11, with full‑year savings in eligibility requirements. We discuss these alterna‑ 2011‑12 of about twice that amount. tives below. Conditioning Benefits on Progress Toward Prospective Elimination. The availability of Citizenship. Most recipients of these state‑only these state‑only programs may have influenced programs could become U.S. citizens after resid‑ immigrants’ decisions about when, whether, ing in the United States for five years. Most new and where to immigrate into the United States. citizens qualify for federal benefits, resulting in To avoid any impacts on current recipients who significant state savings. The Legislature could have already immigrated to California based on make continued receipt of state‑only benefits current programs, the Legislature could prospec‑ contingent on commencing and making progress tively eliminate these programs for immigrants toward citizenship requirements. Savings from arriving after a specified date. Existing recipients this approach are hard to estimate and would in would continue to receive benefits. This ap‑ part depend on the administrative costs associ‑ proach would achieve savings of approximately ated with enforcing such a requirement. $18 million in CAPI, $11 million in CFAP, and Restricting Eligibility to the Most Vulner- about $3 million in CalWORKs in 2010‑11. Pro‑ able. Many CAPI and CFAP recipients reside in gram costs would continue to decline slowly in larger households which include members re‑ years beyond 2010‑11. ceiving federally funded benefits. The Legislature Gradual Partial Phase-Out for Existing could limit CAPI and CFAP eligibility to nonciti‑ Cases. In addition to the alternative approach zens residing alone without any other means of described above, the Legislature could gradually support. Such approaches would result in savings phase out benefits for the existing caseload. This of about 40 percent of current program costs. would give existing recipients more time to find Analyst’s Recommendation other resources through earnings, friends, family, or charitable organizations to offset the loss of Because the state can reduce costs in CFAP state assistance. It would also give current recipi‑ and CAPI without a corresponding loss in fed‑ ents an incentive to attain citizenship and be‑ eral funds (unlike some other budget choices), come eligible for federal benefits. This approach we recommend that the Legislature set a goal of probably makes the most sense for CAPI, because achieving at least half of the Governor’s pro‑ it is a stand‑alone program administered by the posed savings of $164 million through the vari‑ counties. (Although possible in CalWORKs and ous options we have outlined. With respect to CFAP, this approach would be creating two sets CalWORKs noncitizens, we recommend that any of rules within one program and would be more reduction be made contingent on the expiration difficult to administer.) For illustrative purposes, of the 80 percent TANF ECF in order to avoid a a 50 percent grant reduction in CAPI effective proportionally high loss of federal funds. January 1, 2011 would result in savings of about www.lao.ca.gov Legislative Analyst’s Office 13 An lAo reporT proposition 10 early CHildHood development programs Proposition 10 was enacted by the voters of Voluntary Contributions. In addition to the California in the November 1998 election. The savings from the proposed ballot measure, the initiative measure created the California Chil‑ budget assumes that Proposition 10 local com‑ dren and Families Commissions, now commonly missions will voluntarily provide an additional known as the state and local First 5 Commis‑ $50 million to the DDS Early Start program and sions, which rely upon revenues generated by $55.6 million to the Managed Risk Medical Insur‑ state excise taxes on cigarettes and other tobacco ance Board Healthy Families Program (HFP) on a products to fund early childhood development one‑time basis in 2010‑11. programs for children up to age five. Proposi‑ LAO Comments tion 10 revenues amount to about $500 million for the current year, of which the local commis‑ As noted above, the administration indicates sions receive 80 percent while the state commis‑ an amount ranging between $249 million and sion receives the remaining 20 percent. $308 million in Proposition 10 state commis‑ sion reserves. The budget assumes $308 million Governor’s Budget Proposal will come from the state commission reserves to Ballot Measure. The Governor’s budget offset General Fund costs in 2010‑11. The actual proposes to place before voters in the June 2010 amount available for the one‑time sweep of the election a measure to allow the use of Proposi‑ state commission’s reserves will depend on the tion 10 funds for General Fund‑supported chil‑ commission’s fund balance as of June 30, 2010. dren’s programs in DDS and DSS. Specifically, We are still assessing whether these funds would the proposed ballot measure would (1) sweep up be available. to $308 million, but not less than $249 million, Also, we note that the Governor’s budget on a one‑time basis from the state commission’s assumes voluntary contributions from the local fund reserves and (2) redirect around 50 