Higher income taxes, steeper service cuts in store for California

By Mike Zapler

Mercury News Sacramento Bureau

Posted: 03/27/2009

SACRAMENTO — California residents will pay an additional personal income surtax while aid for low-income people will be slashed under a decision announced today by two senior finance officials.

The ruling by Gov. Arnold Schwarzenegger's finance director, Mike Genest, and Treasurer Bill Lockyer was tied to the budget plan Schwarzenegger signed late last month to close the state's $40 billion deficit. The deal included $2.8 billion in extra income taxes and program cuts, but they would be nullified if the state received enough money from the federal stimulus package.

Specifically, the budget agreement said California would have to receive at least $10 billion from the feds to help offset its deficit through mid-2010. But Genest and Lockyer said today that the stimulus package, which was still being crafted when the governor and lawmakers were negotiating the budget, would deliver only $8.17 billion toward that end.

So instead of a .125 percent personal income tax surcharge, taxpayers across all income levels face an extra charge of .25 percent. The surtax will generate an estimated $1.8 billion and cost a family of three making $80,000 about $100 more each year.

Nearly $1 billion in program cuts will also go forward. Low-income people enrolled in Medi-Cal will lose their dental coverage; cash payments for welfare recipients, the elderly and disabled will be reduced; wages for workers who care for the elderly and disabled in their homes will be cut; and the budgets of the state's university and court system will be trimmed. Universities, which were already facing steep cuts, will see their budgets shaved by another $100 million.

In a letter explaining the decision, Lockyer acknowledged "all of these consequences, fiscal and human," and said he was particularly troubled by the elimination of dental benefits and reduction of in-home workers' salaries. Both programs receive matching funds from the federal government, Lockyer noted, exacerbating the impact of the cuts.

"I strongly urge the governor and Legislature to reconsider these two programmatic cuts before they take effect on July 1," Lockyer wrote.

Critics accused the governor and treasurer of low-balling the amount of stimulus dollars the state will receive to offset the deficit. For example, they did not count nearly $5 billion in federal education money the state is expecting to receive, saying it's unclear how it would be spent.

But advocates for the poor said those funds almost certainly will be used to counter state cuts to public schools and therefore should have been counted toward the $10 billion threshold.

"The cuts to dental and other medical benefits, on top of all the other cuts to programs that help low-income people, are really devastating," said Beth Capell, a lobbyist for Health Access, which advocates for expanded health care coverage for lower- and working-class people. "We heard testimony from doctors who used to pull teeth in the emergency room when Medi-cal did not include dental coverage. We will go back to that era."

Capell said opponents are "considering our options" for trying to reverse the program cuts.

The Service Employees International Union is holding demonstrations across the state today, including one in Sunnyvale, to protest the cuts.