News Article

By Aurelio Rojas

Sacramento Bee  

While California careens toward a $10 billion budget deficit and state departments brace for spending cuts, Gov. Arnold Schwarzenegger and Democratic leaders are negotiating a $14 billion universal health care plan.
 
The administration and Democrats say the budget and the health care plan are unrelated because the plan would pay for itself through fees on businesses, employees, hospitals and additional federal funds.
 
But some budget experts say the practice of creating a funding stream for a particular program - a mechanism that has increased in California in the past two decades - eliminates money that could be used to shore up the state's finances.
 
"Inevitably, as a policy solution, these things meet up," said Fred Silva, an adviser to the nonpartisan fiscal policy group California Forward, and a former state Senate legislative budget director.
 
Silva said the Republican governor's proposal to lease the state lottery to help pay for health care and the Democrats' counter-proposal to increase taxes on tobacco products raise another question. Would it be better to use the proceeds to meet the state's general fund obligations?
 
But Schwarzenegger believes the deficit provides even more urgency for policymakers to agree on a fix for the 6.7 million Californians without health insurance.
 
Doing so would allow policy makers to concentrate on managing the deficit next year without cutting health care, the governor is expected to say today in a speech in Los Angeles.
 
On this point, Schwarzenegger and Assembly Speaker Fabian Núñez, D-Los Angeles, and Senate President Pro Tem Don Perata, D-Oakland, are in accord.
 
"We are entering into one of those dark periods in the California economy," Perata said earlier this week. "We have to do this now and move it off the table to get our attention on the budget, which will dominate next year."
 
California's budget is plunging further into the red, largely because of the troubled housing market, and the deficit could reach $10 billion in 2008-09.
 
Schwarzenegger, preemptively, has ordered all state departments to draft plans to cut their spending for the coming fiscal year by 10 percent.
 
Daniel Zingale, one of Schwarzenegger's top advisers on health care, said the rising deficit "underscores the importance" of acting now.
 
He noted that both the governor's and the Democratic proposals would leverage the proposed fees to increase federal funds.
 
"That's the way you get the federal matching funds," Zingale said. "That wouldn't even be considered in the current budget realities if we weren't talking about health care reform as the source of new revenues."
 
Silva, who served as a top budget adviser to Democrats in the Senate from 1981 to 1994, said the trend of creating a program and "financing it externally" has increased over the past 20 years in California through both the legislative and the initiative process.
 
Previous tobacco tax hikes have been used to fund anti-smoking programs while a recent tax on people who make more than $1 million a year is being used for mental health services.
 
But Silva said this limits flexibility to fix the structural imbalance in the state budget because it narrows the gap between the money in the state's general fund and money earmarked for specific programs.
 
"Some of the money they now want for health care is also some of the money they may later want to consider for solving the budget," Silva said.
 
If Schwarzenegger and the Democrats who control the Legislature reach a health care deal, voters would have to approve the funding on the November 2008 ballot.
 
Silva said that could be a hard sell if next year's budget battle is acrimonious and results in program cuts.
 
"Those two things are inevitably going to be linked at the ballot box," Silva said.

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