percent commissions to Early Start and HFP, even though of state and local commissions’ ongoing reve‑ the local commissions have yet to make any nues—amounting to an estimated $242 million in funding commitments for 2010‑11. This means 2010‑11—for five years to fund various state chil‑ it is uncertain at this point whether the General dren’s programs. This proposal would result in Fund savings assumed from this approach will General Fund savings of $550 million ($200 mil‑ actually be realized in the budget year. lion in DDS and $350 million in DSS) in 2010‑11. LAO Alternatives The General Fund savings and the funds remain‑ ing for the commissions would decline gradually The Legislature may wish to consider the in the out‑years, in accordance with the slow following additional options to increase the decreases that have been occurring in tobacco magnitude of the General Fund solution that is product consumption and related revenues. proposed to come from Proposition 10. Assure Local Funds Are Available for State Programs. Rather than rely on a total of 14 Legislative Analyst’s Office www.lao.ca.gov An lAo reporT $105.6 million in voluntary contributions from Analyst’s Recommendation the local commissions for Early Start and HFP, Proposition 10, which generally funds early the Legislature may wish to sweep this amount childhood development, health, and education on a one‑time basis from the local commissions’ programs that were designed to be enhance‑ reserves. This option would eliminate the risk ments to previously existing core programs, was of budget deficits in Early Start and HFP, should approved by voters during a period when state the local commissions not provide the voluntary finances were healthier. Given the state’s fiscal contributions for these programs in 2010‑11. On condition now, we believe it is reasonable for the the other hand, this would leave the local com‑ Legislature to consider a reduction to programs missions with lower reserves to prioritize their for enhanced services, such as Proposition 10, temporarily reduced revenues to meet local rather than cut more deeply into core programs. needs. In considering this option to sweep some Accordingly, we recommend the Legislature local reserves, the Legislature should weigh the adopt the Governor’s proposal to ask the voters trade‑offs of securing Proposition 10 funding for to prioritize the use of Proposition 10 funds to Early Start and HFP in 2010‑11 versus providing a support core children’s programs and services. level of flexibility for local Proposition 10 com‑ Moreover, the Legislature may wish to go beyond missions to prioritize their commitments while the Governor’s proposal by considering the addi‑ temporarily receiving decreased revenues. tional alternatives we presented above to (1) not Permanently Redirect a Portion of Propo- rely on voluntary contributions from local First sition 10 Funds. The Legislature could perma‑ 5 commissions, and instead redirect additional nently redirect 50 percent of the Proposition 10 funding for these purposes, and/or (2) make the revenues to General Fund‑supported children’s ongoing redirections of funding permanent. We programs, rather than adopt the administration note that early action is necessary for the Legis‑ proposal for a five‑year period. Under this ap‑ lature to qualify any Proposition 10 measure for proach, the Legislature could leave both the state the June 2010 election. and local commissions’ existing reserves intact, which would help the commissions transition to a permanently reduced program environment. redireCtion of County savings to CHildren’s programs Governor’s Budget Proposal reductions and increased federal funding would result in county savings of about $675 million. As previously described, the Governor’s bud‑ The Governor proposes to redirect a por‑ get proposes several reductions to the IHSS and tion of these county savings—$505.5 million in CalWORKs programs, as well as increased fed‑ 2010‑11—to fund increased county shares of cost eral funding for various social services programs, in the Foster Care, Adoption Assistance (AAP), which would result in General Fund savings of and Child Welfare Services programs. Figure 7 about $950 million in 2010‑11. Because coun‑ shows the existing state and county shares of ties have a share of cost in these programs, the www.lao.ca.gov Legislative Analyst’s Office 15 An lAo reporT nonfederal costs for these children’s programs, as in cost‑sharing ratios for children’s programs well as the proposed changes and corresponding would create fiscal winners and losers among General Fund savings. counties. Moreover, it is likely that the savings expe‑ LAO Comments rienced by counties from the proposed social Potential Mandate Issues. Whenever the service program reductions and increased federal Legislature or any state agency mandates a new funding—some of which are temporary—would program or higher level of service on any local vary significantly from year to year. Therefore, government, the California Constitution generally the state might need to establish a mechanism to requires the state to reimburse that local govern‑ adjust these new cost‑sharing ratios for children’s