California Short of Cash Again

California State Association of Counties - California Short of Cash Again

Every autumn, at the beginning of the fiscal year, the state borrows money to cover its cash needs until spring. This year, the Controller sold a few billion less than he had planned — and far less than in recent years — basing the decision on the best revenue and expenditure estimates available at the time.

Turns out it wasn’t enough.

While the decision to sell low will save the state tens of millions in interest costs, counties, schools, and the state’s special funds will pay the price instead. See more on the county impacts below. State revenues are trickling in about $2.6 billion under estimates and spending is spilling over by about the same amount. On Tuesday, the Controller warned lawmakers that if they did not grant him $3.3 billion of “cash solutions,” he would likely have to issue IOUs and delay tax refunds to avoid defaulting on payments to schools and bondholders. To address that $3.3 billion shortfall, the Controller, Treasurer, and Department of Finance created a plan that includes borrowing from previously untapped internal funds, borrowing from outside sources, and delaying and deferring payments.

SB 95, which the Legislature passed on Thursday, authorizes the parts of that plan that required statutory approval, including authorizing day-to-day cash management for transportation funds. These changes will not result in any change to the allocation schedule for transportation funds, but applies a cash management policy consistent with other special funds, including 1991 and 2011 realignment.

The scheduled March 1 payment will be issued on March 15, and the schedule March 8 payment will be issued in March 22. Both payments will be issued along with the regularly scheduled payments on the specified release dates.

For a list of the providers affected, please visit http://files.medi-cal.ca.gov/pubsdoco/newsroom/newsroom_20297.asp.

For more details on what led to the cash shortage, read Controller Chiang’s letter to the Legislature.

COUNTY IMPACTS

Of the $3.3 billion in cash solutions, counties will help with about $300 million.Before 2011 Realignment took effect on July 1, 2011, the state fronted counties two months of revenue for health and human service programs, as was customary practice. It was always the plan for counties to repay that loan with revenue attributable to this fiscal year, but because of the cash shortage counties will pay it back sooner than expected. The affected programs include Drug Medi-Cal, Foster Care, Adoptions, Child Welfare Services, and Adult Protective Services.

Under the sped up recoupment, the state will take $100 million of the planned $228 million February payment to counties for realigned human service programs. They will recoup the remaining $185 million of their loan over the following several months.

The state also plans to defer two non-realignment CalWORKs payments, though the fifteen smallest counties will be exempt. These deferred payments are the February CalWORKs advance of $102 million for grants, and the March CalWORKs advance of $94 million for grants and county administration. The state will make these deferred payments in April instead.