Transcript: Q&A with CA Department of Finance Director Ana Matosantos on the trigger cuts to the 2011-12 state budget

Press conference on the $1 billion trigger cuts to the 2011-12 state budget (Dec. 13, 2011)

Transcript of Q&A with California Department of Finance Director Ana Matosantos on the trigger cuts: 

Question: You want to explain the $2 billion in spending?

Ana Matosantos: So you know there’s always differences in the cash and the timing of cash, and the timing of solutions is really difficult to estimate. There’s always questions and differences in terms of timing. For example, community college apportionment went out at an earlier point in the forecast than initially assumed. Savings from corrections were evenly spaced throughout the year but the savings are actually going to accrue later in the year. So a lot of the approvals on the rate reductions for Medicaid happened at a later point in time but then we get to catch up with those. So a lot of the questions are issues of timing, and you will see our revised cash flows in the January budget.

Question: Do you expect the actual spendings, when all is said and done by the end of the fiscal year, to be on track with the current budget or will it higher or lower?

Ana Matosantos: I think that you’ll see the revised numbers for the current fiscal year in the January budget.

Question: Ana? Are all the Tier 1, the $601 million, enacted?

Ana Matosantos: Yes. The numbers – there’s changes in case loads, for example, that affect the value of some of the reductions and etcetera. But everything in Tier 1 is enacted. Everything in Tier 2 is also enacted. The difference is that the reduction in apportionments to schools is smaller given the fact that revenue has come in $1.8 billion above the projections in the May revision.

Question: How much of the reductions that you’re deciding on today will actually take effect given the possibility of court battle? I mean, IHS has people are already out there saying, you know, it ain’t going to happen or something like that? Aren’t you subject to court intervention on these sorts of things?

Ana Matosantos: I know what the revenue numbers are and I know what the revenue numbers translate into in terms of trigger reductions. And I know that there’s lots of litigations over a variety of different issues, including some of the issues in the trigger.

Gov. Jerry Brown: Can I answer that?

Ana Matosantos: Of course you can.

Gov. Jerry Brown: We have a case in the Supreme Court. If we win that case, we’ll have more leverage. And I believe we will make appropriate cuts with the strength of that. If we don’t win that case, that will give the plaintiffs an edge. So everything we do, we get sued on.

Question: But you assume in all of this that you’re going to prevail in the courts, I presume?

Gov. Jerry Brown: In some cases, we will. In some cases, we won’t. But we feel we will prevail enough that we’ll have enough leverage to get everybody at the table to make the cuts that are needed.

Question: Which lawsuit is that then?

Gov. Jerry Brown: That’s the one opinion in the U.S. Supreme Court that –

Question: Is it Medi-Cal?

Gov. Jerry Brown: Yeah. There are four consolidated cases and it relates to in-home supportive services. And the question is can a plaintiff’s group of providers or recipients – can they come in and sue us when we cut things that they don’t like? Or can only the federal government be a party? That’s one of the questions. If we win the suit, then some of these lawsuits will be cut off. Once they’re cut off, then once we get a vote, then the cut is made. So that’s the significance. And it will have wider significance because even though they’ve brought new lawsuits, the effect of giving us this new power will give us what I call ‘leverage’ in negotiations, so we will be able to arrive at what I would consider to be a reasonable compromise.

Question: Governor, are you confident that you have legal standing to make the cuts to the home-school transportation?

Gov. Jerry Brown: Yes. By the way, any school district that wants to spend it on home transportation can do that. They have their funds, and this is local flexibility to make whatever decision they want. So you can view this as a basically a cut to the overall school system and eliminating at least for this year one categorical program called ‘funding for schools.’ But that $250 million can be backfilled by cutting elsewhere in the schools, which by the way if we weren’t able to cut in transportation, we’re going to have to cut somewhere else as well. And there are no very happy alternatives to make those cuts.

Question: To just bring it home just a little bit more on – in terms of the cuts in general to education, the $79 million or so, what does that translate in terms of the ADA? How much of a loss per student will that be? Is that how you’re going to do it?

Ana Matosantos: I don’t have the ADA number, but it’s about a half a day, and that’s the way in which the cut was being quantified previously.

