California's unemployment insurance deficit shrinking slowly

Although California's once-dismal employment picture is slowly improving, the state's Unemployment Insurance Fund is not only plagued by digital glitches, but is still paying out more in benefits than employers are paying into the UIF in taxes, according to a new report from the state Department of Employment Development.

Some other revenue, including earnings on fund balances, are offsetting the shortfall, so the immense deficit in the UIF, $10.2 billion at the end of 2012, will decline fractionally to $9.7 billion by the end of this year, the EDD report predicts, then continue to decline as employment improves and insurance benefit payouts drop.

The UIF deficit has been covered by loans from the federal government, on which the state is now paying interest, and the feds have also boosted their share of employers' payroll taxes to begin repaying the debt.

The department predicts that the UIF deficit will shrink to $7 billion by the end of 2015 as unemployment drops from 1.9 million workers in 2012 to 1.3 million in 2015 and payouts decline from $6.6 billion in 2012 to $5.7 billion in 2015.

Employers paid $5.4 billion into the UIF in 2012 and that is expected to increase to $6.2 billion in 2015. Additionally, the boost in federal taxes to repay the debt is expected to surpass $600 million this year and $1 billion by 2015.

The UIF pays basic benefits to unemployed workers and benefit extensions have been financed by the federal government. But due to the state's improving job picture, the 100 percent federally financed extension, which paid out $7.2 billion to jobless Californians in 2012, and $4.6 billion this year, will end on Dec. 31.

Gov. Jerry Brown has proposed changes in the unemployment insurance program to improve its ability to cope with economic downturns, but the Legislature has so far refused to act.

PHOTO: Former and current high school students attend a junior college exploration workshop sponsored by the Greater Sacramento Urban League. One of every three new high school graduates not going to college in the Sacramento region couldn't find work last year, census figures showed. The high school classes of 2009 and 2010 were about 40 percent less likely to find jobs out of school than their counterparts from three years prior. The Sacramento Bee/Randy Pench

Read more here: http://blogs.sacbee.com/capitolalertlatest/2013/11/californias-unemployment-insurance-deficit-shrinking-slowly.html#storylink=cpy

via http://blogs.sacbee.com/capitolalertlatest/2013/11/californias-unemployment-insurance-deficit-shrinking-slowly.html

As Healthy Families Deficit Rises, Tax Pressure Rises With It

The Healthy Families program has run out of money, according to state health officials. The deficit currently stands at almost $100 million and will keep rising every month, accordding to Janette Casillas, executive director of the Managed Risk Medical Insurance Board, which oversees Healthy Families.

Gov. Jerry Brown's administration is pursuing two ideas for refilling the coffers: reinstitution of a recently expired tax on managed care organizations and an appropriation bill if the MCO tax isn't revived.

"The Healthy Families Program budget shortfall [is currently estimated] at $33 million general fund," Casillas said. That figure does not include $15 million the state has used from the general fund to help make Healthy Families ends meet, Casillas said. The sum of those two figures -- $48 million -- represents half of what the state is missing. California's share of Healthy Families funding is matched by the federal government so the state is almost $100 million short.

That amount -- reflecting a shortfall of less than two months -- will increase, Casillas said.
Health plans serving Healthy Families need to wait for payment until the deficiency is resolved, said Diana Dooley, state Secretary of Health and Human Services.

"We have a deficiency process every year," Dooley said. "They will be paid, as happens whenever there's a deficiency. Ultimately, they will be paid."

Healthy Families, California's Children's Health Insurance Program, serves 860,000 children. The state is shifting beneficiaries from Healthy Families to Medi-Cal managed care plans and eventually intends to eliminate Healthy Families. The deficit does not affect the transition or the program's beneficiaries.

Since 2009, the Healthy Families program has relied on some of its funding from the MCO tax, which expired despite the Brown administration's effort last year to reinstitute it.
"It has to do with a failure to extend the MCO tax," Dooley said. "So now there will be a deficiency that will be met through the deficiency process."