ment for its costs of complying with that man‑ programs each year to avoid inadvertently creat‑ date. Proposition 1A (enacted in 2004) expanded ing a reimbursable state mandate. the definition of a new program or higher level Finally, the “offsetting savings” provision of of service to include certain changes in program mandate law has been used very infrequently cost‑sharing ratios between state and local gov‑ and is not well‑established. In addition, the Com‑ ernments. mission on State Mandates (CSM) advises us that The Constitution and statutes establish some it has never ruled on a case in which the savings exemptions to these reimbursement require‑ from one program were proposed to be applied ments. One such exemption (specified in statute) to another. Therefore, it is difficult to determine is when the cost of a new local requirement is whether the Governor’s proposal could use this fully offset by savings to local agencies, so that exemption and avoid being found to be a state‑ the local agencies incur no net costs from the reimbursable mandate. new state requirement. The administration argues Interaction With Previous Realignments. In that its proposal does not constitute a reimburs‑ 1991, the state enacted major changes in sev‑ able state mandate because the state is providing eral social services programs to realign program such offsetting savings. control and funding responsibility from the state However, it is difficult to determine whether to local governments. Counties were provided the Governor’s proposal actually does avoid with dedicated tax revenues from the sales tax creating a new reimbursable state mandate for all and vehicle license fees to pay for these changes. counties. The caseloads for each of these pro‑ Over the years, caseload increases and other grams vary significantly from county to county. Figure 7 This means that a par‑ Redirection of County Savings to Children’s Programs ticular county may not Changes in Sharing Ratios and Estimated Savings receive the same level State/County Sharing Ratio of savings from these 2010‑11 General Program Existing Proposed Fund Savings program reductions or increases in federal fund‑ Child Welfare Services 70/30 30/70 $93.2 Adoption Assistance 75/25 41/59 154.5 ing than another county. Program Therefore, the proposed Foster Care 40/60 25/75 257.8 across‑the‑board change Total $505.5 16 Legislative Analyst’s Office www.lao.ca.gov An lAo reporT factors have increased the costs of many of these Policy Rationale for Realignment. As we social services programs. The base amount of have discussed in several previous publications, funding dedicated to social services from this realignment, implemented correctly, can im‑ original realignment, however, has not kept pace prove the management and delivery of important with these increased program costs. In addition, programs. For this reason, we believe the Legisla‑ counties have not received an inflationary adjust‑ ture’s decision to realign a program should focus ment to reflect increases in their administrative on program policy objectives and interest in costs since 2001‑02. increasing local control—not simply on shifting At the time of the enactment of the 1991 costs to local governments to achieve General realignment statutes, a series of “poison pill” Fund savings. provisions were put into place that would make In our 2003‑04 Budget: Perspectives and components of realignment inoperative under Issues report, we discuss the merits of realign‑ specified circumstances. One such circumstance ing children’s programs. In general, we believe it is if the CSM determines the realignment pro‑ may be beneficial to give counties more control visions constitute a reimbursable mandate of and responsibility for the full system of children’s more than $1 million or there is an appellate programs. This would encourage counties to court determination that upholds a reimbursable manage each element of the program effectively mandate. Although counties indicate that social and efficiently to meet local community needs. services funding levels have not kept pace with We note, however, that there are other social ser‑ program growth since the 1991 realignment, they vices programs, such as CalWORKs, that may be have not filed for reimbursable mandate claims. better candidates for realignment. However, the Governor’s proposal to further Analyst’s Recommendation increase counties’ share of costs in children’s programs by redirecting county savings associat‑ Because the Governor’s proposed county ed with other social services proposals may lead redirection of savings achieves General Fund sav‑ counties to pursue reimbursable mandate claims ings without potentially reducing service levels, related to the original realignment, which in‑ we believe the proposal has merit. On the other creases the risk of triggering the aforementioned hand, there are serious questions about whether poison pill provision. the proposal constitutes a reimbursable mandate Therefore, before enacting any further and how it might impact the 1991 realignment changes to existing cost sharing ratios for chil‑ and its poison pills. Accordingly, we recommend dren’s programs, it would be