1. Major Issues
2. Overview
1. Expenditure Proposal and Trends
2. Caseload Trends
3. Spending by Major Programs
4. Major Budget Changes
1. Savings Would Require Federal Action
2. Welfare Reform

Major Issues

Governor Proposes to Redesign the AFDC/TANF Program

• The Governor proposes: benefit reductions according to specified time limits; a combined work/education/training requirement; a modified grant structure that results in lower grants to working recipients and an increased incentive to move from part-time to full-time work; increased funding for employment services; and paternity establishment requirements. The time-limited benefit reductions would increase the financial incentives for families to work and would result in state and county savings; however, the policy would result in a significant loss of income to families if the parents do not obtain employment. We review the proposals and provide a comparison to our Welfare-to-Work approach. (See page C-84.)

Governor Proposes to Eliminate County Mandate to Provide General Assistance

• The Governor proposes to eliminate the requirement that counties provide these benefits. If some counties reduce or eliminate those benefits, it could lead to migration of recipients to other counties, which would increase the financial incentive for these counties to reduce benefits. (See page C-95.)

$484 Million in State Savings Depends on Federal Action

• The Governor's Budget includes significant General Fund savings that would require federal legislation: grant reductions in the SSI/SSP Program ($268 million in net savings) and the assumption of federal funds to offset state costs of providing emergency Medi-Cal services to illegal immigrants ($216 million savings). If such legislation is not forthcoming, there will be a budgetary shortfall. (See page C-13.)

Budget Proposes to Make Temporary Grant Reductions and Cost-of-Living Adjustment Suspensions Permanent

• The budget proposes to make permanent the AFDC/TANF and SSI/SSP grant reductions adopted in 1995-96 (4.9 percent statewide), and the cost-of-living adjustment suspension that was implemented in 1991-92, which are scheduled to be restored in 1997-98. This proposal would result in a General Fund cost avoidance of $457 million. (See pages C-79 and C-104.)

Caseloads Lower Than Projected in Budget

• We estimate that the AFDC/TANF and Medi-Cal caseloads will be less than budgeted, for a General Fund savings of $155 million in 1996-97 and $232 million in 1997-98 (See pages C-35 and C-78.)

Budget Reflects Savings from Federal Welfare Reform Provision Denying Noncitizens' Eligibility for SSI/SSP Benefits

• The budget includes General Fund savings of $153 million from this provision. This assumes that approximately two-thirds of the noncitizens currently receiving benefits will become citizens prior to September 1997 and therefore retain eligibility for the program. We offer alternative approaches for the Legislature's consideration. (See page C-106.)

Budget Proposes to Eliminate State-Only Medi-Cal Program for Prenatal Services for Undocumented Women

• The recently-enacted federal welfare reform legislation prohibits states from providing many types of benefits to undocumented persons. Pursuant to this provision, the budget proposes to eliminate the state-only program that provides prenatal services for these persons. This would result in General Fund savings of $80 million. (See page C-38.)

Overview

Expenditure Proposal and Trends

Figure 1 (see next page) shows that General Fund expenditures for health and social services programs are projected to increase by $1.2 billion, or 8.7 percent, between 1990-91 and 1997-98. This represents an average annual increase of 1.2 percent.

In 1991-92, realignment legislation shifted $2 billion of health and social services program costs from the General Fund to the Local Revenue Fund, which is funded through state sales taxes and vehicle license fees. This shift in funding accounts for the significant increase in special funds starting in 1991-92, as shown in Figure 1. General Fund spending declined in 1992-93, due to various program reductions (the largest being welfare grant reductions). The following years reflect an upward trend in spending until 1997-98, when a reduction is proposed.

Combined General Fund and special funds spending is projected to increase by 27 percent between 1990-91 and 1997-98. This represents an average annual increase of 3.4 percent.

Figure 1 also displays the spending for these programs adjusted for inflation. On this basis, General Fund expenditures are estimated to decrease by 7.5 percent between 1990-91 and 1997-98. Combined General Fund and special funds expenditures are estimated, however, to increase by 7.9 percent during the same period, on a constant dollar basis. This is an average annual increase of 1.1 percent.

As noted previously, the 1991 realignment legislation significantly altered the financing of health and social services programs by transferring funding for all or part of several mental health, public health, and social services programs to the counties. The sales tax and vehicle license fee revenues dedicated to realignment amounted to $2 billion in 1991-92, which was $239 million short of the amount that was initially estimated. The budget estimates that realignment revenues will be $2.7 billion in 1997-98.

Caseload Trends

Figures 2 and 3 illustrate the caseload trends for the largest health and welfare programs. Figure 2 shows Medi-Cal caseload trends over the last decade, divided into four groups. Families and children (primarily recipients of Aid to Families with Dependent Children--AFDC), the aged and the disabled (primarily recipients of Supplemental Security Income/State Supplementary Program--SSI/SSP), and refugees and illegal immigrants. (Pursuant to the 1996 federal welfare reform legislation, AFDC is also referred to as Temporary Assistance for Needy Families, or TANF.)

Medi-Cal caseloads increased by 81 percent over the last decade. As Figure 2 shows, most of this growth occurred during the period from 1989-90 through 1994-95. The growth in the number of families and children receiving Medi-Cal during this period reflects the rapid growth in AFDC caseloads during this time as well as the expansion of Medi-Cal to cover additional women and children with incomes too high to qualify for cash aid in the welfare programs. Coverage of refugees and illegal immigrants also increased caseloads significantly during this period. Since 1994-95, overall Medi-Cal caseloads have grown much more slowly, due primarily to a slight decline in AFDC caseloads.

