LAO Report Predicts $11.5B Surplus for FY 2016-2017

On Wednesday, the California Legislative Analyst's Office released a report outlining the state's fiscal outlook for the coming years, including spending on health-related services, Capital Public Radio's "KXJZ News" reports (Bradford, "KXJZ News," Capital Public Radio, 11/18).

Overall, the report predicts the state will have an $11.5 billion surplus in fiscal year 2016-2017. LAO projected that state revenue this year will exceed the most recent estimates from Gov. Jerry Brown's (D) administration by about $3.6 billion (Young, Sacramento Business Journal, 11/18).

However, LAO also "offered several alternative economic scenarios" in which the state hits a recession in FY 2017-2018, which would cause revenues to fall by more than $60 billion (Miller, Sacramento Bee, 11/18).

State HHS Spending

The FY 2015-2016 state budget allocates $31.7 billion for health and human services programs, but LAO estimates that such costs "will be slightly lower -- by a net of $150 million" if current spending levels continue. The report projects that general fund spending on state HHS programs will reach:

• $33.8 billion in FY 2016-2017; and
• $34.4 billion in FY 2017-2018.

The growth in FY 2016-2017 "primarily reflects higher general fund Medi-Cal spending, due mainly to the assumed repeal of the managed care organization tax as of 2016-2017 and the inception of a state share of costs for the optional Medi-Cal expansion population under federal health care reform" beginning that year. Medi-Cal is California's Medicaid program.

Medi-Cal Spending

Meanwhile, the report estimates that general fund spending on Medi-Cal "will be about $18 billion -- 0.3% (or $47 million) lower than what was assumed in the" FY 2015-2016 state budget, assuming current spending levels continue.

LAO estimates that such spending will increase by 14% in FY 2016-2017, reaching $20.5 billion. The increase largely will be driven by "underlying program growth in caseload and per-enrollee costs, higher costs associated with the newly eligible population under the ACA ... and a decrease in federal funding for the Children's Health Insurance Program," according to LAO.

IHSS Spending

LAO estimates that general fund spending on In-Home Supportive Services programs will be $2.8 billion in both FY 2015-2016 and FY 2016-2017.

However, such spending is projected to increase by about $100 million annually beginning in FY 2017-2018, jumping to $3.1 billion by FY 2019-2020. The increases largely will be driven by caseload growth, which is expected to increase by 4% each year. In addition, two factors are driving providers' compensation:

• Anticipated provider pay and benefit increases that were part of a collective bargaining agreement; and
• Compliance with a federal labor rule requiring states to dole out overtime pay.

DSS Spending

Meanwhile, LAO estimates that general fund spending on state Department of Developmental Services programs will be about $3.5 billion in FY 2015-2016.

The report estimates that spending on DSS will increase by $50 million in FY 2016-2017, ultimately reaching about $3.7 billion in FY 2017-2018. The increases "are mostly due to cost increases for community services" driven by an increasing caseload and higher costs per consumer (LAO report, November 2015).

Comments on Report

Legislative analyst Mac Taylor said, "The budget outlook is decidedly positive," adding, "We have revenues growing slightly greater than spending. That means operating surplus grows, the reserve levels grow and you're still in a very good situation" ("KXJZ News," Capital Public Radio, 11/18).

State Senate Republican leader Jean Fuller (Bakersfield) in a statement said, "[T]his strong revenue growth shows that it won't be necessary to impose new taxes on California families."

However, Michael Cohen, Brown's finance director,  said, "The strong economy is good news for California, but the recession scenario outlined by [LAO] is a sobering reminder that we must continue to pursue fiscal discipline, pay down liabilities and build up our Rainy Day Fund during these fleeting good times" (Sacramento Bee, 11/18).