California Proposition 41, Limits on Welfare Spending (1984)
If Proposition 41 had been approved, it would have limited the amount of funds that could be spent in California for some public assistance programs, starting on July 1, 1986. The programs that would have been subject to the measure's expenditure limits were Aid to Families with Dependent Children, Medi-Cal and Family Planning.
Supporters described Proposition 41's intended impact as, "Proposition 41 limits all welfare spending in California to the national average, adjusted to allow for population differences, plus 10% to cover the higher cost of living here."
Proposition 41's official ballot summary said:
- "Establishes Public Assistance Commission to annually survey and report on state per capita expenditures and state and county administrative costs of public aid and medical assistance programs in California and the other states. Limits expenditures for benefits under each program to the national average expenditure, excluding California, plus 10%. Permits increase in any program expenditure upon majority vote of Legislature so long as total of expenditures do not exceed limit. Defines programs included; exempts specified programs. Provides for amendment by two-thirds vote of Legislature after specified public notice. Makes other provisions. Summary of Legislative Analyst's estimate of net state and local government fiscal impact: Net effect would be to reduce combined state and county expenditures, beginning July 1, 1986. It is impossible at this time to determine the size of the reduction and the impact at different levels of government. While the measure would reduce expenditures under specified public assistance programs by substantial amounts, these reductions would be partially offset to an unknown extent by (1) increased costs under programs that are not subject to the measure's limitations and (2) reduced tax revenues resulting from the reduction in federal expenditures within the state. On balance, it is likely that state expenditures would be reduced and county expenditures would be increased."
The fiscal estimate provided by the California Legislative Analyst's Office said:
- "Expenditures. The net effect of the measure would be to reduce the combined expenditures of state and county governments, beginning on July 1, 1986.
- The measure would directly reduce expenditures under the specified public assistance programs by substantial amounts. These expenditure reductions would be partially offset by increases in the costs of other cash grant and medical assistance programs, primarily those supported by county governments.
- The size of the net reduction in combined state-county expenditures that would result from this measure cannot be determined at this time. Nor is it possible to specify what the fiscal impact of the measure would be on individual levels of government. This is because the measure's impact would depend on future actions that cannot be predicted. Specifically, the size of the change in expenditures at each level of government would depend on (1) how much each of the other 49 states chooses to spend on public assistance programs in the future and (2) the extent to which program changes made by the Legislature in implementing this measure bring about an increase in the costs of other assistance programs that are not subject to the expenditure limitations.
- Revenues. The measure also would reduce revenues to the state and local agencies. This is because reductions in expenditures under the specified public assistance programs would reduce federal matching grants in support of these programs, thereby reducing the level of total expenditures (public and private) within California. The size of the revenue loss attributable to this measure cannot be estimated with any confidence.
- An Illustration of the Measure's Potential Fiscal Impact. If this measure had been in effect between October 1982 and September 1983, approximately $6.1 billion in public assistance expenditures within California would have been subject to the measure's spending limits. The reductions in federal, state, and county expenditures under the affected programs that would have been required by the measure during that year amount to $3.0 billion. Assuming that the reductions would have been made so that expenditures under each program complied with the 110-percent limit, expenditures on AFDC benefits would have been reduced by 60 percent and expenditures on Medi-Cal benefits would have been reduced by 36 percent.
- The General Fund's share of these expenditure reductions would have been $1.4 billion, while the expenditure of county funds would have been reduced by $140 million. In addition, there would have been a $1.5 billion reduction in the amount of federal matching funds received and spent by California. (This is because federal grants-in-aid to California for the affected assistance programs are based on the amount spent by the state and its counties.)
- The net reduction in benefit expenditures, however, would have been less than $3 billion -- perhaps considerably less, depending on how the reductions were implemented. This is because some portion of the expenditure reductions under the affected programs would have been offset by increased expenditures under other state or county programs. For example, individuals who lose AFDC eligibility as a result of program changes made by the Legislature in order to comply with the measure's expenditure limitations might be eligible to receive cash assistance under county general relief programs. Similarly, individuals who lose eligibility for Medi-Cal benefits might be eligible to receive medical treatment in county hospitals. Neither of these programs is subject to the expenditure limits established by this measure.
- It is not possible to estimate what the size of these increases in county costs would have been without knowing the specific type of program changes that would have been made by the Legislature in implementing this measure. Even though the measure would have resulted in a net decrease in combined state and county expenditures for assistance programs during the October 1982 to September 1983 period, it is likely that the counties' expenditures would have been higher than they otherwise would have been.
- If the measure had been in effect during fiscal year 1982-83, it also would have required a reduction of $226 million, or 47 percent, in the amount spent to administer the AFDC and Medi-Cal programs. Part of the reduction in administrative costs would have been achieved automatically to the extent that the number of persons eligible for AFDC and Medi-Cal was reduced in order to comply with the measure. The remaining reductions would have had to be achieved by reducing expenditures for state and county personnel employed to administer these programs and other operating expenses.
- Finally, the reduction of federal expenditures in California that would have resulted from implementation of this measure in 1982-83 would have reduced state and local tax revenues, over time, in the general magnitude of $250 million per year.
- Options for Achieving Benefit Reductions. If this measure is approved by the voters, there are primarily three ways in which the Legislature could achieve the required reductions in benefit expenditures. Each of these options would have somewhat different fiscal effects on the state and county governments. The three options are as follows:
- Limit Eligibility. To the extent permitted by the federal government, the Legislature could reduce or eliminate the eligibility of certain individuals and families for AFDC and Medi-Cal benefits. While limiting eligibility would reduce federal and state General Fund expenditures, it could also result in increased county costs. This is because under state law California's counties are required to provide support, including cash and medical care, for indigent and incapacitated persons who do not receive assistance from other sources.
- Reduce Benefits. In order to stay within the expenditure limits established by the measure, the Legislature could reduce or eliminate some or all of the 30 Medi-Cal benefits that are not required by federal law. The Legislature could also reduce AFDC grants. For example, if the measure had been in effect during 1982-83, it would have been necessary to reduce the monthly AFDC grant for a family of three with no other income from $506 to between $223 and $405 (depending on what other program reductions were made to implement the measure). Some families with other sources of income might no longer qualify for an AFDC grant. Such families, however, might qualify for assistance from the counties, thereby increasing county costs.
- Under current law, any reduction in the AFDC maximum payment amount would automatically reduce expenditures under the Medi-Cal program by increasing the amount of health care costs that beneficiaries who do not receive cash assistance would have to pay before they could receive Medi-Cal benefits.
- Reduce Provider Reimbursement Rates. The Legislature could reduce reimbursement rates for some or all providers of Medi-Cal services (for example, physicians and hospitals) in order to contain program costs within the overall limits established by the measure.
- Public Assistance Commission. The state General Fund would incur an additional cost of $250,000 annually, beginning in 1984-85, for support of the California Public Assistance Commission created by this measure.
- Summary. In summary, the net effect of the measure would be to reduce combined state and county expenditures, beginning July 1, 1986. It is impossible at this time, however, to determine the size of the reduction and the impact of the measure at different levels of government. While the measure would reduce expenditures under the specified public assistance programs by substantial amounts, these reductions would be partially offset to an unknown extent by (1) increased costs under programs that are not subject to the measure's limitations and (2) reduced tax revenues resulting from the reduction in federal expenditures within the state. On balance, it is likely that, if this measure is approved, state expenditures would be reduced and county expenditures would be increased.
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