important for the that the Legislature and administration work with Legislature, administration, counties, and other the counties to seek consensus on these issues key parties to seek a consensus to ensure that before enacting any further changes to existing this new realignment proposal does not jeopar‑ cost‑sharing ratios for children’s programs. dize the previous realignment. www.lao.ca.gov Legislative Analyst’s Office 17 An lAo reporT inCreased federal eligibility for foster Care The Foster Care program provides funds for federal foster care program under the Social Se‑ the out‑of‑home care of children removed from curity Act in 1980, the new program kept many the custody of a parent or guardian as a result of of its previous links, including the income eligi‑ judicial order or a voluntary placement agree‑ bility standards to the AFDC welfare program. In ment. The Foster Care program is supported with 1996, when Congress eliminated AFDC and re‑ federal funding under Title IV‑E of the Social placed it with the TANF program, it kept in place Security Act for eligible cases, as well as with existing AFDC income standards for providing General Fund and county funds. About 71 per‑ federal assistance for foster care and adoption. cent of Foster Care children are from families Therefore, for a child to currently qualify for fed‑ with incomes low enough to meet eligibility eral foster care assistance, his or her family must requirements for federal funding. meet the income test of the AFDC program as it existed on July 16, 1996. Governor’s Budget Proposal Because these income standards have not As part of its new federal‑state partnership been revised, including any changes for inflation, proposal, the administration proposes to ask the the number of children who enter Foster Care federal government to provide federal funding for who are eligible for federal assistance tends to all children placed in the Foster Care program. decrease each year. For 2010‑11, the DSS esti‑ This would require changes in federal law and mates that about 71 percent of Foster Care cases regulations relating to various existing eligibil‑ will be eligible for federal funding. ity requirements for federal Title IV‑E funds. New Federal Legislation Already “De- The budget assumes an implementation date of Linking” Adoption Assistance. We note that the June 1, 2010 from such a change in federal law, federal Fostering Connections to Success and In‑ with General Fund savings of $7.5 million in creasing Adoptions Act (P.L. 110‑351), which was 2009‑10 and $86.9 million in 2010‑11. Although passed in October of 2008, includes a provision this change would be permanent, the savings to gradually de‑link AFDC income requirements estimates reflect a temporarily enhanced federal for federal assistance in AAP. As a result, all match of 56.2 percent for the Foster Care pro‑ AAP cases will be eligible for federal funding by gram under ARRA. 2017‑18. In addition, a vehicle to pursue similar action on the Foster Care side already exists— LAO Comments H.R. 3329 was introduced in July 2009 to de‑link Current Federal Funding Structure Tied to federal funding for foster care maintenance pay‑ Outdated Program. Many of the current federal ments from AFDC eligibility requirements. funding provisions for the child welfare system Analyst’s Recommendation are tied to the old federal welfare program, known as the Aid to Families with Dependent We recommend the Legislature support the Children (AFDC) program. This is because foster Governor’s proposal to pursue federal funding care used to be part of AFDC, which included for all Foster Care cases. As discussed above, certain income eligibility standards for federal the eligibility requirements for federal funding funding. Although Congress created a separate for Foster Care are tied to an outdated income 18 Legislative Analyst’s Office www.lao.ca.gov An lAo reporT standard from a welfare program that no longer result in some administrative savings for the state exists. Moreover, the federal government requires and counties. states to protect all children from abuse and ne‑ Although we recommend the Legislature glect, regardless of their families’ income. There‑ support this proposal for increased federal funds fore, there does not seem to be a strong policy for Foster Care, there is no basis to assume such rationale to only provide federal funding for low‑ federal changes will occur anytime soon. Ac‑ income Foster Care cases. We would also note cordingly, we recommend the budget not be that eliminating cumbersome federal eligibility adjusted at this time to reflect any savings from determinations in the Foster Care program would this proposal. www.lao.ca.gov Legislative Analyst’s Office 19 An lAo reporT LAO Publications This report was prepared by ginni Bella navarre and Minsun park, and reviewed by Todd Bland. The legislative Analyst’s office (lAo) is a nonpartisan office which provides fiscal and policy information and advice to the legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the lAo’s internet site at www.lao.ca.gov. The lAo is located at 925 l street, suite 1000, sacramento, CA 95814. 20 Legislative Analyst’s Office www.lao.ca.gov