Trigger Intrigue

Mac Taylor at the Legislative Analyst's Office (LAO) has made his preliminary assessment of the impact of the federal stimulus on California's bottom line. This is important, recall, because if the state can get over $10 billion in such a way that reduces the budget deficit, they would hit a "trigger" that would allow the state to eliminate $1.8 billion in tax increases and restore about $1 billion in really painful cuts to social services, particularly health care for the needy.

Taylor doesn't think we can get there:

A significant portion of the $31 billion in aid to California will be available to address the state’s budgetary problems. We estimate that, based on the enacted state 2009–10 budget, California can use $10.4 billion in new federal dollars for this purpose over the life of ARRA. Of that amount, $8 billion would be available in 2008–09 and 2009–10. The Director of Finance and State Treasurer will determine their own estimate of the latter amount by April 1 of this year. If the amount is less than $10 billion, then annual state program reductions of nearly $1 billion and revenue increases of about $1.8 billion adopted as part of the 2009–10 budget package will go into effect.

Given the state’s continuing economic struggles, however, it is possible that state revenues (and the Proposition 98 minimum funding level) may continue to fall. In that case, it may be possible to use additional federal education dollars for budgetary relief.

This is an analysis of things as they stand right now, with no further changes from the legislature to qualify the state for more funding. It is not the final version of things, as Taylor notes, because the legislature could act quickly on a number of fronts to put the state over that $10 billion dollar line. And the Budget Act provision is written so sloppily that it's hard to even know what money would be eligible under it.

The Legislature will need to take many actions in the coming months to ensure that the funds are used in ways that meet its priorities and preferences. To assist in this process, we offer the following considerations in making decisions regarding these new federal funds:

• Maximize the Benefit of Federal Funds to the General Fund Budget. In this report, we make specific recommendations about how to help the state’s budgetary situation under different scenarios.

• Act Quickly in a Handful of Cases. In certain instances, the state will need to act rapidly to ensure it receives the maximum amount of relief or to use the funds in the most effective way possible. Addressing a Medi–Cal eligibility issue and providing direction on the use of transportation funds are two such examples.

The Medi-Cal eligibility issue ALONE would make over $11 billion in funding available to the state. In addition, we know that revenues are going to come up short, which would allow up to $3 billion in education funding to be shifted to budget relief. Taylor makes a number of recommendations that would allow the state to cross the trigger.

Nevertheless, the headline from the LA Times is "Stimulus Money Might Not Be Enough For California". That's only true if the legislature does nothing. And so these opening grafs are really kind of misleading.

Reporting from Sacramento -- California appears likely to fall short of getting the federal stimulus money it needs to avoid the full tax hikes and spending cuts lawmakers approved last month to settle a contentious 100-day budget stalemate.

A fresh analysis of California's flagging fiscal situation says the state needs about $2 billion more than Washington is providing. Lawmakers will be unlikely to reduce the personal income tax increase the new budget contains, or to restore some of the money they cut for universities, courts, social services and health care programs.

John Myers at Capitol Notes has a much more nuanced take, and he updated it with the LAO report today. In the hearings today, Taylor didn't sound assured of his own analysis.

But the LAO presentation, during this morning's hearing of the Assembly Budget Committee, certainly didn't sound definitive when it came to the $8 billion estimate. "This was our best kind of shot at it," said Taylor [...]

But when the question and answer session from legislators wrapped up, it was clear that a feisty debate is brewing as to whether to count more federal stimulus money towards deficit relief... thereby allowing some of the cuts and taxes to be set aside... or let the budget package stand as it is.

"I think taking for granted the $8 billion figure," said Assemblymember Mike Feuer (D-LA), "is a big mistake." Feuer went on to say that the Legislature should try to reach the magic $10 billion figure "any way we can," thus maximizing federal matching dollars that state government has often left unused.

The California Budget Project's analysis shows that there are plenty of ways to reach that $10 billion, through competitive grants and moving items to offset the budget, without costing the state very much at all and saving the worst budget cuts from being enacted. There's no reason not to get creative and do this.

Two other things. The original trigger was set at $9 billion, until Abel "My Precious Tears" Maldonado wouldn't sign off unless the gas tax increase was eliminated and lawmakers had to raise the trigger. So if you want to blame someone for IHSS services being cut (or, if you prefer, raising your taxes), there's your man.

Second, this will largely be resolved at a public meeting next week between Mike Genest, the finance director for the Governor, and state Treasurer Bill Lockyer. And because the wording is so vague in the Budget Act, that meeting could erupt into chaos:

The actual bill says the two jointly have the responsibility of whether to "trigger off" those budget items. What if they disagree on the analysis? Ummm, well, no one really knows.

Well, at least it's simple and elegant.