Budget gap may scuttle health plan

Times Staff Writer

Legislative leaders said Thursday that more taxes will be needed to fill a projected $14-billion budget gap next year, and the state Senate president said a healthcare overhaul -- Gov. Arnold Schwarzenegger’s priority this year -- will have to wait.

Assembly Speaker Fabian Nunez (D-Los Angeles) said lawmakers would have to consider raising a host of taxes, including those on Internet purchases and on foreign companies that do business in California.

“We’ve got to close those tax loopholes,” Nunez told reporters at a news conference. “We can generate billions by doing that.”


Senate President Pro Tem Don Perata (D-Oakland) said some sort of tax increase would be necessary, mostly likely in a ballot measure for the public to consider. He said he doubted Republicans would provide the votes necessary for the Legislature to raise taxes.

“I think at the very minimum, temporary tax increases are going to be necessary,” Perata said in an interview.

The state’s mounting fiscal problems must be addressed before lawmakers can fix its broken healthcare system, Perata said; lawmakers may now be compelled to make cuts in existing healthcare services.

Nunez and Schwarzenegger have been negotiating intensely on a healthcare plan, and the speaker told reporters Thursday that they were so close to an agreement that he would call the Assembly to the Capitol on Monday in hopes of holding a vote.

But Perata has told Democratic senators that they will not be returning to Sacramento before the new year.

“It would be imprudent and impolitic to support an expansion of healthcare coverage without knowing how we’re going to pay for vital health programs the state now provides for poor children, their families and the aged, blind and disabled,” Perata said in a statement Thursday.


“The real issue now is the deficit and how this squares with everything else that we are going to do,” he said.

The healthcare plan being negotiated has a $14-billion price tag, coincidentally the same amount as the projected budget gap. It would rely on a requirement that employers spend on healthcare up to 6% of the amount they spend on payroll, plus a mandate that all Californians obtain insurance.

A tobacco tax of $1.50 a pack would be needed to help subsidize those without an employer-provided plan who are too poor to afford insurance on their own.

Schwarzenegger, the Democratic leaders and some of the state’s most powerful unions have been deeply involved in talks about how to make a new healthcare plan work. The governor wants to strike a deal now, before he has to unveil his next budget proposal Jan. 10, believing that the budget would probably eclipse the issue.

But finding enough money to pay for the plan has caused negotiations to drag on for months beyond the official end of this year’s legislative session.

Although he expressed reluctance to sign off on the plan if Schwarzenegger tried to cut social services now, Perata praised the deal that is under discussion.


“The deal itself right now is a much superior deal than I thought they would ever arrive at,” he told reporters after meeting with Schwarzenegger, Nunez and aides in the governor’s Capitol office.

Schwarzenegger has suggested cutting programs 10% across the board. Perata said that funding guarantees enshrined in the Constitution -- including those for schools -- would require that much of the burden would fall on health and human services programs, which are not protected in the same way.

Both Nunez and Schwarzenegger are resisting Perata’s call to delay healthcare changes until fiscal issues are resolved.

Schwarzenegger spokeswoman Sabrina Lockhart called the governor’s plan revenue-neutral, meaning it would not require additional state spending. The governor has argued that his plan would help ease the state’s fiscal strains by allowing California to qualify for $4 billion in federal money.

“This is the exact kind of reform that will prevent future governors from making the decisions that Gov. Schwarzenegger is being forced to make,” Lockhart said.

Many involved in the healthcare discussions -- including people who support it -- are skeptical of that claim. They worry that the plan would not do enough to control the cost of medical services, which have been rising every year at a faster pace than inflation.


If that continues, they say, Schwarzenegger’s plan would go out of whack in a few years, requiring more subsidies or placing new burdens on families that cannot afford insurance premiums. Then the state would have to pick up more of the costs or raise taxes on employers, two politically unpopular possibilities.

In addition, the fight between President Bush and the Democratic Congress is imperiling a major source of funding for a new California healthcare plan. The proposal would rely on increased federal Medicaid payments, but Bush has twice vetoed Congress’ plan to expand programs for low-income children.

State officials are already contemplating the possibility that they might have to start dropping families from California’s Healthy Families program, which provides medical care for children, because of the federal budget fight.

If Perata succeeds in shifting the Capitol’s priorities, there could be a prolonged and bitter fight next year between Republicans, who traditionally oppose tax increases, and Democrats, who traditionally defend social spending and education programs.