Democrats Attack Deukmejian’s Midyear Budget Cuts

Democrats attacked key elements of Gov. George Deukmejian’s midyear budget-cutting proposal Thursday, claiming that one part of the cutback plan is illegal and that another is likely to be rejected by the Legislature.

Democrats on the Senate Budget and Fiscal Review Committee, in their first budget hearing of the year, also accused Deukmejian of being slow to react to mounting deficits in the current $38.4-billion budget.

They backed up their arguments by releasing a memo written to Deukmejian last July 3 by Health Services Director Kenneth W. Kizer warning of a $236-million deficit in the Medi-Cal program.

It was the deficit in Medi-Cal, a $5-billion-a-year program providing health care to the elderly and poor, that played a major role in Deukmejian’s decision five months later to order a series of pre-Christmas budget cuts, including 2% cuts in general state operations and a 10% reduction in payments to physicians, dentists and other special categories of Medi-Cal contractors.

Point of Contention

The five-month delay in reacting to the Medi-Cal deficit and other budget problems has become a point of contention because during much of that period Deukmejian was seeking reelection by boasting that the state had a balanced budget and a $1-billion reserve.

Sen. Alfred E. Alquist (D-San Jose), chairman of the Senate committee, told reporters after the hearing that Deukmejian “obviously didn’t have” a $1-billion reserve or as balanced a budget as he promised during the campaign, which concluded Nov. 4 with the governor’s landslide victory over Democrat Tom Bradley, the mayor of Los Angeles. “They knew it, they knew it just based on their own memorandum,” Alquist said.

In the memo, written just three days after the July 1 start of the fiscal year, Kizer warned Deukmejian that the Medi-Cal program faced a $236-million deficiency and would run out of money about two months before the end of the fiscal year.

During the hearing, state Finance Director Jesse Huff, Deukmejian’s top budget adviser, explained that that action wasn’t taken until December because the Administration wanted to be sure the cost overruns constituted “a trend.”

The midyear budget problem developed from an estimated $400 million in budget overruns, including a Medi-Cal deficit that by then was projected at $280 million, and an estimated $500-million shortfall in tax revenues brought on by an unanticipated slowdown in the economy.

Jobless Benefits

Along with other actions to cut into the $900-million problem, Deukmejian proposed that the state save $69 million by shifting responsibility for providing unemployment insurance benefits for public employees from the state government to the unemployment insurance fund, a pool of money maintained by tax assessments on private industry.

Sen. Bill Greene (D-Los Angeles) said he would oppose the transfer and predicted that other members of the Legislature would follow suit because business leaders already were beginning to complain.

Alquist said the proposal smacked of “voodoo economics.” He said to Huff: “Do you really expect the Legislature to approve that sort of a transfer from the unemployment insurance fund? You can’t be serious.”

Greene also claimed that the proposed 10% cut in payments to physicians who treat Medi-Cal patients would not stand up to a challenge in court. He predicted that such a challenge would soon be made. In effect, the proposal would save the state $18.7 million by arbitrarily reducing payments to physicians and others for most outpatient services by 10%.

“They are going to court. Clearly, they are going to win,” predicted Greene, who argued that the state had a binding contract to provide physicians with the full amount they were promised by the state.

State Legislative Analyst Elizabeth Hill said the governor’s action might ease the budget crunch this year but would add to next year’s budget problems. She estimated that $160 million was being saved simply by delaying payments this budget year and shifting the costs to later years.