Budget plan a red flag

The Assembly Budget Committee held a special hearing in Los Angeles Friday on a key facet of Gov. Brown’s plan to eliminate California’s crippling deficit. Here is the testimony I provided on the governor’s “realignment” proposal.

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Welcome to our Hall of Administration and our board room, and we thank you for undertaking this hearing to discuss an issue that has our county and counties throughout the state extremely concerned. That issue is “realignment.”

We recognize that the State of California has a budgetary tiger by the tail in the $28 billion deficit it faces.  All of us appreciate the challenges being faced, and all of us welcome the Governor’s candid and transparent discussion of the magnitude of the crisis and its implications for the future.  Los Angeles County—which, by all accounts, has managed its fiscal affairs as prudently as any major local government in California—understands what it takes to balance a budget.

Our County has publicly and privately conveyed to State officials, including the Governor himself, that as distasteful as the proposed cuts are, we are prepared to equitably share in the burden of those cuts—or, more appropriately, to ask the citizens who rely on county services to share in the burden of those cuts. The $12.5 billion in cuts will fall very heavily on human services, and California counties are the primary deliverer of such services in the State. We are anxious and prepared to work with both the Governor and the Legislature to help address this crisis.

Realignment is another matter, however. While we are prepared to work with the State on creating a realignment proposal that works for both of us, realignment is one of those concepts that sounds great in theory, but hasn’t always and won’t always work out in practice. The devil is always in the details. You certainly understand our wariness.

To put it simply:  If the state proposes to save money by shifting both program responsibilities and the funding for them to counties, where will the savings be? Can it really be that local governments are so much more efficient that citizens will receive the same or higher levels of public service at substantially reduced cost?

If we are not careful, realignment will be less a swap of services and revenues to pay for them, and more a dumping of costly criminal justice and human services from the State’s books to the county’s books, the end result of which will be only to shift the huge deficits that the State has been incurring to counties which can afford them even less.

Proponents of realignment argue that it will restore power, flexibility and discretion to counties over their own finances. They assert that local governments and their constituencies will be free to choose whether to fund existing programs. This is simply not true. Most health and human service programs and their funding levels are already set by federal and state law for counties to administer with little or no discretion. Unless these constraints are lifted, this principal benefit of realignment will never be realized. And, lifting those constraints opens up an entirely different kind of debate over the equity and adequacy of the services that counties provide.

As to control over our own finances—this, too, is not true. Proposition 13 severely limited local governments’ ability to generate revenue by rolling back and capping local property assessments and tax rates. The problem has only grown more acute in the ensuing decades as the Legislature and voters have imposed new constraints and restrictions, most recently in adopting Proposition 26 last November, which sharply limits local fees. Any suggestion that Counties will have the ability to raise taxes or fees for services we may choose to provide—above what the state pays us for—is simply disingenuous.

To pay for realignment, the Governor has proposed a five-year extension of expiring tax revenues, subject to voter approval (and it is not clear that these revenues will be sufficient to pay for realignment). When asked what would happen in Year 6, the Governor said he’s hoping the economy will bounce back by then. Revenues fluctuate, and in fact, it’s a rule we all live by in government that during an economic downturn, when our people need services most, we have the fewest resources available to us. Hoping the economy will turn around in five years is simply not enough—we need a permanent, dedicated and stable revenue source if we are to take over these programs.

Let’s walk through a couple of examples. The realignment proposal calls on counties to take responsibility for jailing state parole violators and so-called “low level offenders.” As you know, Los Angeles County’s jails are overcrowded now. A federal judge has been breathing down our neck to deal with this persistent constitutional problem. There is simply no capacity to house state inmates without having to release county prisoners to the streets of our communities.  Moreover, even if we did have the capacity, what makes the State think that we can absorb the cost of this added burden when the State can’t handle it now? It simply looks like shifting a bad debt from the State’s books to the counties’ books.

Another criminal justice proposal is to have probation take over the supervision of some parolees. Our staffing requirements for such a shift could be as high as at least 600 persons. Is the State prepared to pay us dollar for dollar what it will cost us to take over this job? Keep in mind that your parole officers are public safety officers who are entitled to a public safety pension. Our Probation officers are not. Even worse, in its infinite wisdom, the State gave its parole officers the 3% at 50 pension benefit which is breaking the back of many pension systems around the state.  We did not. Are we expected to hire the state’s parole officers to handle this new responsibility at salaries and pensions that we don’t currently provide our own employees? As our District Attorney recently wrote, the budget proposal in the area of Corrections and Rehabilitation “will wreak havoc on Los Angeles County’s criminal justice system.”

Of the programs being proposed for Realignment, the biggest one in dollar terms is Foster Care and Child Welfare Services. Foster Care is a federal entitlement that requires us to provide services no matter how high the caseload. As you know, we are currently operating under a carefully negotiated waiver that provides not only a growth factor, but also flexibility on how to spend funds. Our CEO estimates that we would receive a fixed annual amount of $557 million to administer these programs. However, caseloads won’t remain fixed. It doesn’t take a mathematician to realize that rising caseloads with no growth factor for a program of this magnitude is a recipe for disaster. As it is, since the 1991 Realignment, we have absorbed significant cost increases in these programs due to unanticipated Federal licensing and monitoring requirements.

Where do we go from here? I have an abiding concern that the realignment proposals are not fully baked. To approve these proposals in the next 30 days, when consensus has not developed around them in years, is unrealistic and dangerous. Doing so will inevitably lead to a plethora of unintended consequences that will largely fall on us, not on the State.

The three basic principles that should guide us any realignment scheme going forward are: counties should not be net revenue losers; it should accurately and thoroughly scope out the current costs of each programmatic shift; and it should constitutionally guarantee a revenue stream that is sufficient to sustain the programmatic shift, not only for the next five years, but beyond, when the temporary taxes, if approved by the voters, expire. Anything short of that would wrap a millstone of fiscal insolvency around the necks of every one of California’s 58 counties.

Posted 2/4/11