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California’s Budget Debacle Grows Into Worst-Case Scenarios

What can we expect and what will we do if the state budget impasse deteriorates further?

In the face of California’s projected $42 billion budget shortfall and after a protracted impasse, it looks as if there is now the outline of a plan to wipe out the deficit. The Legislature could vote as early as Friday on the proposal, although it was not clear Wednesday night whether the required two-thirds of legislators will support it.

As of Wednesday afternoon, the new fiscal framework includes $15 billion in spending cuts, $14 billion in new and increased taxes, and $12 billion in short-term loans and borrowing against future California Lottery monies. The deal between Gov. Arnold Schwarzenegger and legislative leaders incorporates deep spending cuts: $323 million from community colleges, almost $8 billion from public schools, and furloughs for state workers, just to name a few. To raise revenue, the state sales tax would increase by 1.5 percent to 8.75 percent for the next three years, vehicle registration fees would almost double, and other taxes would be imposed.

Regardless of the outcome in Sacramento, local agencies and municipalities are bracing for a massive cash crunch.

Already the state controller has had to issue IOUs or delay payments to certain agencies as the Golden State tries to work out a strategy to get out of its hole. Tax refund checks, social services payments, funds to counties and reimbursements to state vendors will all come late.

As personal income tax revenue — a major source of income for the state — dried up, so did funds from the federal bond markets. As a result, infrastructure projects lost their funding, leading to more job losses.

So with California’s cash flow still looking like it’s going to dry up in March, as many have predicted, how would that development affect our community? We made some calls, poked around, asked some questions, and what we found out follows below. What we’re really interested in, however, is to hear from you. What concerns do you have? What programs are your priorities? How can we help you find out the information you need? Please e-mail your questions to [email protected] with a “California budget” subject line.

Santa Barbara County

According to a staff report last week, Santa Barbara County is facing an $8.9 million shortfall by the end of the fiscal year, which ends June 30. Much of that is money owed to the Fire Department for services performed and overtime accrued during the Gap and Tea fires. The county anticipates the payments will come through. Another reason is the decline in anticipated revenue like sales and bed taxes.

According to budget expert Jason Stillwell, the demand for county social services has increased because of the recession, the same kind of services for which the state is considering cuts or delays in funding.

The gas tax, which funds road projects, and other transportation monies may be held up as well. State grants that go to the Sheriff’s Department look like they might get the ax, including funds that would go to juvenile probation, a program that has already had its budget stretched thin.

Meanwhile, Proposition 63 funds, which are desginated for mental health services, are being considered for IOUs from the state, a move that would aggravate an ongoing shortfall in the county Department of Alcohol, Drug & Mental Health Services. According to county Auditor-Controller Bob Geis, the county has had to deal with delays in Medicare payments for years. The money has been coming out of the county’s strategic reserves.

“So today, if I look at my mental health fund, I’m short $16 million, Geis said.

Among the options he might consider are establishing loans between funds, a tactic the state Constitution allows for certain periods of time — in this case, up to the last Monday in April. If things continue to dry up, the Board of Supervisors may have to step in to create loans between funds over which they have some discretion.

The county Treasurer’s investment pool might become another source, depending on how dire things get, but the county would have to tread carefully there. Much of the funds in that pool go to things like schools and special districts. Next in line would be emergency borrowings, and, like what the state is doing, IOUs.

“We might issue IOUs to vendors, maybe to the retirement fund, or even employees,” Geis said. “But I doubt that we’d even get to that stage.”

It’s hard to tell exactly how long the county can hold out.

“How much the county can hold depends on how much the state stiffs us for,” Geis said. “It’s a moving target.”

Social Services

The county Department of Social Services is already taking hits to its budget, said director Kathy Gallagher.

“We have a very large department; we run a lot of programs,” she said.

Most of the programs are geared toward the lower-income population, she said, including cash assistance, food stamps, and Medi-Cal, foster care and child abuse services — all of which are going to suffer the effects of the state shortfall.

The only program that won’t be hit will be the in-home care program that provides services to seniors and the disabled.

“We have enough cash on hand to continue paying until the middle of March,” Gallagher said. At that point, the supervisors may have to step in with reserve money, or decide to stop making the payments.

