Cuts will likely fall short of projected savings

Gov. Jerry Brown and state lawmakers last month passed what might have been the biggest package of spending cuts in state history, more than $11 billion in reductions to almost every part of the government. But when the next fiscal year ends less than 15 months from now, many of those cuts will have failed to deliver their promised savings.

As a result, even if Brown gets the entire combination of spending cuts and tax increases he is seeking from the Legislature and the voters, a new shortfall will likely emerge unless the economy outperforms projections and the state collects higher tax revenues that expected.

That’s been the pattern in Sacramento for many years. And while Brown appears to have tried harder than his predecessors to rely on realistic projections, the savings expected from many of the spending cuts he has embraced appear to be overly optimistic.

For evidence, look no further than the brand new contracts the Brown Administration has just negotiated with many of its workers. The budget package Brown is piecing together relies in part on a savings of 10 percent from these contracts. But an independent analysis of the deals suggests they will save far less than that next year and will probably increase state costs in the long run.

The non-partisan Legislative Analyst examined the proposed contracts for public safety workers, engineers and scientists. The safety workers’ deal would save less than 3 percent next year, the analysis said, while the two other contracts might save 6 percent. That’s far less than the budget projected, but even those lower savings might be optimistic.

One reason is that all three deals end the three-day-per-month furloughs imposed by former Gov. Arnold Schwarzenegger and replace them with one floating unpaid day off per month for these employees. In his projected savings, Brown has counted the furloughs already taken this year. But by ending the program, his new contracts will actually cost the state more money between now and June 30 before any savings start to accrue.

And while the agreements would require the employees to contribute more toward their pensions, workers would also get more time off, including two “professional development days” that are in reality the same as vacation, used at the full discretion of the employee for any reason.

Brown assumes that these days cost the state nothing, but as the analyst points out, in some cases the time off will drive up overtime costs as other workers are pulled in to cover shifts that cannot go vacant. In other cases, employees will use their time off, paid or unpaid, instead of vacation, and then cash out their vacation days when they leave state service, and this will be a cost to the taxpayers. Finally, all three contracts include a 3 percent pay raise starting in 2013, adding still more costs in the future.

Because these contracts have not achieved the savings projected for them just last month, the final two deals still pending would have to cut 11 percent from labor costs to give the state the overall savings projected in the budget. Always diplomatic, the analyst’s office said it had “serious doubts” that those savings would be achieved.

Many other cuts included in the budget are no less problematic.

Brown, for example, signed a bill that requires recipients of in-home care to get a doctor’s certification that they would be forced into a nursing home without the services they get from the state. The new requirement is expected to eliminate in-home help for 43,000 people, saving the state $120 million next year.

But once again the state’s legislative analyst suggests that those savings are probably overstated, for a number of reasons. The biggest is an overarching fact: it is impossible to know how doctors will handle these requests, how strict they will be and how they will interpret any regulations and definitions intended to guide their evaluations.

Even if the doctors are as strict as the state hopes, however, many of the details within the proposal still pose problems for accurately estimating any savings to the state.

For one thing, doctors might charge recipients for the visit required to certify their disability, and then bill the state Medi-Cal program for that cost, wiping out part of the saving achieved by eliminating care. Also, if developmentally disabled recipients lose services because of this provision, costs might increase elsewhere in the budget because other laws entitle some of those people to help from the state to live independently and outside of institutions.

Another problem: the estimate of $120 million in savings assumes that the people who lose their services have been receiving the average number of hours of in-home help. But because those people who lose their services would be, by definition, more able to care for themselves, it is likely that they have been receiving less than the average number of hours of help, so eliminating that service will save the state less than projected.

One last detail: tracking who has received a doctor’s certification will be an administrative headache with costs of its own, including changes to the state’s computer system. Those costs have not been factored in.

These kinds of potential problems can be found in many of the hundreds of individual cuts approved by the Legislature.

In the Medi-Cal program, the Legislature approved what it called a “soft cap” on doctor visits, limiting recipients to seven visits per year. This is supposed to save $44 million next year. The catch is that the doctors themselves can certify that a patient needs more than 7 visits, for any of a number of reasons. One of those reasons is that the extra doctor visits are needed to “prevent a disruption in ongoing medical therapy,” which would seem to cover a wide range of potential circumstances.

In another part of Medi-Cal, Brown and the Legislature are counting on saving $2 million by ending coverage of over-the-counter cold medications. But this could drive some patients to seek prescriptions for stronger drugs instead, driving up costs in doctor visits and pharmaceutical costs.

Those potential shortfalls pale in comparison, however, to the projected savings of hundreds of millions of dollars next year by reducing reimbursements to doctors, clinics and hospitals by up to 10 percent.

Although California already has some of the lowest reimbursement rates in the nation, the state has tried to cut them further in the past, only to be blocked by the courts and the federal government. The US Supreme Court has a case on this issue pending before it now.

With those potential obstacles, it is very unlikely that the savings projected will be achieved next year.

The result will be spending on health care that is far higher than projected in the budget. And in all likelihood, a new deficit a year from now.

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