Question: Just the $79 [million]?

Ana Matosantos: Yes.

Question: Can you give us a revenue breakdown on the initiative? How much the $6.8 [billion] comes from income and how much comes from sales?

Ana Matosantos: I don’t have it off the top.

Question: Ana, is it your or the government’s intentions that these remain permanent cuts – these trigger cuts? I see a reference here to the developmental services that there’s an effective July 1, 2012, which is the next fiscal year obviously.

Ana Matosantos: All the cuts were built in as ongoing saving reductions. The Prop 98 reductions basically have a ongoing effect in terms of reducing the guarantee. The developmental services reductions grows from the value in 2011-12 as a half-year value, so the $100 million growth to $200 million is ongoing.

Question: When are these effective? Is it this Jan. 1 or is this immediate?

Ana Matosantos: Almost everything is effective Jan. 1. The reductions to school apportionment is effective Feb. 1..

Question: Can you explain the two tiers you mentioned a minute ago when the governor spoke? You said all of Tier 1 and a portion of Tier 2 except for…?

Ana Matosantos: So basically, the way in which the structure was created had two categories of reductions. All reductions – because the revenues are $2.2 billion below the budget act projection, all of the reductions are effective. The question is the level of reduction to schools, and the school apportionment reductions could have been up to $1.5 billion and it as actually around $79.6 million. So it’s all reductions Tier 1 and Tier 2 are going into effect. The portion of reduction to school apportionments is $79.6 [million] instead of the $1.479 [billion] that I think was the…

Question: And is there any part of that for schools that’s not flexible? So the governor was explaining, for instance, that even though transportation would be cut, schools could decide on their own whether they want to keep that home to school bus trip and cut something else. Is there anything that’s a mandatory cut and not a choice to those districts?

Ana Matosantos: All of these are reductions to apportionments, and school districts decide how to implement the reductions.

Question: Can you talk a little about what you guys saw that the LAO [Legislative Analyst’s Office] did…

Ana Matosantos: Sure, we have a couple of pieces of information that are different than what the LAO had at the time that they did their estimates.

First, we had November sales tax data and that had a positive effect on the revenue forecast for sales tax revenues. On the personal income tax side of the equation, we had FTB [Franchise Tax Board] data on 2010 tax liability and income liability, and that data shows that income in 2010 was higher than had been forecasted at the time of the May revision. Also, Proposition 63 revenues, which are the revenues that come from the top 1% – the income above $1 million, came in above projections.

So the differential in the income growth among the higher income taxpayers and those with tax below $200,000 was greater than what we were seeing in the May revision in terms of when we look at proprietors’ incomes, capital gains, and this data on Proposition 63 revenues. So 2011 start at a higher base and then that growth into 2011-12 and for this calendar year.

The other issue is the LAO assumptions relative to what will occur in terms of federal tax policies and they make some changes that are different than the current tax law and assume that federal tax law will change.

But we have these pieces of data and they basically show that income for upper income in higher, cap gains, etcetera, and that accounts for the bulk of the $1.5 billion difference between us.

Question: [Indecipherable]

Ana Matosantos: There’s the aggregate number of the $1.5 [million] up in personal income tax compared to the May revision.

Question: You said $79 million in cuts to schools. Can you break that down at all?

Ana Matosantos: The cuts to schools, to K-12, are greater than that amount. That’s the portion associated with the apportionment so it’s about $248 million to home to school transportation and then $79.6 million is the reduction to – let me look at the paper and make sure I get the right one – the reduction to K-12 apportionments.

Question: Do you know what percentage Ana that is? I mean, it is going to be a 4% revenue reduction cut at $1.5 billion?

Off-camera answer from unknown speaker: So that 4% becomes now a quarter of a percent.

Question: Do you have an 18-month number of the deficit?

Ana Matosantos: I have the 2011-12 revenue number.

Question: Ana, would you call the forecast conservative, would you call it bold – what would we call this forecast?

Ana Matosantos: Best forecast we can come up with at this point in time. It’s basically our assessment of the economic…

Question: So medium…? Would you call it the…?