For Gallagher, as it is for many agencies waiting on the state budget, one of the biggest factors is lack of information. Without a budget, she said, it’s hard to tell which programs will get cut, which might squeak by and which will disappear altogether.

Santa Barbara and Goleta

The cities are in relatively better shape than the county, with its heavier reliance on state funds. Still, delayed disbursements of gas tax money could have its negative effects, said Santa Barbara City Administrator Jim Armstrong.

“Those delays could lead to delays in our capital projects,” Armstrong said.

“It already has impacted some of the bond programs,” said Goleta City Manager Dan Singer, who also pointed to street funds and community policing funds as two of the revenue sources that are slowing down.

Both Goleta and Santa Barbara officials are crossing their fingers that California won’t take the sales taxes due to the cities; so far they’re doubtful that the state will. Things should hold steady, at least in the short term, they say.

“We’ll be OK for another two months,” Armstrong said. “Any longer than that and it’s going to be a problem.”

Parks

County parks director Daniel Hernandez said his department has had to get creative to sustain the level of service residents expect. With 25 county parks and open spaces to look after, it’s no small task on a tight budget. Tasks like picking up trash, weed abatement, rodent control and helping maintain the areas around county buildings are just a few items that Hernandez says he’s fighting to keep covered.

“For now, we’re just trying to figure out how to do those things with less,” he said, adding that parks are important in the larger budgetary scheme.

“We get over 3 million visitors to our parks and if you figure that each person spends twenty dollars in hotels or gasoline, that’s a huge asset to the county,” Hernandez said.

Several bond measures like Propositions 12 and 40 that would issue out-of-state monies to parks departments. Because only four of Santa Barbara County’s parks offset the cost of operating them completely, fee creation has become a bigger part of the department’s cash flow. A little bit of foresight has kept the department going during the budget crisis.

“We’re not in that great shape, but we have a pretty forward thinking department,” Hernandez said.  “Last year, we started thinking ahead and knew that this might happen.”

Education

Wendy Shelton, communications director at the Santa Barbara County Education Office, said this kind of budget crisis is unprecedented in her two decades of work with the county.

“Nobody I know professionally has ever seen anything like this,” she said. “Everybody cut to the bone long ago and now they’re into muscle and there is nothing left.”

Each of the 22 independent school districts that the county education office services is diverse with different needs. Shelton said the districts are preparing for the worst, but will not make any drastic moves, like increasing class sizes or shortening the school year, until the budget has been passed. Educators are also waiting to see whether the federal stimulus bill, which has large sums earmarked for education, can be reconciled and approved in Congress. Until then, everyone is being very cautious and very prudent, she said.

Although laying off staff would be the largest way to cut back on costs, the budget could be passed midway through the school year, when teachers are still covered by their contracts. The timing makes things more than inconvenient for educators.

“That’s devastating to a school because you’re already locked into your expenditures,” she said. “Schools take what they’re given and make due. There’s no mechanism for them to make money, so they truly are victim to these kinds of financial crises.”

Transportation

With the state’s credit in disrepair, investors are leery of buying bonds, which freeze projects they support. Throughout California, nearly 6,000 projects formerly funded by state bonds have been suspended. But Santa Barbara County has somewhat of a safety net in play in Measure D, the sales tax that will allocate $1 billion toward transportation over the next 30 years. Because Sacramento is mostly out of the picture, projects can continue, regardless of state funding. The Highway 101 project is the only local transportation project currently receiving such bond funding.

“We’re lucky that the bulk of our work is still continuing,” said Gregg Hart, spokesman for the Santa Barbara County Association of Governments. Because of the availability of local funds to continue projects, he said, “the state is treating us differently.”

Hart said SBCAG will be meeting Feb. 19 to discuss putting Measure D funds toward the Highway 101 project. In addition, road maintenance, surface treatments, sidewalk upkeep and traffic signals are funded by gas taxes, which remain stable as long as people keep buying fuel, Hart said. Even though the county’s transportation projects will likely power through the budget crisis, he acknowledged the magnitude of the situation.

“It’s not the first time it’s happened, but this is pretty unprecedented,” he said.

Noozhawk staff writer Lara Cooper can be reached at .(JavaScript must be enabled to view this email address) and staff writer Sonia Fernandez at .(JavaScript must be enabled to view this email address).

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