California faces budget gap amid uncertainty over Obamacare




SACRAMENTO, Calif. — California Gov. Jerry Brown (D) on Tuesday proposed billions of dollars in cuts to state programs as falling revenue growth drives tax collections hundreds of millions of dollars under projections.


The cuts are aimed at eliminating a $2 billion budget gap. That's a far smaller deficit than the $27 billion hole Brown inherited when he took office in 2011, but it represents a reversal of fortune after years of revenue growth fueled by a booming stock market.


"California has the most progressive tax system in the United States. We do ask those who make the most money to pay the highest percentage of taxes. But as a corollary, we have one of the most unreliable revenue bases in the entire country," Brown said Tuesday. "It requires we keep a very close eye on the balance of our budget. And while we have sometimes the highs, they are followed always by the lows."



Personal and corporate income taxes and sales taxes have all fallen short of budget projections, said Michael Cohen, Brown's finance director. California relies disproportionately on capital gains tax revenue, meaning the state is unusually dependent on the performance of the stock market.


The budget proposal anticipates spending $122.5 billion over the next year, slightly below the $122.7 billion California spent last year. 


California's revenue forecasts have fallen short of projections in five of the last seven months. At the same time, Brown said, state budget projections could be thrown into chaos if Republicans in Congress roll back the Affordable Care Act, which provides billions of dollars to California's Medicaid programs.


"I know the Republicans are on that track [to repeal the ACA], but the reality is going to be far more difficult and far more disruptive than they're expecting," Brown said. "If they do go down that road, it will be extremely painful for California."


Medi-Cal, the state's Medicaid program, anticipates spending $102 billion over the next year. The federal government covers most of those costs under Obamacare's Medicaid expansion program, money that could be at risk if Congress makes significant changes to existing law.

Some Republicans applauded Brown's cautious approach, but they warned that changes to the Affordable Care Act at the federal level were likely to cost California more than Brown's budget anticipates.


"If ObamaCare blows up, we're going to have real trouble," said state Sen. John Moorlach (R), who represents Orange County. "Maybe the play is, let's try to unwind this in a humane way."

Brown's budget proposal, which now goes to the Democratic-controlled legislature for months of negotiations, calls for cutting back projected growth of some state programs. It also adjusts money that would go to public schools under Proposition 98, a voter-passed measure in 1988.

Brown will ask legislators to implement some new taxes and fees, including a gas tax hike that would bring in $5 billion over a decade and a $65 fee on new vehicle purchases.


Voters in November approved other new revenues, including a $2 per pack increase in cigarette taxes and an extension of tax hikes on the wealthiest Californians first passed several years ago.

And Brown plans to ask the legislature to extend California's cap-and-trade program beyond its current 2020 sunset date. The program has raised billions of dollars in auction proceeds to reduce greenhouse gases, and Brown's budget anticipates another $2.2 billion in sales.


The proposal also plans to set aside more than $1.1 billion for California's rainy day fund. By the end of the budget cycle, Brown's budget anticipates having set aside $7.9 billion for the next economic downturn, about 6 percent of the entire state budget.


State budget analysts anticipate continued growth in coming years, though at a slower rate than in the best years of the current economic recovery.


"California is growing, but less than we expected," Brown said. But, he warned: "We're now in almost the third-longest recovery" in post-war history. "So a downturn is inevitable."

"We're on the cusp of a financial calamity, and the governor senses it," Moorlach said.

Brown said even a modest downturn could cost the state $18 billion in lower tax receipts.



A Part-Time Nation?


Two House Education and Workforce subcommittees yesterday heard that the one-year delay in reporting requirements for the employer mandate does not make ObamaCare any more palatable to businesses. 

During the hearing, supporters insisted the mandate has no effect on business hiring. Doug Holtz Eakin, Jamie Richardson of White Castle, and I provided a great deal of evidence of the huge costs, distortions, and dislocations this one provision in the law is causing.

