It is downright embarrassing that we are nearly 60 days past the state’s Constitutional deadline for the passage of a state budget. 

Yet there is no state spending plan in place.  The Democrats who control the State Senate and State Assembly remain committed to a course of trying to exact extreme financial pain on state taxpayers, looking to increase taxes to close the budget “gap” – while Republican legislators remain firm in their resolve to reject any budget plan that includes new taxes. 

As a reminder of exactly how dysfunctional the budget process has become, the legislature continues to pass hundreds if not thousands of pieces of legislation that at best have nothing to do with the budget, or at worst, come with financial costs that will only worsen the budget crisis.  All of the state’s legislators seem comfortable delegating the whole process over to the four legislative leaders, and we get to read tweets from the Capitol Press Corps, notifying us of occasional sightings – yesterday letting us know that the Governor is now meeting with Democrat and Republican leaders separately, conducing “shuttle diplomacy” like we are negotiating a treaty between different foreign governments.

I have been very supportive of Governor Schwarzenegger’s posturing in this year’s budget crisis because he has drawn a firm line in the sand, saying that any proposals for new taxes are a non-starter for him.  This is good public policy for our state, and good politics for the Governor and for Republicans.  We have an over-spending problem that must be solved by reducing the size and scope of state government to match available revenues.

That having been said, this seems like as a good a time as any to draw attention to the fact that the Governor’s proposed budget actually includes (at least) a couple of tax increases – and it is certainly my hope that as a final budget deal comes together, that these (and any others) are taken off the table.  One of the tax increases has had a higher profile.  It is a proposal to place a tax on homeowners and renters insurance policies, and to then take those funds to support the state’s firefighting efforts.  I could spend an entire column on why this idea is flawed, but let suffice it to say that in a recession the last thing homeowners and apartment renters need are increases in their insurance premiums!  The other tax proposed in the Governor’s May Revise is – get this – a proposed “bed tax” on seniors living in nursing homes.  Seriously.

As always, the intricacies of these proposals serve as an impediment to trying to explain them in layman’s terms, easily digestible for a casual reader.  That won’t stop me from trying, though.

First and foremost, the root of the problem here is that federal lawmakers continue to seek to contort state legislatures into raising taxes by making certain government money available only if we jump through certain hoops.  This is not uncommon, but it is unfortunate.  Probably the highest profile example this last year has been the pursuit of federal “race to the top” education grants.  Only states that have met a myriad of federally established education public policy requirements are eligible to apply for the funds.   The contortions that school districts have gone through to be eligible for Race To The Top funds has been a sight to see. 

About five years ago, the state slapped a bed tax on most of California’s skilled nursing facilities.  In doing so, the state qualified for some federal matching funds.  At the time, the skilled nursing facilities that were taxed were those with high populations of Medicaid recipients, because the way that the federal assistance was dispensed from Washington was in the form of higher federal Medicaid reimbursements.  The way this ultimately pens out is if it is a large nursing home with a large number of Medicaid recipients, the facility more or less gets made whole – with the outlay in the tax being more or less offset by the higher reimbursements from the federal government for the care of Medicaid recipients.  Smaller nursing homes, with fewer Medicaid recipients, do not recoup the hit they take from this tax.  And of course facilities that are very small, or that have a lot a patients who pay privately, and are not on Medicaid at all, get slammed hard.

At the time, back in 2005 when this tax (naturally referred to as a “Quality Assurance Fee”) was created, certain non-for-profit skilled nursing homes were exempted from having to pay it.   While this category of nursing homes represents around only 15% of nursing homes, they collectively care for over two-thirds of all privately-paying residents.  Hence if these facilities were hit with the tax, they would be hit very hard since in most cases, there is not Medicaid money coming for residents at all, thus a higher payment rate from the feds is a moot point.  It is also the case that most of these non-for-profit nursing homes are on the small side, so even if they have some Medicaid recipients as residents, the numbers are too small to bring in remotely enough benefit to offset the tax.

This tax is not a small one.  It is estimated that it would cost a resident of a nursing home $4,680 a year – and it would only hit those who are privately paying – of course it doesn’t apply to situations where the government is paying the costs of a nursing home resident.  Many of those getting hit by this fee would be seniors on fixed incomes – who are already being pinched due to the recession.   The Governor’s proposal would have two-thirds of the fees collected being redistributed to support Medi-Cal residents in nursing homes.  The other one-third would get dropped into the general fund, or get used to pay for things currently supported by the general fund.

This new tax is a bad idea, and is an example of how overspending by liberals in Sacramento is putting on pressure to cause more pain and suffering to California taxpayers – in this case, to a group of people who are mainly seniors on fixed incomes (the truly wealthy hire nurses to come to their homes, they do not check into skilled nursing facilities). 

This tax increase is a particularly onerous idea when you think about the fact that we are trying to encourage people to put away savings so that they can support themselves in their latter years — and to the extent that this tax will actually force some people into programs like Medicaid, it has the potential to be especially costly to all taxpayers.

While I am confident that the higher-profile proposed tax on homeowners and renters insurance to fund Cal-Fire is on the “radar” of budget negotiators and I believe does it does not have GOP votes to make it into a final budget proposal, this nursing home resident tax has been so low key that its opposition may not have crystallized.  Well, it needs to – it is a bad idea.  Republicans should insist that this tax increase proposal be a non-starter – and Democrats should rally to protect this group of primarily fixed-income seniors from having the budget balanced on their backs.  Most importantly, Governor Schwarzenegger should withdraw this idea, as it is totally inconsistent with his pledge not to raise taxes to solve this year’s budget crisis.