CAPITOL REPORT May 2003 NATIONAL COUNCIL OF LA RAZA

Governor Davis Releases the May Revision

The May Revision to the Governor’s Budget for 2003-2004 was released on May 14, 2003. The state’s budget deficit has now jumped from $34.6 billion, as anticipated in January, to $38.2 billion. The Governor attempts to close this gap with $18.9 billion in cuts and savings; $6.9 billion in fund shifts, transfers, and loans; $1.7 billion in program realignments to local government; and $10.7 billion in deficit financing. (You may view the May Revision in its entirety at the California Department of Finance website http://www.dof.ca.gov).

Though some of the critical health and education programs that serve the Latino community have been preserved, the Governor has indicated that he is still open to many of these structural changes and eliminations or reductions. NCLR will continue to work with the Legislature and the Governor to ensure these proposals do not disproportionately harm the Latino community.

I. Education – After clamor from a spectrum of the education, child care, and minority communities, the Governor retreated from education reforms and reductions, calling education the “anchor” of his revised budget. The May Revision does withdraw certain proposals that were included in the original January budget which are potentially harmful to the Latino community. These include:

The state-local realignment proposal to transfer the administration of certain services from the state to the county level is narrowed, and the dedicated funding stream to be transferred is reduced from $8.2 billion to $1.7 billion. Child care is among the programs for which realignment was deferred and funding restored. However, the majority of the proposal will be given legislative consideration for implementation in 2004-2005. Additionally, the May Revision includes a total of $384 million in savings, fund shifts, and reductions to child care.

The creation of a block grant of approximately 60 categorical programs, which included Economic Impact Aid (EIA) funding for English learners, was not considered the best approach for providing funding. Of the $845 million in across-the-board categorical reductions, $835 million has been restored in the May Revision. Instead, targeted reductions and eliminations are proposed, and EIA is not listed among the programs that will receive the most significant reductions. The Administration has stated that it is still open to block grant type funding or other mechanisms to provide increased local choice while protecting the neediest students and preserving the state's accountability programs and high student achievement goals.

Other significant changes to education funding include:

The increase in student fees for California Community Colleges was reduced from $13/unit to $7/unit for a total of $18/unit as opposed to the original proposal to increase total fees to $24/unit.

NCLR SACRAMENTO OFFICE 926 J STREET, SUITE 701 SACRAMENTO, CA 95814PHONE (916) 448-9852 FAX (916) 448-9823

CA L IF OR NI A B UD GE T U PD AT E

The Class Size Reduction Program is a priority program for the Administration, for which funding is fully restored with a $179.9 million increase. This rescinds the across-the-board reductions proposed for the program. Other priority programs that are now proposed to be fully funded or receive an increase in funding include: Special Education, Accountability, Child Nutrition, and School Safety.

II. Health & Social Services – While the Governor has committed to providing health coverage to low-income children and adults, he withdrew his January proposal to reduce eligibility for low-income parents. Whereas this is an improvement, there still exist significant cuts to programs which will present more obstacles for Latino families to access and receive preventive health care. Some of the significant changes to health care include:

Rescission of Medi-Cal 1931(b) to newly-applying working parents withdrawn – Parents in families with income of up to 100% of the federal poverty level, which is $15,020 for a family of three, and who work more than 100 hours a month would continue to qualify for free Medi-Cal. 1931(b) is the primary Medi-Cal program providing free health coverage for very low-income working families. The January budget proposal would have lowered the eligibility level to 61% of the federal poverty level for new applicants, which is $9,162 for a family of three, and would disqualify families who work more than 100 hours a month, regardless of their income.

Elimination of 18 Optional Benefits under Medi-Cal – The Governor is withdrawing cuts to orthotics, prosthetics, hospice care, and medical transportation and changing reimbursement methodology for durable medical equipment. The optional benefits still proposed for elimination are dental services, medical supplies, psychiatric, chiropractic, acupuncture, podiatric services, rehabilitation therapy, occupational therapy, optician and optical lab services, optometry, hearing aids, physical therapy, and speech and audiology services.

Reinstatement of the Quarterly Status Report for adults receiving Medi-Cal. Medi-Cal recipients would be required to file a report every three months to prove they still qualify for Medi-Cal. Effective August 1, 2003, adult Medi-Cal recipients would be required to file a simple report every six months that should be translated in Spanish for Spanish speakers. It is estimated that the semiannual status reporting will reduce the number of adults receiving Medi-Cal by 96,500, regardless of their eligibility. If the quarterly status reporting form is enacted, it is estimated that 193,000 individuals may be dis-enrolled. Studies have shown that burdensome paperwork prevents families and individuals from applying to services even though they are eligible.

A 15% Rate Reduction to Medi-Cal Providers, including doctors, nursing homes, and HMOs. This will result in less Medi-Cal patients receiving culturally and linguistically appropriate services since less health care providers will take part in the system due to low Medi-Cal reimbursement rates.

Other significant changes to social services include:

Full Funding Restored for the Cash Assistance Program for Immigrants (CAPI) and California Food Assistance Program (CFAP) – $106.5 million is restored for these programs which California created to provide assistance to immigrants who were no longer eligible for federal benefits due to the 1996 federal welfare law. However, these programs may be proposed for realignment for 2004-2005. CAPI provides cash assistance to seniors and persons with disabilities who are no longer eligible for Supplemental Security Income

NCLR SACRAMENTO OFFICE 926 J STREET, SUITE 701 SACRAMENTO, CA 95814PHONE (916) 448-9852 FAX (916) 448-9823

(SSI) benefits, and CFAP provides food stamps to working families who are no longer eligible for federal food stamps.

Current Funding Restored for the Naturalization Services Program – $1.3 million is restored for current year, 2002-2003. However, the Naturalization Services Program is still proposed for elimination for 2003-2004. The Naturalization Services Program provides funding to local government and community-based organizations to assist immigrants in obtaining U.S. citizenship. Since its inception, it has assisted over 77,000 immigrants.

III. Taxes & Revenues – The Governor has included various revenue enhancements in the May Revision, including taxes that target the wealthy as well as consumption and sales taxes that would disproportionately affect the poor, most of which are funding streams earmarked for specific proposals. These include:

Realignment – For the remaining programs that will be realigned, which include certain programs within Mental Health, Children and Youth, and Social Services, the new revenue stream relies on:

– An additional 10.3 % personal income tax bracket, in place of the January proposal to impose 10 % and 11% rates on wealthy personal income payers.

– An increase in the excise tax on cigarettes and other tobacco products by 23 cents in 2003-04 and an additional 40 cents in 2004-2005.

Deficit Financing – A proposal to borrow $10.7 billion, which is to be repaid through a temporary half-cent sales tax increase. Originally, the Governor had included a one-cent sales tax increase to fund the realignment proposal.

Vehicle License Fee (VLF) – Assumes that the state will not be obligated to make offset VLF payments to cities and counties in 2003-2004 because there are insufficient moneys available to be transferred from the General Fund to fully fund the offsets. Anticipated restoration of the VLF would yield $3.9 billion in savings.

If you would like additional information about the May Revision, please contact the Sacramento Office at (916) 448-9852. You may also contact the California Policy Analysts via email: Cristina Huezo (chuezo@nclr.org) or Patricia Diaz (pdiaz@nclr.org).

NCLR SACRAMENTO OFFICE 926 J STREET, SUITE 701 SACRAMENTO, CA 95814PHONE (916) 448-9852 FAX (916) 448-9823