A summary of my testimony is below, and here is a link to the committee website with all of the testimonies and a webcast of the hearing. 


Large and small businesses across America have been making painful decisions to lay off employees, cut workers’ hours, and make do with fewer workers than they really need.  This is not what you would expect in a recovering economy.

The clear distorting factor is the Affordable Care Act, especially the employer mandate. The decision by the administration to delay the reporting requirements for the mandate only adds to the questions and concerns business owners and workers have about the law.

The statute clearly says that the mandate is to begin in 2014, not 2015, as the administration has now directed. Last Wednesday, the House of Representatives passed legislation to give the administration legal authority to postpone the mandate.  However, the administration said in a puzzling statement that the president would veto the legislation to delay the mandate that he himself is delaying by administrative directive. No wonder businesses are confused!

Who made the decision?  CMS administrator Marilyn Tavenner testified last week that she was not consulted on the decision to postpone.  She said she was “made aware” of the delay just a few days before it was announced.

I understand that you had invited Howard Shelanski, the administrator of the OMB’s Office of Information and Regulatory Affairs, to testify today about the decision. In a call to committee staff, his office indicated it was not involved in the decision and therefore he would not testify.

Congressman Michael Burgess questioned a Treasury official during an Energy and Commerce Committee hearing last week regarding the timeline of the administration’s decision. The official was not able to provide the date the decision was made, nor who made the final decision to delay the mandate and whether that person was a Treasury Department or a White House official.

Certainly a decision with such significant implications should have been reviewed by those in the administration with responsibility for implementing the law to determine its legality, its implications for other provisions of the law, and its impact on businesses and their employees.

Now, employers are more confused than ever about their responsibilities and liabilities, including whether delay of the reporting requirements does in fact also absolve them of the mandate itself.

What business is saying

A part-time nation:  A recent survey by the U.S. Chamber of Commerce found that 71% of small businesses say the health law makes it harder to grow. Only 30% say they are prepared for the requirements of the law, and a quarter say they don’t even know what is required of them. Among small businesses that will be impacted by the employer mandate, one-half say they will cut hours to avoid the penalties.

An earlier Gallup poll found that 41% of small businesses surveyed had frozen hiring because of the health law. One in five said they already had reduced the number of employees “as a specific result of the Affordable Care Act.”

Employers have been providing health insurance for their workers voluntarily for more than 70 years, but the ACA places significant new burdens on employers, including onerous reporting requirements and higher costs because of new mandated benefits.

While most employers want to provide health insurance, not all can afford it and still keep their prices competitive.  For companies with very tight profit margins, the mandate to provide health insurance can send their bottom line from black to red.

Some critics have argued that if all businesses are forced to provide health insurance and raise prices, they will not lose customers because all of their competitors will be operating under the same requirements. But customers are smarter than that:  They will buy less, substitute more, and more business transactions will simply vanish.

Employers already are responding to the mandate

Backers of the health law have said that the one-year delay in reporting requirements for the employer mandate is largely irrelevant because the great majority of employers subject to the mandate already offer health insurance. But offering isn’t the same as accepting.  Almost half of the nation’s nearly 28 million uninsured workers are employed by firms that are mandated to provide health coverage.

Federal data show that 96.8% of firms with 50 or more employees do offer health benefits. However, Professor Chris Conover of Duke University has examined the distribution of the nation’s 28 million uninsured workers age 18-64 by firm size, and he found that 46.1% are employed at firms subject to the mandate.

Therefore, to say that delaying the mandate is inconsequential is belied by the facts.

Incentives to drop coverage: While the health law tried to lock-in employer coverage, it may very well have the opposite effect of incentivizing employers to drop it instead.  The Wegmans grocery chain, for example, is cutting health benefits for its part-time employees and plans to send them to the ObamaCare exchanges where they may get more generous benefits and subsidies than the company says it can offer.

Cutting hours:  The health law is redefining a full-time work week as 30 hours rather than the traditional 40.  Because there is a look-back period, many employers already are scaling back employee hours.  And many of them are cutting workers to 25 hours to provide a cushion in case shifts run over.

