California Budget: Gov. Jerry Brown’s Plan Includes Framework for Deal on Health Plan Tax

With years of budget woes fading in the rearview mirror, Gov. Jerry Brown on Thursday unveiled the first draft of the state’s next budget — which includes a proposal for a new tax on health care plans that would prevent a $1.1 billion cutoff of federal funds.

Continuing to preach fiscal restraint, Brown pitched a $122.6 billion general-fund budget that he says makes key investments in education while also bolstering the state’s rainy-day fund and continuing to pay down old debts and liabilities.

Brown touted the new tax on managed health care plans as a boon to developmentally disabled Californians, who would enjoy a long-overdue 10 percent bump in state spending on their services if lawmakers enact the tax plan.

“I hope Republicans can join in on this,” Brown said, acknowledging that the tax would fail without support from at least a few GOP lawmakers because it will need a two-thirds vote.

But Republicans wasted no time railing against the proposed tax — which Brown said insurers seemed to find palatable.

Assemblywoman Melissa Melendez, R-Lake Elsinore, said it was “unconscionable” for the governor to tie state funding for such vulnerable people to a tax the cash-rich state doesn’t need.

“Frankly, it’s inappropriate to suggest new taxes or tax increases when we have a surplus,” said Melendez, the Assembly Budget Committee’s vice chairwoman.

A coalition of advocates for the developmentally disabled agreed with the GOP criticism. It said the budget “does almost nothing to stabilize the crumbling services system that 300,000 people with developmental disabilities rely on.” If efforts to pass the new tax on managed health care plans collapse, disabled Californians could end up with nothing, they said.

The tax structure California now uses to tax some health plans must be phased out by July 1 because it doesn’t comply with new Obama administration rules that dictate how states must tax health care plans.

Currently, the state taxes only those plans that accept Medi-Cal patients and uses all of the money it collects to help finance the health insurance program for low-income Californians, which now covers one-third of the state’s residents after it was greatly expanded under the Affordable Care Act.

The new tax would generate $1.35 billion annually by hitting all the plans, whether they accept Medi-Cal patients or not. If lawmakers pass the tax by a Jan. 31 deadline, Brown wants to use some of the money to boost funding for developmental disability services and in-home supportive services.

If the tax were allowed to expire, the state would lose $1.1 billion in matching federal funds.

When a reporter from this newspaper asked Brown to describe how his administration has persuaded the state’s 47 health care plans to agree to pay the tax, the governor jokingly waved away her question.

The new tax is “extremely complex,” he said. “Very few people understand it, so I’m not going to try to explain it to you because I couldn’t explain it to you if I wanted to.”

Senate Republican leader Jean Fuller, R-Bakersfield, said the state should find another way to increase spending on services for disabled Californians. But Brown cautioned that too much more permanent spending, combined with the inevitability of another economic downturn, could plunge the state back into deficits of up to $43 billion within a few years.

His budget plan expects the state’s three largest revenue sources — the personal income tax, sales tax and corporation tax — to grow modestly in fiscal years 2016-17 and 2017-18 before dropping off a bit the next year.

That’s largely because Proposition 30, which hiked income taxes for California’s wealthiest residents, expires at the end of 2018, Finance Department officials said Thursday. It’s also because the stock market, flat in 2015 after a few years of hot growth, is expected to “correct” itself, the officials said.

Brown has a reputation for low-balling future revenues, “but on this one, I think he’s got a good point,” said Chris Thornberg, a founding partner at Beacon Economics in Los Angeles and an expert on California’s economy.

“Capital gains taxes are an enormous part of California’s revenues, and what you’ve seen over the last year suggests that there may well be a big pullback in capital gains,” he said.

Questioned by reporters, Brown avoided answering whether he would actively oppose a proposed ballot measure that would extend Proposition 30. And he repeatedly said he didn’t want to comment about potential ballot measures.

“You haven’t asked me about guns or marijuana,” Brown quipped, citing two topics all but sure to be on November’s ballot. “All I would say is, ‘Don’t smoke marijuana when you’re using your gun.’ ”

On the other hand, Brown was eager to tout his budget’s investment in K-12 schools and community colleges.

