California To Push For Budget Reforms, Sale of State Fund Assets Unlikely

By | January 7, 2010

Californians can expect more tax increases and cuts in state services, but it’s unlikely that a sale of some of the state workers’ compensation insurer’s assets will be used to shore-up the budget.

In his State of the State 2010 address yesterday, Gov. Arnold Schwarzenegger warned the state about the “bitter pill” it would need to swallow, as the Golden State faces a $19.9 billion deficit. “This is something we’ll have to address in the next few years,” he said. “There will be additional cuts. We have no choice.”

Last summer, the Governor and state lawmakers predicted they could raise $1 billion to fund the state’s coffers by selling some of State Compensation Insurance Fund’s assets. However, even back then, the success of the sale was questionable.

The approved bill was a study bill that set forth a series of conditions that would have to be met in to transact any sale, including the agreement of the State Fund’s board of directors, who had issued a resolution opposing any sale of the insurer’s assets and liabilities. And previous proposals to sell some of SCIF’s 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 when the proposal was passed.

And in August, when Insurance Commissioner Steve Poizner filed a lawsuit noting a sale of SCIF assets would weaken the workers’ compensation insurer, he essentially tied the deal up in court.

“In these tough economic times, the state should be doing everything possible to create jobs, not use budget gimmickry to hurt the economy,” Poizner said in a statement. “The Schwarzenegger Administration simply got it wrong with their proposal and the Legislature failed to adequately scrutinize the consequences.”

The Governor is scheduled to unveil his budget proposals for 2010 at a news conference at 11:30 a.m. on Jan. 8.

Meanwhile,state Controller John Chiang cautioned, “A year ago, I told the Governor and Legislature that without their courage and collaboration in fixing the budget, there would not be enough cash in the treasury to pay for hard-working Californians’ tax refunds through the spring, and local governments would be hung out to dry. Our cash crisis last year was a shameful chapter in California’s history and a dark reminder of the consequences of a government’s reluctance to make tough decisions quickly.

“We are a year older, and I hope we are a year wiser. Although the deficit is a third of the size of what we faced last year, the one-time solutions and accounting tricks in the last budget pushed more problems into 2010. There are no easy cuts to now bare-bone programs, and federal stimulus funds are drying up.

“I hope we have learned that the best prevention against future payment delays and IOUs is for the Governor and Legislature to quickly provide lasting, responsible budget solutions. I look forward to updating the State’s cash outlook for the year as soon as I have the opportunity to test the cash flow data in the Governor’s budget proposal.”

According to the Controller’s December cash report, that month’s receipts rose above estimates by $481 million, or 5.7 percent. However, year-to-date revenues remain below the amended 2009-10 Budget’s estimates by $353 million, or -0.9 percent, and state payments went out faster than expected near the end of the 2009 calendar year. The state’s overall cash position was $202 million below its projected level on December 31.

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