That is a significant income loss for workers, many of whom are at the lower-end of the income scale.  But employers, especially in the restaurant and retail industries, say that their decisions are driven by an attempt to keep their doors open.

And a one-year delay in the employer mandate will not change the hiring behavior of employers.  They won’t hire full-time workers while knowing they would have to let those workers go a year from now.  If anything, the delay gives employers more time to figure out how to restructure their businesses and workforces to avoid the added costs of the health law.

Redefining 30 to 40 hours:  Some business groups are advocating a change in the law to move the definition from 30 to 40 hours.  While that seems logical, many businesses will continue to build a cushion into their schedules and that would likely mean the full-time work week would be 35 rather than 40 hours.  I would recommend that Congress not make this change.  The only solution to avoid these and other distortions in the labor market is to repeal the employer mandate.

Labor unions unhappy

Those who say that the employer mandate has little or no effect on businesses also should listen to those who represent organized labor.  Representatives of three of the nation’s largest unions recently warned Democratic leaders in Congress that Obamacare would “shatter not only our hard-earned health benefits, but destroy the foundation of the 40 hour work week that is the backbone of the American middle class.”

“Perverse incentives are causing nightmare scenarios,” they write. “The impact is two-fold: fewer hours means less pay while also losing our current health benefits.”

Last week, Laborers International Union of North America President Terry O’Sullivan wrote that the law has “destructive consequences” for the types of health plans that cover millions of unionized construction workers and their family members.

But the delay of the reporting requirements for the employer mandate does not mean that businesses can take a year off from other provisions of the law, and the president has not given them relief from these requirements that will further burden businesses with compliance costs and distract them from their core business activities.

Next steps

One of the things that businesses had most hoped to get from the law was more affordable coverage through the small business exchanges called for in the law. But the administration announced in April that it would delay until at least 2015 implementation of these exchanges.

The administration also has announced it will rely on an “honor system” for health insurance subsidies, presenting a significant potential for fraud and waste of taxpayer funds.  Additionally, very little information has been provided by the administration about the status of the exchanges that the federal government is creating.

The risks, complexities, delays, and confusion surrounding the ACA strongly indicate that the only responsible path is to delay implementation of the exchanges and related subsidies until taxpayers can be assured funds are being spent properly and legally.  In the meantime, Congress could authorize funds to help states develop or strengthen high-risk pools so people with pre-existing conditions who are waiting for the exchange coverage to begin on January 1 can get coverage immediately.

A full version of Grace-Marie’s testimony can be found here.
Information about the hearing and testimony from the other witnesses can be found here.

Goodbye ObamaCare Mandates!

Just as we had expected, ObamaCare is starting to topple like a row of dominoes. In its latest admission of how unworkable this law is, the Obama administration wants to delay until 2015 the implementation and reporting requirements for ObamaCare’s employer mandate.

The president wants to protect Big Business by delaying the mandate that says most employers must provide health insurance or pay a fine.  But he wants the mandate to stay in place that says individual citizens must buy government-approved health insurance or pay a fine – er, tax.

It’s only fair to protect ALL Americans from being forced to have ObamaCare insurance.

Further, the administration has no authority to simply rewrite this law.  The starting date in the statute says the mandate that employers provide health coverage to their workers goes into effect in 2014.  The president can’t just wave a pen and put it off until 2015.

The House of Representative will be considering this week two important bills to give congressional authority to delay both the employer and individual mandates.  It’s only fair.  More congressional votes will follow, including defunding the IRS with its 46 enforcement powers over ObamaCare.

Without these two mandates and without the IRS’s enforcement authority, this monstrous, unworkable law will begin to crumble.

Delaying the employer and individual mandates may seem like small steps, but they create important momentum for other actions to follow for defunding and ultimately defeating ObamaCare!

Visit today to get the latest updates on the ObamaCare debate!


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