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Huge State Budget Gap Rooted in Three Major Spending Areas

September 28, 2003|Doug Smith | Times Staff Writer

During the first four years Gray Davis was governor, state spending increased by $20 billion. That spending surge has become a main theme for those seeking his recall.

Anti-tax Republicans, in particular, repeat these numbers at almost every opportunity: Inflation and population increases would have driven spending up by 21%; state revenue grew 25%, but spending grew 40%.

"This is not a revenue problem," said state Sen. Tom McClintock (R-Thousand Oaks). "The problem is the 40% increase in spending."

The gap between revenue and spending is indisputable -- it is the heart of the state's current budget crisis. But a close examination of where spending went up illustrates why keeping California's budget in balance has become so difficult, regardless of which party controls the governor's office.

For The Record
Los Angeles Times Monday September 29, 2003 Home Edition Main News Part A Page 2 1 inches; 37 words Type of Material: Correction
Spending graphic -- A graphic in Sunday's Section A that compared expenditures from California's general fund over a 10-year period incorrectly said that the figures were in millions of dollars; the figures were in billions of dollars.

Although the precise 40% figure used by Republicans is debatable, spending during the Davis years has grown faster than the combined effects of inflation and the state's population would suggest. But the same was true during the last Republican administration.

Spending from the state's general fund, currently $70 billion, actually grew by a smaller percentage in the first four years of Davis' tenure than during the preceding four years under Gov. Pete Wilson, when the inflation rate was lower.

Analysis of where the money went from the start of Davis' tenure through the peak of his spending shows that the big increases -- 92% of the change, excluding tax relief -- fell into three categories: health and social services, education and prisons.

Health, Social Services

California has more residents without health insurance than any other state. More than a million of the uninsured are children.

To provide health care to some of those children, the Wilson administration established a program called Healthy Families. Under Davis, that program became one of the fastest-growing major parts of the budget.

That growth was a key reason that health and social services accounted for the largest chunk of new spending under Davis -- 43% of all the dollars added.

Three factors combined to swell the costs of health programs under Davis: The state expanded existing programs, such as Healthy Families. It began many new ones. And, as the state made those moves, health-care costs soared nationwide after having been relatively stable during the mid-1990s.

From June 1998 to June 2002, the state aggressively sought out children of working parents who lacked insurance and increased enrollment in Healthy Families more than fourfold, to 562,000 people. But the rapid rise in health-care costs made each person more expensive to cover. While enrollment went up four times, costs rose more than ninefold, from $59 million to $546 million, according to state figures.

Even as the economy soured, Davis continued to expand health-care coverage. His 2002 budget included $8.8 million to draw more people into Healthy Families. Currently, enrollment is up to about 660,000 children.

Davis aides defend the expansion of Healthy Families as cost-efficient over the long term. Healthy Families "is a matter of priority of the Davis administration and the Legislature," said Hilary McLean, a spokeswoman for Davis. "Providing health insurance for children saves money down the line."

The program's supporters, who include many Republicans, say that, by providing basic health coverage such as immunizations and checkups, the program reduces the number of children who will develop expensive medical problems as they grow up.

Davis aides also note that expanding the program made the state eligible for federal matching funds that otherwise would not have come to California. The federal government paid two of every three dollars spent on the program. But even the state's one-third share has added nearly $250 million to the budget.

Conservatives have objected to spending money to recruit people into the program -- one of Davis' initiatives. But overall, Healthy Families has enjoyed bipartisan support.

"In this dire budget situation, one would think we, like everybody else, were going to be under the ax," said Kristen Testa, health program director for Children's Partnership, which promotes health coverage for children in California. "But everybody realized that was a good program, and we were doing the right thing."

For Davis, however, the large increases for health and social services programs have posed a political problem -- the effects of the spending are not visible to most voters, said John Ellwood, a professor of public policy at UC Berkeley.

Spending on medical care and other social services for the poor "are not the things that the middle class out there sees," Ellwood said. "They are good if you believe we should devote more of our resources to the young and poor. But the average Californian is neither young nor poor, particularly the average California voter."


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