That could be a sticky process because of the complexity of reinstituting the MCO tax.
Numerical, Political Hurdles in Reinstating Tax reinstating a managed care tax requires a two-thirds vote in the Legislature, which will require Republican support if the governor can't line up every Democratic vote in the supermajority Legislature. Ironically, Republican lawmakers four years ago were fully behind the MCO tax to support Healthy Families, but support has eroded because the state is phasing out the program.

A tax on managed care companies still could pass -- assuming it has the support of the health plans -- but there seems to be some political arm-wrestling in Sacramento over how the money from that tax would be spent.

Patrick Johnston, president and CEO of the California Association of Health Plans, said insurers could support reinstating the MCO tax, but he hoped it would augment coverage and not just go into the existing Medi-Cal fund.

"The state owes the plans, and we expect the plans will be paid for covering children in Healthy Families," Johnston said.

"The state has a cash flow problem, and we expect the state to resolve it and that the plans will get paid. I mean, it's clearly not a dispute about the plans being owed," he said. "So now the state has the option of internal borrowing or seeking a supplemental appropriation."
Internal borrowing is an unlikely fix, Casillas said.

"We would refer to this as a need for a supplemental appropriation," Casillas said. "Borrowing internally was not an option for us, although that was explored. Collectively, we had explored the possibilities or options, given that the MCO tax expired and was not reinstituted. It is apparent we will need a supplemental appropriation, where a bill goes to the Legislature and asks for X amount of money."

Casillas pointed out that MRMIB is stuck in an unusual position because the state's budget relies on an extension of the MCO tax, but those dollars aren't coming into Healthy Families. Basically, part of the Healthy Families budget is funded with money that doesn't exist, once the MCO tax expired.

Measuring the shortfall is made more complicated by the transition of children from Healthy Families to Medi-Cal managed care plans. Enrollment will decline every month, so the monthly additional deficiency must be determined based on changing numbers of enrollees.
"It's very odd that I find myself -- that the program finds itself -- in this position," Casillas said. "We will have to figure out each month and see how that deficiency is growing, even though it's growing off a declining enrollment base."

Health Plans Can Wait Johnston said health plans will wait for the state to resolve its deficiency.

"Just like with anyone else, timely payment is better than late payment," he said. "But the health plans have contracts with the state to provide services, and we'll count on the state honoring its obligation to pay according to the contracts. What the state does internally to manage its cash flow is its problem."

Johnston likened it to selling a car, where the seller doesn't ask how the buyer is going to come up with payment. "Whether you get it from checking or savings is your decision-making process. My expectation is that you'll make the payment. I mean, you don't turn to me and say, 'How do you think I should get the money?'"

The real question is whether the governor can muster the political capital to reinstitute the MCO tax. When the Healthy Families program was in financial trouble in 2009 and was about to restrict enrollment, the health plans were the ones that came up with the idea of the MCO tax, Casillas said.

The state likely needs health plan support to make the reinstatement of the MCO tax palatable to Republicans. However, the health plans association has ideas about how the money should be spent that may differ from the Brown administration's.

All of that makes a bit of a political minefield, so Johnston paused from the discussion, to carefully consider his words.

"We will await further guidance," he finally said.

Health Plan Backing According to Johnston, health plans would support reinstatement of the MCO tax as long as it all doesn't go in the general Medi-Cal pot, but is spent at least in part on beefing up services for seniors and the disabled.

"We would consider a renewal of the MCO tax to supplement the Medi-Cal program and contribute to its long-term integrity," Johnston said. "Medi-Cal is underfunded in many areas, including seniors and persons with disabilities, so a tax on Medi-Cal plans that would draw down federal funds should use the money to supplement and not supplant existing funding.
"
Although the Brown administration has not said publicly where it wants the MCO money to go, Johnston said the state is considering putting all the money from the MCO tax into the general Medi-Cal fund and he doesn't think that's right.