Ana Matosantos: I’d call it the forecast.

[Laughter]

Question: You confused me for a moment when you mentioned school apportionments would go into effect Feb. 1 [2012]. But I also thought under Tier 2, transportation was under there which would also go into effect Feb. 1.

Ana Matosantos: No, transportation goes into effect Jan. 1 [2012]. The only one that was Feb. 1 was the reduction of school apportionments. So it’s the $79.6 [million] that goes into effect Feb. 1. Everything else is Jan. 1.

Question: On the school apportionment, are districts – will give a sense that districts are just going to absorb this or if they’re going to use their permission to shorten the day and which districts might do what?

Ana Matosantos: It’s a better question for the districts to answer. I think districts are going to look at the reductions this year and look at what’s their particular situation and they’ll make the decisions that they best see fit at the local level.

Question: Do they now have the authority to cut how much? Or what how much authority…?

Ana Matosantos: It’s a prorated authority so it’s about a half a day.

Off-camera answer: I think they do have the authority to cut the days but they only need to cut less than half a day.

Question: On the unallocated increase you have zero in the forecast. Is that – are you saying that none of that is going to come through this $4 billion or is that…?

Ana Matosantos: It was done as an unallocated in the budget act and now we’re basically allocating it based on where we’re seeing. So the net of the two numbers is $1.8 [billion] up and it’s allocated to the particular revenue sources, personal income tax, corporate tax, and sales tax.

Question: Are any of these cuts require further legislation? I mean, some of these are unallocated like the developmental services…?

Ana Matosantos: These reductions basically have generally all been done under existing statutory authority. In the developmental services, for the purposes of achieving the full value in 2012-13, some additional legislation might be necessary.

Question: Ana, what is this in the last page about the VLF? What’s that?

Ana Matosantos: It’s just the pace at which the vehicle license fee that remains from the prior taxes is coming in at. It’s just adjusting the pace in which collection is occurring. So money is coming in slower than previously estimated. We’ve revised this number a couple of times as we have more experience about the rate in which taxpayers are paying it.

Question: Sorry, I missed the comment from the back. How many days are authorized – are schools authorized – to cut?

Ana Matosantos: The reduction is about equal to about half a day.

Question: It sounded like he had said it would go down to 168…

Ana Matosantos: We’ll shoot you a note on exactly what on the statutory code so you can look at it.

Question: Do you know what the cuts would likely be in developmental services?

Ana Matosantos: I think in developmental services – the statute first talks about looking at any and all savings that can be achieved within the existing things – that looking at case load, looking at savings in developmental centers, and looking at a variety of options. The department is going to be looking at additional savings options, considering things like standing rate reductions. There should be savings from the autism bill that the governor signed that expands coverage for in the private market side of the equation and thus reduces developmental services costs and looking at additional savings options.

Question: Do you need a legislation to implement that? Is that right?

Ana Matosantos: There may be a need for legislative action for the budget year savings. The current year savings – looking at achieving those savings with an existing authority. And then anything for budget year, looking to work on those savings as quickly as possible for budget year.

So the $100 million – we’re looking at getting the $100 million within existing authority, and if additional legislation is needed then we’ll pursue that as soon as possible. But it’s really more for the budget year amount that additional legislation is likely necessary.

Question: Is it fair to assume that since your projections for revenues in 2011-12 were more positive than the analysts said and that your revenues for 2012-2013 will be more positive and that the deficit figure would be lower?

Ana Matosantos: It’s fair to assume the 2011-12 revenue numbers are higher than the LAO’s, and if you want to do your own revenue forecast…

Question: Well, I don’t. That’s why I’m asking…

[Laughter]

Ana Matosantos: …by all means.

We’ll answer again 10 questions on Jan. 10 [2012]. This is the 2011-12 revenue forecast. The 2012-13 revenue forecast we’ll speak on Jan. 10.

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3 Comments on “Transcript: Q&A with CA Department of Finance Director Ana Matosantos on the trigger cuts to the 2011-12 state budget

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  3. Pingback: Transcript: Q&A with Gov. Jerry Brown on the trigger cuts to the 2011-12 state budget | What The Folly?!

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