Healthcare Targeted for Cuts

California’s new budget chief said Friday that the spending plan he was crafting for Gov. Arnold Schwarzenegger included no new taxes and instead relied heavily on cuts to healthcare programs for the poor and elderly to close a projected $8.1-billion gap.

Director of Finance Tom Campbell, who has been on the job just 18 days, offered reporters a glimpse into the administration’s budget strategy during a wide-ranging chat in which he also touched upon his impressions of the governor, the frustrations of his new post and the possibility of going directly to voters with reforms.

“Increasing taxes hurts businesses that can provide jobs,” said Campbell, explaining why the budget he is putting together for Schwarzenegger’s consideration will not take that route. “I will try to do nothing to discourage business.”

Instead, he said, his budget plan will focus on cutting spending on government programs. Campbell acknowledged that one of the few places left where the state could make lasting budget cuts without violating California’s Constitution or federal spending mandates was in healthcare and social service programs.

“There will be a serious review of what we can afford going forward,” Campbell said. “Health and human services is a large part of the focus.”

Such programs amount to a third of the state’s general fund spending. Only K-12 education -- accounting for half the general fund -- eats up more state dollars.

One area in which Campbell suggested the administration would push for changes is the $13-billion Medi-Cal program, which provides healthcare to low-income Californians. The program’s cost has been rising steadily for years, and it is a major reason that state spending continues to spiral upward. It is projected to continue to grow.

Medi-Cal’s increasing burden on the budget is largely due to the rising cost of healthcare. State spending on each Medi-Cal recipient was about $2,500 in 2000. It is estimated to grow to $4,100 by 2009. Enrollment in the program has also jumped about 20% over the last four years, but analysts project that it will level off at about the current number, with roughly 6.5 million Californians participating.

The administration, however, has been talking about overhauling Medi-Cal since Schwarzenegger came into office late last year. Plans to unveil a concrete proposal have been postponed twice.

And although state health officials earlier said such a plan would be in the budget that Schwarzenegger would present next month, Campbell said the blueprint was not ready yet. But he added that potential savings from it would be reflected in the spending plan.

The new finance director also suggested that steep cuts to education and transportation programs were under consideration.

“We have asked all the Cabinet agencies to help us deal with this financial situation,” he said.

Campbell refused to rule out reneging on a deal the governor made last year with school groups not to cut money for K-12 education in the 2005-06 fiscal year in return for their acceptance of a $2-billion reduction in the current year. State money for schools, which is calculated by a constitutional formula voters approved, is coming in billions of dollars above last year’s projections, thanks largely to the improving economy. Administration officials and lawmakers have been eyeing that money to help close the shortfall.

Tapping money the state is supposed to be setting aside for transportation is also on the table.

“It is among the options,” Campbell said. Over the last few years, the state has taken more than $4 billion in gas tax money that is supposed to go to transportation projects and used it instead to close deficits. Business groups are already mobilizing to fight another such move.

Campbell said he had been meeting three to four hours with Schwarzenegger nearly every day to discuss budget issues since starting his new job Dec. 1. Campbell said the discussions often focused on dozens of state spending formulas that put various programs on “autopilot” to grow far beyond what he sees as California’s ability to pay for them.

Schwarzenegger is “by nature a huge optimist,” the finance chief said. “That makes sense, given his life story. And to be confronted with a budget with so much autopilot, so much that is structural, has to be a challenge to such an optimist.... Nevertheless, at no point has he suggested the kind of surprise or shock that would indicate he hasn’t heard all this before.”

Of the governor’s management approach, Campbell said: “Some people in that position pound the table and make demands.... That is not his style.”

Instead, he said, the governor is more likely to sit patiently and ask lots of questions -- many of which Campbell needs to call in other experts to answer. One of those people was having a birthday, so the governor burst into the “Happy Birthday” song and made clear that Campbell had better get the woman a cake.

During the course of his lunchtime talk with reporters in the Capitol, the finance director also acknowledged the political realities in that building and made clear that some of the changes Schwarzenegger would propose might go straight to the voters. Among them are parts of the governor’s California Performance Review, a plan for restructuring state government in a bid to make it more efficient.

Campbell also made a familiar pledge: that the budget would contain no smoke and mirrors, no tricks or gimmicks to make it only appear balanced. Both Schwarzenegger and his predecessor, Gray Davis, had a tough time living up to such promises. They found themselves approving compromise plans full of accounting shifts and overly optimistic assumptions that pushed problems into the next year.

But as if to punctuate his point, Campbell declared that he was throwing out a legally questionable $800-million borrowing plan the administration had put in the last budget and that is now tied up in court. The move only added to his headaches in forming the current budget plan, because it expanded the projected budget gap.

“I did not consider it safe,” Campbell said of the borrowing plan.