"A tax on Medi-Cal plans must meet the task of being used for Medi-Cal programs, and we think this added money should augment existing funds to fund particular areas that have struggled, most recently the transfer of elderly and frail beneficiaries to Medi-Cal managed care programs will need additional support," Johnston said.

"Health plans have not opposed the MCO tax, but where the money goes always matters," he said. "We would hope that our voice would matter."
The deadline for resolving the issue is June 15, assuming the budget is passed on time.

Jerry Brown Creates California Surplus Miracle, But Can It Last?

Something close to a civic miracle seems to have occurred—at least on the surface.

California has long been synonymous with budget deficits so deep that it looked like the Golden State would inevitably be our Greece—beautiful and bankrupt.

But Gov. Jerry Brown announced that his state has suddenly projected a surplus of $851 million. Two years ago, when Brown came back into office, the state had a $25.4 billion deficit, a Sisyphean problem Governor Arnold struggled with unsuccessfully all last decade.

This reversal of fortune raises a lot of questions. What caused California’s budget turnaround? Is it sustainable? And finally, could there be a national lesson here as Washington tries to confront deficits and debt?

The top-line takeaway is that a balanced deficit-reduction approach seems to have worked in the Golden State. When he entered office in 2011, Brown proposed billion-dollar-plus cuts in welfare and Medi-Cal, as well as $500 billion from the UC system.

All told, his initial proposed budget was almost $20 billion less than Governor Schwarzenegger’s 2008–09 budget, which clocked in at $103 billion. Democrats and unions howled, and Brown’s ultimate budget was less austere than originally advertised, but deep cuts were enacted.

Crucially, Brown also took on the unpopular task of raising taxes—winning a 2012 ballot fight sonorously known as Proposition 30 and 39—that raised sales taxes and closed business tax loopholes. Next year, the combined new revenues are expected to exceed $5.8 billion.

The final factor is an improving economy—always the decisive X factor in deficit-reduction efforts. California’s economy is improving slowly, but the shift from the pit of the Great Recession moved the numbers in the right direction.

The result of increased tax revenues and spending cuts is that—at least for now—a projected deficit has been turned into a surplus.

This is good news. But not everyone is happy. And the numbers do sidestep a deeper problem.

Remember, deficits and debt are different things. Projected year-to-year deficits are comparatively easy to close, especially on the back of an improving economy. But out-of-control debt is ultimately what drags you down.

The Los Angeles Times offered a front-page reality check, under the headline “Debt a Cloud Over State’s Future,” pointing out the inconvenient fact that California “has accumulated a crushing load of debt for retiree pensions and healthcare now totaling more than taxpayers spend each year on all state programs combined.” Ouch.

Brown’s budget does begin to pay down the debt, but the outstanding amount dwarfs the pay-down. Of course, that hasn’t stopped liberal activists from demanding more money be spent immediately on social services, under the banner of “investment.”

Moreover, there are real questions about whether the increased tax burden—especially on the wealthy—will end up eroding the state’s tax base in the near future.

“There’s some doubt that high income taxpayers won’t either move to Nevada—or some other low or no-income tax state—or find other ways, such as delaying realization of cap gains, to avoid hefty new surtaxes—especially since their federal taxes are also increasing,” emails the Sacramento Bee’s Dan Walters. “California’s marginal income tax rate (federal plus state) is now highest in U.S. at highest level, about 52 percent.”

But Walters acknowledges that Brown’s budget miracle is more or less legitimate, at least for now. “It’s mostly new revenue from sales and income tax hike approved by voters in November with a dash of economic recovery and a smidgen of creative bookkeeping such as slowing down some debt repayment and assuming renewal of a tax on health care providers to trigger some federal aid,” Walters’ continues. “But overall it’s mostly the new taxes.”