Figure 3 shows the caseload trend for the AFDC (Family Group and Unemployed Parent components) and SSI/SSP programs. While the number of cases in SSI/SSP is greater than in the AFDC Program, there are more persons in the AFDC Program--about 2.6 million compared to about 1 million for SSI/SSP. (The SSI/SSP cases are reported as individual persons, while AFDC cases are primarily families.)

Caseload growth in these two programs is due, in large part, to the growth of the eligible target populations. The increase in the rate of growth in the AFDC caseloads in 1990-91 and 1991-92 was partly due to the effect of the recession. During the next two years, the caseload continued to increase but at a slower rate of growth. This slowdown, according to the Department of Finance, was due partly to (1) certain population changes, including lower migration from other states; and (2) a lower rate of increase in "child-only" cases (including citizen children of undocumented and newly legalized persons), which was the fastest growing segment of the caseload until 1993-94. (For a discussion of other factors affecting the AFDC caseload during this period, please see our report on the program in The 1991-92 Budget: Perspectives and Issues, page 189.)

Figure 3 also shows that since 1994-95, AFDC caseloads have declined. As we discuss in our report, California's Fiscal Outlook (November 1996), we believe that this trend is due largely to various factors affecting welfare caseloads, including the improving economy, lower birth rates for young women, and a decline in legal immigration to California.

The SSI/SSP caseload can be divided into two major components: the aged and the disabled. The aged caseload generally increases in proportion to increases in the eligible population--age 65 or older. This component of the caseload accounts for about one-third of the total. The larger component--the disabled caseload--has been growing faster than the rate of increase in the eligible population group (primarily ages 18 to 64). This is due to several factors, including (1) the increasing incidence of AIDS-related disabilities, (2) changes in federal policy that liberalized the criteria for establishing a disability, (3) a decline in the rate at which recipients leave the program (perhaps due to increases in life expectancy), and (4) expanded state and federal outreach efforts in the program.

As the figure shows, the budget projects a significant reduction (6.8 percent) in the SSI/SSP caseload in 1997-98. This is due to the provision in the federal welfare reform legislation of 1996 which makes legal noncitizens ineligible for the program.

Spending by Major Programs

Major Budget Changes

1. The Budget Proposes to Fund Basic Caseload Changes. This includes funding for a projected caseload increase of 0.5 percent in the Medi-Cal Program, a decrease of about 1 percent in the AFDC Program, and an increase of 1.8 percent (before adjusting for policy changes) in SSI/SSP.

2. The Budget Reflects a Significant Shift of State Costs to the Federal Government. This would be accomplished by the following actions:

• Assume enactment of legislation appropriating federal funds to reimburse the state's Medi-Cal costs of providing emergency health care services to undocumented immigrants ($216 million in 1997-98).

• Reflect estimated state savings of $274 million in 1996-97 and $288 million in 1997-98 due to the implementation of federal block grants pursuant to federal welfare reform legislation. (The savings are due to the state receiving more federal funds under the block grant than it would receive under prior law, assuming adoption of the Governor's proposals for the AFDC/TANF program.)

3. The Budget Reflects Savings From federal welfare reform Provisions Making Noncitizens Ineligible for Certain Health and Welfare Programs:

• Eliminate legal noncitizens from eligibility for SSI/SSP benefits, for a General Fund savings of $153 million.
• Eliminate legal noncitizens from eligibility for In-Home Supportive Services (IHSS) benefits (which results from the federal act's provisions related to SSI/SSP eligibility), for a General Fund savings of $22 million.

• Eliminate the state-only Medi-Cal program that provides prenatal care for undocumented immigrants, for a General Fund savings of $80 million.

4. The Budget Proposes to Make Permanent Certain Grant Reductions and Cost-of-Living Adjustment (COLA) Suspensions in the AFDC and SSI/SSP Programs:

• Make permanent the 4.9 percent statewide grant reductions in AFDC and SSI/SSP enacted in the current year ($366 million cost avoidance).

• Make permanent the suspension of the statutory COLAs ($91 million cost avoidance).

Savings Would Require Federal Action

Welfare Reform

Our office has released a report that offers a different approach to redesigning the welfare system. (Please see Welfare Reform in California: A Welfare-to-Work Approach, January 23, 1997.) We discuss the Governor's proposal and our approach in detail in our analysis of the AFDC/TANF Program.

Figure 7
Governor's Proposal to Reform Welfare
	Grant Reduction After Six Months. Beginning January 1, 1998, Temporary Assistance for Needy Families recipients on aid for more than six months will receive a grant reduction of 15 percent.
	Time Limits:
	For those on aid prior to January 1, 1998, recipients are limited to two years of cash assistance in any three-year period. After the two years, benefits are reduced by roughly 15 percent (the portion of the grant for the adult) and this aid is provided in the form of noncash benefits (state-funded) such as vouchers.
	For those coming on aid as of January 1, 1998, their cash assistance is limited to one year in any two-year period. After the one year, benefits are reduced as noted above.
	Recipients who go off aid (grant and voucher) for one year would be eligible to return at the same level of cash benefits as new applicants.
	Lifetime receipt of cash assistance is limited to five years. After this period, benefits are available, but limited to noncash assistance as noted above.
	Participation Mandate. To receive assistance, recipients must participate for 32 hours per week (35 hours for two-parent families) in work or county-approved education or training activities.
	Grant Structure. Families with income (including earnings) will have lower grants (roughly 30 percent) than under current law as a result of reducing the amount of income that is excluded when calculating the grant.
	Services. Provides additional funding for automation, employment services, and training for county caseworkers.