The California Legislature has passed the 2009-10 budget, with $24.2 billion in deficit reduction solutions and a $921 million reserve; in total solving a $25.3 billion problem.
The bipartisan solution was the product of several months of negotiations and public hearings on how to address the historic downturn in the economy by responsibly cutting all areas of government while keeping the state’s social service safety net intact, according to Senate President pro Tem Darrell Steinberg, D-Sacramento. He noted that with this solution in place the state has resolved over $60 billion worth of deficit since January 1st.
“There are a whole host of decisions on the cuts side that pain me greatly – deep cuts to education, to health and human services and to local government. Given the circumstances, I am grateful for all the things we were able to save,” Steinberg said in his speech before the Senate vote took place.
Included in the budget is a proposal to sell a portion of the State Compensation Insurance Fund’s assets for $1 billion. However, the bill is a study bill that sets forth a series of conditions that would have to be met in order to transact any sale, including the agreement of the State Fund’s board of directors who earlier this month issued a resolution opposing any sale of the insurer’s assets and liabilities.
“Even though the actual sale of State Fund assets is unlikely to occur, the suggestion of a sale triggers more questions than answers,” said Clark Payan, CEO of Insurance Brokers and Agents of the West (IBA West). “We are very concerned that the proposed sale appears to be driven by the need for cash to solve the budget problem and don’t see that anyone has considered the long term effect of a sale. Is it prudent action to take if the short term goal puts California businesses and employers at risk? The question of the valuation also needs to be considered.”
Payan said he contacted State Fund to set up a meeting to discuss IBA West’s concerns about the sale of brokers’ expirations among other issues. “Are they including broker-placed business in the valuation of the sale? Our position is that brokers own the business they’ve placed with State Fund, so broker-placed business should not be included or contemplated in a sale,” he said.
SCIF acknowledged that the potential for sale could take some time, and that previous proposals to sell its assets had failed in the past.
“The idea of either selling or privatizing State Fund has surfaced without success at various points in our history. In the past these proposals have always been dropped after considering the legal challenges as well as the risks to the market and economy. While there’s no guarantee the outcome this time will be similar, the risks have not changed and in fact may be greater given the recession,” said Jennifer Vargen, SCIF spokeswoman.
“Because this legislation establishes a process that may take some time, we want our customers to know that State Fund is open for business and we will remain focused on providing outstanding customer service,” she added. “We will continue to work with all stakeholders during this process to ensure that State Fund retains its ability to fulfill our mission of providing California businesses a strong and stable option for their workers’ compensation insurance.”
Nevertheless, legislators were proud that they were able to agree on a budget so that the state can stop issuing IOUs.
“These are painful solutions for all Californians and many of the cuts we have to make would be unthinkable if we weren’t in the midst of an unprecedented and ongoing recession that is plaguing our nation and our state,” said Speaker of the Assembly Karen Bass. “But despite a two-thirds vote requirement that hamstrings our ability to pass responsible revenue solutions, we’ve prevented irreparable harm to our schools and prevented the proposed elimination of California’s safety net.”
“Over the next number of months we can now focus on fixing what we know is broken with the system,” Steinberg said. “Everything from seriously considering the recommendations of the tax commission and re-doing our tax structure in California, to bringing government closer to the people and changing the relationship between state and local government, initiative reform, to changing the two-thirds requirement, it obviously isn’t working.”
To view details of the budget revision package, the Senate Budget Committee has posted a report at http://www.senate.ca.gov/ftp/SEN/COMMITTEE/STANDING/BFR/_home/2009FINALBUDGETREVISIONS.pdf. Click the “Information” tab.
Sources: IBA West, California Legislature