California Deficit Looms Larger

Update 2:55 p.m.:  Moments ago, the Senate failed to achieve the requisite 60 votes needed to take up this bill.

California’s $17.9 billion deficit expanded by approximately $600 million this week and is in danger of becoming even larger by day’s end if Congress fails to pass legislation that would extend aid to states still struggling to emerge from the economic recession.

California – along with at least 29 other states – is closely watching whether the Senate will obtain the 60 votes needed to move a jobs bill that would continue to provide increased federal funding for Medicaid – a key source of revenue helping to shore up lagging state budgets this fiscal year. The American Recovery and Reinvestment Act of 2009 (ARRA) increased the federal government’s share of Medicaid spending in California from the historical 50.0 percent to 61.6 percent, thereby lowering the state’s share to 38.4 percent and freeing up state funds to help balance the budget. The enhanced funding expires December 31, 2010 under current law, but legislation in Congress could extend this higher level of funding through June 30, 2011.

The six-month extension would provide $1.9 billion for California. This week, however, Senate leaders pared down the amount of state aid by one-third, meaning California would receive approximately $1.3 billion. While the reduction is a blow to states, congressional failure to pass any state aid would be more devastating.

The Legislature and the Governor already are struggling to patch the state’s existing $17.9 billion budget gap. The Governor’s, Senate’s, and Assembly’s budget plans all assumed $1.9 billion in federal funds that appeared likely until a short time ago. Without this federal aid, California’s shortfall would widen to $19.8 billion. Furthermore, without this federal aid, budget proposals made by Governor Schwarzenegger, but rejected by the Legislature – such as the elimination of CalWORKs, imposition of copayments for Medi-Cal patients, and elimination of Medi-Cal coverage for Adult Day Health Care services – may resurface as policymakers become increasingly desperate to close the growing budget gap.

– Hanh Kim Quach

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