The spending plan increases state funding per student to $10,591 in 2016-17 — an increase of nearly $3,600 compared with 2011-12. Brown also proposed a $1.6 billion early childhood education block grant that combines three existing programs to promote local flexibility, focusing on disadvantaged students and improved accountability.

The education proposals were heartening to many in the Bay Area, including Elena Shea, president of the Sixth District PTA, which includes PTAs in Santa Clara, Santa Cruz and Monterey counties.

Shea was recently hired as a reading aide in the Los Altos School District, which — like other schools in the state — has been hiring some of the music, reading, art and physical education positions cut during the Great Recession.

“I think people have forgotten how deeply education was cut not too many years ago, so it’s nice to get that money back, and hopefully it can go up from there,” Shea said.

Indeed, the state general-fund education spending in Brown’s proposal — $71.6 billion for schools — is a whopping 51 percent higher than it was during the depths of the budget crisis in 2011-12.

The new principal of Berkeley High School, Sam Pasarow, said he was happy to see the headlines — and hopeful that the additional funding would support his school’s efforts to reduce racial disparities in student discipline and overall success in school.

“It seems really encouraging,” Pasarow said.

The budget plan also includes a transportation package Brown had first outlined last summer to provide $36 billion over the next decade for better upkeep of the state’s crumbling highways and roads and to expand public transit.

He wants to pay for it with a $65 annual fee for drivers; an 11-cent diesel tax increase and a 6-cent gas tax hike; and $500 million per year in proceeds from the state’s greenhouse gas cap-and-trade system.

State Sen. Jim Beall, a San Jose Democrat who chairs the Transportation Committee, said he’s glad Brown “has put the issue on the table” but that “it’s probably going to take a different twist from what the governor is proposing.”

Staff writers Tracy Seipel, Paul Rogers, Karen de Sá, Howard Mintz and Gary Richards contributed to this report.

HIGHER EDUCATION: UC and CSU would each receive the increases they were expecting — about $125 million more in general-fund money for UC and $148 million more for CSU. In addition, UC would get $171 million from the state’s rainy-day fund to pay down its pension debt. Community colleges would get money to expand enrollment by some 50,000 students.
Public schools would receive nearly $72 billion next year under the state’s minimum-funding guarantee, a whopping 51 percent increase since the depths of the state budget crisis in 2011-12. Including federal and local sources of revenue, the total amount of money spent per student would average $14,550, up $366 from the current year.
The environmental centerpiece of Brown’s budget is his plan to spend $3.1 billion from fees collected on big polluters under the state’s cap-and-trade program to curb greenhouse gas emissions. Brown proposed spending $500 million on California’s controversial high-speed rail project; another $500 million for low-carbon fuel programs, such as rebates for people who buy electric cars, hybrid trucks and zero”‘emission trucks and buses; $400 million for urban rail programs; and $150 million to remove and replace many of the 22 million trees in California that have died during the drought.
The California courts, battered for years by budget cuts that forced some local court systems to cut hours and close courthouses, got a dose of much better news in the governor’s latest budget. The $3.8 billion court budget boosts spending by at least $146 million. That’s hundreds of millions of dollars above the judiciary’s darkest days for the judiciary four years ago.
The governor’s budget calls for $36 billion for state freeways, local streets and transit, nearly half — $16.2 billion — earmarked for filling potholes and maintaining its 500 miles of highways and 340,000 miles of local roads. The annual registration fee for all vehicles would jump $65. The state gas tax would be adjusted for inflation and diesel tax increased 11 cents a gallon with inflation adjustments.
The governor called for an additional $400 million for the E earned I income T tax C credit, a cost-of-living increase in payments to the elderly, blind and disabled; $250 million for a minimum-wage increase to $10 per hour; and $450 million to provide an income supplement for in-home health workers who work overtime. The governor is also proposing more than $60 million in general funds to create alternatives to group home care for foster youth.
Brown’s focus is making sure the state can make a deal with health insurance companies to update and renew a $1.1 billion shortfall in a managed care organization tax — which helps fund Medi-Cal. The funding of that health program for the poor continues to be the administration’s focus, requiring $19.1 billion of the health and human services’ $34 billion general-fund budget in 2016-17. Largely because of expansion of the program under the Affordable Care Act, the program now covers about a third of California’s population.

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