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Controller to Expedite Payments Held Up by Budget Stalemate (September 19, 2008)

State Controller John Chiang has sent a letter to State agencies and departments urging them to prioritize backlogged claims to ensure California nursing homes, day care operators, community colleges, small businesses and others that have suffered during this budget stalemate are first in line to be paid.

“This record-setting budget stalemate has been an enormous burden on so many small businesses and health care providers who care for our most vulnerable Californians – the sick, elderly, disabled, and children,” Chiang said. “I will quickly pay all backlogged claims and I am asking State agencies for their assistance to ensure that we get payments into the hands of those who most desperately need them as quickly as possible.” Medi-Cal payments that have been withheld from nursing homes, hospitals, clinics and other health providers will be the first to be paid under an agreement finalized today with the California Department of Health Care Services (DHCS). The Controller will pay about $3.6 billion in claims within 48 hours of the budget becoming law. The Governor has indicated he will sign the budget early next week.

In his letter, the Controller said that while the law allows him 15 days to review, process and pay standard claims, he intends to reduce that time to 7-10 days. To accomplish these goals, the Controller has redirected additional employees to assist in processing the estimated 80,000-plus claims that have gone unpaid since July 1.

View of a copy of the Controller’s letter.

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• What the State Controller Can and Cannot Pay Without an Enacted Budget

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Controller Chiang Comments on Governor’s Revised Budget Proposal (May 14, 2008)

State Controller John Chiang issued the following response to the Governor’s May Revision budget proposal:

"I compliment the Governor for proposing a budget that recognizes that the magnitude of the current fiscal crisis warrants open-mindedness to solutions that impact both sides of the ledger."

"However, the Governor’s budget proposal relies too heavily on risky borrowing and questionable assumptions that could plunge the State into deeper fiscal crisis if they fail to materialize."

"Without a timely budget based on sound assumptions and containing real solutions, the State could run out of cash as early as August and will have no option other than expensive external borrowing to meet the State’s payment obligations. I urge the Legislature to work quickly to enact a solid budget that protects those who rely on government services and paves the way toward long-term fiscal stability."

"My office expects to receive the Governor’s revenue projections next week and will immediately begin testing his budget assumptions and proposed solutions to determine their viability and what impact their success or failure will have on the State’s cash balance. I hope to make those analyses available by the end of the month to assist the Legislature in its difficult task."

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Daily Personal Income Tax Tracker

Personal income taxes for the 2006-07 fiscal year comprised 54.7% of all State General Fund revenues. Of those receipts, 23.3% arrived during the month of April.

Because these receipts are so important to the State's fiscal situation, State Controller John Chiang is providing a daily tally of this month’s personal income tax revenues as compiled and reconciled by the State Controller's Office. Year-to-date figures for April 2008 and April 2007 are included for year-over-year comparison.

Released in January, the Governor’s proposed 2008-09 State budget projected personal income tax receipts would reach $45.3 billion on April 30.

Preliminary Report of California State Personal Income Tax Revenues - Month of April (In Thousands of Dollars)**
Date	Daily Personal Income Taxes (Receipts And Withholding Minus Refunds)	Fiscal 2008 Year-To-Date Personal Income Tax Revenues	Fiscal 2007 Year-To-Date Personal Income Tax Revenues
March Balance		$33,810,542	$32,428,548
April 1	$45,519	$33,856,061	--
April 2	$200,469	$34,056,530	$32,458,843
April 3	$124,848	$34,181,378	$32,592,515
April 4	$220,775	$34,402,153	$32,838,993
April 5	--	--	$32,851,435
April 6	--	--	$33,141,688
April 7	$322,774	$34,724,927	--
April 8	$170,703	$34,895,630	--
April 9	$187,620	$35,083,250	$33,264,502
April 10	$21,766	$35,105,016	$33,366,126
April 11	$391,816	$35,496,832	$33,739,741
April 12	--	--	$33,882,661
April 13	--	--	$34,166,545
April 14	$300,124	$35,796,956	--
April 15	$308,293	$36,105,249	--
April 16	$535,917	$36,641,166	$34,498,753
April 17	$515,778	$37,156,944	$35,030,607
April 18	$863,981	$38,020,925	$35,663,291
April 19	--	--	$36,054,620
April 20	--	--	$36,995,195
April 21	$1,596,447	$39,617,372	--
April 22	$669,403	$40,286,775	--
April 23	$540,932	$40,827,707	$38,738,938
April 24	$741,860	$41,569,567	$38,666,446
April 25	$895,727	$42,465,294	$40,846,164
April 26	--	--	$40,694,465
April 27	--	--	$43,594,484
April 28	$2,803,977	$45,269,271	--
April 29	$1,257,921	$46,527,192	--
April 30	$278,807	$46,805,999	$44,607,458
Monthly Total	$12,995,457

**The table above shows the most recent personal income tax revenues, which include payroll withholdings, taxes received and refunds paid out. The reconciliation of these numbers can take up to two days. Final April revenues may not be known until the first week of May due to delivery and processing requirements and the large volume of tax filings received.

Source: California State Controller's Office

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Current Crisis Should Pave Way for Real Budget Reform

By John Chiang
California State Controller

(Reprinted from the February issue of the Controller's Monthly Cash Report Summary Newsletter)

Real budgetary reform is now among the most important issues pending in Sacramento. The Governor and our Legislature are making it a top priority to find positive solutions to our increasingly painful fiscal and economic problems. As the State Controller responsible for making sure the State can pay its bills, I believe we must put in place a workable, long-term plan to ensure a brighter – and steadier – fiscal future for California.

