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County watches budget collapse

County watches budget collapse


November 30, 2002
Sentinel staff writer

Having already shouldered more than $15 million in budget cuts this
June, county officials are wondering how they will cope with a
mammoth state deficit almost sure to force larger cuts next year.
Some are still hoping the state will be lenient after dipping heavily
into social-service funds this year. But others say optimism is fallacy,
and the county must brace itself for grim times.
“The state has always balanced its budget on the back of counties. I
don’t want to scare people, but I think we need to be realistic,”
county Supervisor Mardi Wormhoudt said. “You don’t have to be a
genius to see (the deficit) is going to hurt the people who can afford
it the least.”
The Legislative Analyst’s Office has projected a $21 billion deficit for
2003-04, with $6 billion already accrued this year. And that’s a
conservative estimate the deficit is expected to approach $30
While $6 billion of it can be fixed with some fiscal maneuvering, the
rest is here to stay, the legislative analyst said. A permanent $12
billion to $16 billion gap between revenues and expenditures the
result of tax relief and spending increases made during boom times
means the state must restructure a budget in collapse, the analyst
With counties essentially an arm of the state, carrying out its
mandated functions, there’s no way they can escape next year
unscathed, finance experts say. Almost 90 percent of county
spending goes toward fulfilling state mandates.
“The state is already looking at 20 percent reductions in general
government, which is a huge amount. And they’ll be looking to share
that pain with local government,” said Ted Gibson, former chief
economist for the state Department of Finance. “My guess is (the
state is) going to raise taxes quite a bit, but (it’s) still going to have a
big problem after that.”
The situation now is worse than during the recession-starved ’90s,
when the state solved its deficit by shifting property taxes away from
local governments and toward schools, Gibson said. Then, the state
tackled its deficit as soon as it was apparent. But this time around,
solutions have been delayed by skittish politicians wary of midterm
County officials say they simply don’t know what they’ll do when
state cuts come. The county is running as lean as it can there’s no
fat left to trim, they say. Further reductions could mean the county
won’t be able to carry out state-mandated services.
“It’s probably fair to say we would be on the verge of collapse” if hit
with more cuts, said Cecilia Espinola, human services director. “Any
further cuts would seriously jeopardize our ability to deliver services
and comply with all the myriad (state) rules and regulations.”
Unlike most counties, Santa Cruz County was hit with a double
whammy during this year’s budget hearings. The county had to
grapple not only with state reductions, but with the loss of its utility
tax as well. The tax, which brought in $10 million annually, was
repealed by voters in March.
The Human Services Department was hit hard by the governor, who
took $175 million from social-service programs with his line-item veto
even though these services have received no cost-of-living
increases in two years.
The tax repeal and state cuts translated into a $5.5 million loss for
the department, which cut 93 positions. Among the programs hurt
were child welfare, adult protective services, Medi-Cal enrollment,
food stamps, health care for poor parents and drug-treatment
programs for juvenile offenders.
“We’re still picking up the pieces,” said Espinola.
The Health Department likewise is hurting. The tax repeal, rising
pharmaceutical costs and changes in Medi-Cal reimbursement put the
department $3 million in the hole this year. The state cut another
$362,000 from children’s mental health services which, when combined
with federal matching funds, amounted to a $669,000 loss.
One of the biggest fallouts of the struggling health system has been a
radical reduction in services at county clinics. Only clients with
life-threatening illnesses now receive full treatment. Others are
assessed by a nurse and sent home with self-help brochures if
illnesses are not urgent.
The Sheriff’s Office lost $824,000 this year, forcing it to cut 29
positions. Crime prevention programs and medical services for inmates
were hurt the most.
“This is the worst possible time for further cuts to public safety,” said
Sheriff Mark Tracy. “We’re at the point of slashing patrol deputies
now, not pencils and supplies. And in economic downturns, crime goes
The state also withheld money it usually reimburses counties for
services such as pesticide reports, health bulletins and school
programs for emotionally-disturbed children. For the county, this
amounted to a loss of $2.2 million over two years.
The county will be forced to cut optional programs first if more state
cuts come next year. But those programs are few and far between.
They include things such as day-care centers, community programs,
senior-center programs, sheriff’s patrol and library services, said Pat
Busch, assistant county administrator.
“Those are the programs that will be in the greatest jeopardy,” he
Gibson, the state’s former chief economist, predicts human services
will continue to be hit hard next year.
“I don’t think there’s any question about that,” said Gibson. “(The
state) has no choice.”
Two things likely will see the chopping block immediately, he said, the
first being a cost-of-living increase promised for welfare programs in
June. Also likely to go is dental coverage for Medi-Cal recipients as
well as annual renewal of their health benefits, Gibson said. The state
probably will make renewal a quarterly requirement, which usually
reduces caseloads, he said.
One sure bet is big fee increases at community colleges and
universities, Gibson said. Currently, those fees are among the lowest
in the nation.
While most Republican legislators still oppose tax increases, such
increases will be impossible to do without, said Jean Ross, executive
director of the California Budget Project. Spending reductions alone
would require massive program and departmental closures, she said.
For example, even if the state closed all its prisons, colleges and
universities, it still would be $6 billion in the red, Ross said.
“The problem is not that spending increased but that revenues
dropped. If you want to solve a revenue problem, you have to
increase revenues,” she said.
Basing the general fund on more stable revenues than the personal
income tax is one way to make sure the state isn’t always in a fix
during rough economic times, Ross said. For example, vehicle license
fees, a stable revenue source slashed during economy prosperity,
should be brought back up to their 1998 level, Ross said. That would
give the state another $4 billion.
Another option is to start taxing services as the state taxes goods,
because consumers now spend more on the former, Ross said.
Matthew Newman, director of the California Institute of County
Government, thinks the state should revisit property tax revenue.
Although frozen at 1 percent of market value by Proposition 13, the
tax could be raised through a constitutional amendment. Property
taxes are not only significantly less volatile than the personal income
tax, but tend to grow during slow economic times, Newman said.
Contact Jeanene Harlick at jharlick (at)


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