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Thank You to the Voters of California

The LAO Mid-Year Spending Report finds that the economy has improved, the voters approved Prop 30 and Prop 39 and in a couple of years, the state will be out of the deep deficits that have plagued California for the last decade.

  • For FY 2012-13, the LAO projects a $948 million deficit and for FY 2013-14 a $936 million deficit.
  • In 2014-15, there would be a $1 billion surplus, growing to $9 billion in 2017-18.
  • The LAO recommends paying off debt, transfers to the state’s rainy day fund, paying back transfers from Special Funds, as the economy and state budget improves. LAO points out that the Prop 30 tax increases are temporary and expire by 2018-19 and warns against commitments of the Prop 30 funds to ongoing programs as the economy recovers.
    • The state’s rainy day fund is dry and the LAO recommends transferring 3% of General Fund Revenues beginning in 2015 — $3 billion annually.
    • The state owes state Special Funds $4.3 billion and the LAO recommends paying those loans back, beginning in 2013-14.
    • The state has unfunded liabilities to the teachers, UC, and CalPERS retirement systems due to growing health costs and increasing number of retirees.
  • The LAO projects that California’s personal incomes will grow 4-5% a year over the next 6 years, unemployment rates will fall from 10.6% to 6.7% and the Consumer Price Index will be 1.5 to 2% a year. The LAO projects that California’s economy will outperform the nation’s over the next 6 years.
  • The LAO projects a growth rate of 3.6% for state budget expenditures for the next six years – an average growth rate of 3.9% for schools, 6.8% for Medi-Cal and -0.6% for corrections, the three biggest sources of state spending.
  • The state owes $12.8 billion to education as of 2012-13 and the state also must devote constitutionally mandated share (about 41%) of the State General Fund due to Prop 98.
    • State annual funding for education is projected to grow from $33 billion in 2011-12 to $47 billion in 2017-18.
  • The LAO projects that state General Fund spending on Medi-Cal will grow from $15.5 billion in 2011-12 to $20.2 billion in 2017-18.
    • LAO projects that per capita costs will grow at 5.8% annually.
    • LAO projects that numbers of eligibles will grow less than 1% annually, absent the ACA coverage expansions and Healthy Families shift.
    • LAO finds that the 900,000 children shift from Healthy Families to Medi-Cal will cost the state an additional $183 million General Fund due to the need to backfill the expired MCO tax.
    • LAO notes that the hospital tax/fee expires at the end of 2013 and if not renewed, it will cost the state $387 million to backfill.
    • LAO also notes that state health programs (e.g. Breast and Prostate Cancer Screening and Treatment) will be saved $200 million annually due to the ACA expansions and Medi-Cal will spend about $200 million annually for the increased enrollment of individuals already eligible for but not enrolled in Medi-Cal.
    • The LAO assumes the state will adopt the Medi-Cal expansions and that the state contributions will not begin until 2017.

The Obama administration also issued new ACA regulations on Tuesday that defined “essential health benefits,” issued rules on preexisting condition coverage, and other critical components of the Affordable Care Act.

We would like to wish everyone a very happy and safe Thanksgiving holiday.