The time is now. The need for long-term reform has been made painfully clear by the terrible financial toll proposed by the Governor’s new budget. To bridge a projected $14.5 billion budget gap, the Governor has proposed a 10 percent across-the-board cut, which I do not believe is a fiscally prudent or responsible way to cut State spending. Public service and program cuts would be felt throughout the state and in our communities. California’s school funding would be slashed and our most vulnerable residents, including low-income families, foster children, seniors and the disabled, would face the loss of critical services on which they depend. Public safety, health programs, higher education, our State park recreational jewels – you name it, all would be dramatically and painfully affected.

You’ve seen the numbers: For our schools alone, the Governor plans on cutting $400 million mid-year, followed by $4.4 billion dollars more in education funds next year. That is the equivalent of showing more than 107,000 California teachers the door. Proposed cuts in health care would be equally debilitating, including chopping $1.1 billion from Medi-Cal. The specific fall-out would include elimination of hearing and vision services for adults, and $11 million in reductions from AIDS programs that would take medications out of the hands of the neediest patients.

Mere numbers and statistics cannot adequately illustrate the horrific fiscal toll this proposed spending plan would exact from our great state and its people.

California’s budget relies heavily on the personal income taxes paid by our wealthiest residents. In 2005, the richest 13.5% of California taxpayers earning more than $100,000 paid 83% of all income tax revenues. However, revenues derived from capital gains rely even more on our richest taxpayers. That same year, capital gains from the top five percent of taxpayers comprised $100 billion out of the $111 billion in total capital gains reported – an extraordinary 90%. Those revenues rise and fall dramatically with the stock market, resulting in California’s unstable and volatile revenue stream.

To illustrate this volatility, in 2000, state revenues derived from capital gains amounted to $10.7 billion. Two years later, in 2002, capital gains only delivered $3 billion to the State’s coffer, a drastic decline of more than 70%.

To address California’s many public needs, lawmakers historically have used unexpectedly high revenues to justify new and expanded programs during good years, and then are forced to slash spending when a bear market dries up revenues. That volatility may be expected on Wall Street, but it should not play a role in California’s budget process. We must find a way to capture non-sustainable revenues in the flush years to tide us over when the economy sours.

I have long supported a rainy day fund for use in tough fiscal times. But we must target what makes the budget flush with cash one year, and drowning in red ink the next.

While the Governor’s budget stability proposal is on the right track, I believe we should target the core cause of the volatility and tap and store excess capital gains revenue during good years for use in the next economic downturn. Programs may not get as big a bump during the flush years, but they would less likely face the huge cuts the governor is now proposing.

As both Controller and Chairman of the Franchise Tax Board, I have asked my staff experts to work closely together to detail how we can hold these volatile funds in the good years for use as an insurance policy in times like this.

Although my plan would address California’s future budget problems, we must also immediately face the current crisis. The Governor has declared a fiscal emergency, and I believe the special legislative session is helping to bring the budget problems into focus. Everything should be on the table. But if we talk about raising taxes, we must ensure the State’s spending plan is accountable to the taxpayers who are footing the bill, and that Californians are confident they are getting at least a dollar’s worth of service for every tax dollar they pay.

We also should look at tax breaks. Five years ago, the Department of Finance reported that California provided $24 billion in tax breaks. This year, tax breaks total $50 billion. Many of the tax breaks are found in the personal income tax, with costs increasing from $18.5 billion if the 2002-2003 fiscal year to $37 billion in the 2006-2007 fiscal year.

While many of these breaks may be fiscally sound, I propose that we conduct periodic reviews of all new tax breaks. We need to determine whether they are indeed producing the intended benefits and whether they should be continued, cut or expanded.

For example, is a tax break creating new jobs or another tangible economic benefit, or is it obsolete and simply adding to someone’s financial bottom line with an insignificant direct benefit to everyone else? Making government accountable to the public it serves will go a long way in inspiring taxpayers’ confidence and their support during these tough fiscal times.

All of this illustrates why we need not just short-term “quick fixes” to our fiscal house, but long-term budget reform.

I’ll say this as succinctly as I can: We need to put an end to California’s boom-and-bust budgeting. As painful as the current situation may be, I will do everything I can to help turn it into an opportunity for consensus on real, long-term solutions.

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Chiang Issues Statement on Governor’s Budget (January 10, 2008)

SACRAMENTO — State Controller John Chiang today issued the following statement in response to the Governor’s Budget: "The horrific fiscal hit this budget proposes on our schools and our most vulnerable residents, including low-income families, foster children, seniors and the disabled, is a prime, but painful, example of why we need long-term budget reform.

"California’s budget relies heavily on the personal income taxes paid by our wealthiest residents, specifically the capital gains and dividends earned by the top five percent of tax payers. Those revenues rise and fall with the stock market, resulting in California’s boom–and–bust budgeting.

"While the Governor’s budget stability proposal is on the right track, I believe we should target the core cause of the volatility and tap and store only excess capital gains revenue during good years for use in the next economic downturn. Programs may not get as big a bump during the flush years as they would like, but they would less likely face the huge cuts the governor is now proposing.

"Although my plan would address California’s future budget problems, we must immediately face the current crisis. Everything should be on the table. But if we talk about raising taxes, we must ensure the State’s spending plan is accountable to those footing the bill, and that Californians are confident they are getting at least a dollar’s worth of service for every tax dollar they pay.

"We also should look at both sides of the ledger. Five years ago, the Department of Finance reported California provided $24 billion in tax breaks. This year, tax breaks total $50 billion. While some of these breaks may be fiscally sound, we must be able to empirically measure the impact of all future tax credits and exemptions."

"I propose we require periodic review of all new tax breaks to determine whether they are producing the intended benefits and should be cut, continued or expanded."

"Making government accountable to the public it serves will go a long way in inspiring taxpayers’ confidence and their support during these tough fiscal times."

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