Other Golden State observers take an even more skeptical view. “There is a reason Gov. Brown is known as Governor Moonbeam,” says KABC’s center-right John Phillips. “Structural deficits are everywhere, the nonpartisan Legislative Analyst’s Office says there’s still a $1.9 billion budget deficit, and rich people can’t cross the state line fast enough—taking revenues down almost 11 percent since the passage of his Prop 30 tax hikes with them. On the plus side, hey, we’re not Detroit!”

The Rust Belt does have problems that make California’s cyclical deficits and deep legislative dysfunction seem comparatively easy to solve. But Jerry Brown deserves credit for pulling off at least short-term success in a state budget situation that had many experts calling impossible to solve. In the near term, the deficit turned surplus highlights the improving national economic environment.

It also provides a compelling object lesson for advocates of a “balanced approach” for reducing deficits, like President Obama & Co. Contrary to conservative talking points about how revenue is not a legitimate part of deficit-reduction solutions—instead, it’s all spending cuts all the time—California’s recent example shows that increased tax rates can help rapidly reduce deficits. Moreover, especially compared with much of Europe, the Obama administration’s decision not to simply pursue a path of deep austerity cuts seems to have been the wiser path, at least for now.

But conservatives could have the last laugh if the wealthiest Californians decide to flee the state for comparatively low-tax climes, like a sun-baked Gérard Depardieu.

Bottom line: This fight ain’t over. But at least for the moment, Jerry Brown’s balanced if painful plan to turn deep deficits into a modest surplus deserves study. It offers a rare glimpse of good news in the relentlessly bleak world of state budget. Whether it is sustainable remains to be seen.

via the Daily Beast

Long Beach school board may cut another $13 million

LONG BEACH - The Long Beach Unified Board of Education today will consider closing summer school and freezing open teaching positions next year in a round of budget cuts meant to save $13 million.

While the passage of Proposition 30 prevented severe program cuts, the district is still facing a $20 million deficit in the 2012-2013 fiscal year due to years of state funding cuts, officials said.

The sales tax hike passed last month is meant to provide funding for California's schools.

The district's structural deficit would have ballooned to $55 million next year had Prop. 30 failed, officials said.

The LBUSD is projecting a $57 million deficit by the end of the 2014-2015 fiscal year if it doesn't make reductions.

The first phase of proposed reductions for a savings of $13.8 million includes: Closing grades six through seven at Burcham School, transportation reductions, eliminating summer school in 2013, eliminating the AVID college prep program, cuts to special education, and freezing open positions for teachers and other staff.

As part of this reduction plan, the board last month voted to close Monroe K-8 school in Lakewood for a savings of $2.7 million. The closing of the AVID program, which stands for Advancement Via Individual Determination, would save $1 million annually.

The board in coming months is expected to also consider other budget reductions, which could include more small school closures, reductionsto programs and services, and other measures designed to safeguard the LBUSD's fiscal health, officials said.

The Board of Education meets today at 5 p.m. at 1515 Hughes Way.

via Press Telegram

Jerry Brown says state budget deficit will probably top $10 billion

Gov. Jerry Brown said Tuesday that the state budget deficit could increase by $1 billion or more above the $9.2 billion his administration estimated in January.

Brown said that because of court challenges, weaker-than-expected tax receipts and other factors, the state’s deficit would probably grow when he releases revised budget numbers next month.

"Whether it's $1 billion or a couple billion, we'll let you know in a couple weeks,” Brown said after speaking to the California Medical Assn. in Sacramento.

The doctors’ group has donated more than $250,000 to Brown’s initiative for the fall ballot, which would temporarily raise taxes on sales and incomes of more than $250,000. Brown said his initiative was constructed to have the greatest chance for voter approval, even though polls show Californians are divided on the measure.

The governor said the initiative reflected "my best thinking" and noted that he’s been a student of state politics ever since his father worked for a gubernatorial campaign in the 1940s.

“I thought I knew a lot when I ran for governor, I thought I knew a lot when I ran for president," he said. "I thought I knew a little more when I ran for mayor of Oakland, I thought I knew a little more when I ran for attorney general, and now, here as governor again.”