Obama’s Social Security Disability policy busting Calif. general fund

Sept. 28, 2012

By Wayne Lusvardi

Here’s the dirty secret of Gov. Jerry Brown’s Proposition 30 tax increase of $8.5 billion. Most of it would not go to education, as advertised. Instead, it indirectly would go to plugging a gaping budget hole created by the Obama Administration’s policy of taking people off unemployment rolls and putting them on permanent disability benefits. The Obama policy blew a $11.7 billion budget hole in California’s budget.

The Obama Administration’s loosened eligibility requirements for Social Security Disability have swelled the number of those on Medicaid in California.  It is Obama’s relaxed requirements for Social Security Disability — put into place by Obama Administration appointees and coupled with declining federal funds — that is busting the California general fund budget at this time.

Medicaid in California has grown $27.1 to $38.8 billion, an $11.7 billion increase over just the last five years.

From 2007 to 2011, state general fund revenues have gone from $102.9 billion to $92.5 billion, a $10.4 billion decline.

However, federal funds for California have gone from $56.2 billion to $78.7 billion over the same period, a $22.5 billion per year increase.

The total combined general fund and federal fund revenues have gone from $129.1 to $165.3 billion from 2007 to 2012, a $36.2 billion increase.  Federal funds have increased 25 percent over the last 5 years.

TABLE 1.

Trend in Medicaid & K-12 Funding 2007 to 2011 — Billions $ and Percent

	2007	2008	2009	2010	2011	2012
Percent Medicaid of Fed. Funds	$27.148.2%	$33.6 24.5%	$38.8 34.5%	$39.233.2%	$38.849.3%	N/A
Percent K-12 of Gen. Fund	$27.827%	$36.1 39.7%	$37.943.5%	$36.139.5%	$33.038.2%	N/A
Gen. Fund Revenues	$102.9	$90.9	$87.2	$91.5	$86.5	$92.5
Fed. FundRevenues	$56.2	$73.0	$89.0	$84.7	$78.7	$72.8
Total Gen. & Fed. Fund Revenues	$129.1	$163.9	$176.2	$176.2	$165.2	$165.3
Percent Medicaid of Gen.Fund & Fed. Funds	$27.121%	$33.620.5%	$38.822%	$39.222.25%	$38.823.5%	N/A
Source: California Department of Finance; http://siepr.stanford.edu/publicationsprofile/2455

Statistics for the number of recipients or amount of expenditures for SS Disability in California for 2012 are not available.  Nonetheless, the state budget for the 2012-13 fiscal year indicates a decline of $30.1 billion in federal funds and a $6.0 billion increase in the state general fund. The net effect on the combined general fund and federal funds is a $24.1 billion decline in total revenues for 2012-13 — see Table 2 below.

No Apparent Need for New Tax for K-12 Education

California population grew from 36,207,622 in 2007 to 37,691,912 in 2011.  This indicates 1,484,290 more people over the last four years, for an annual compound growth rate of less than 1 percent (0.8 percent) per year. Population was over-estimated by demographers by 1.2 million people during the last decade because they expected more people to move in and fewer to move out.

Hispanics represent the largest group of new arrivals.  The number of white children dropped 21 percent in the last 10 years.  As Dowell Myers, a demographer at the University of Southern California, has stated, slow growth will make it easier for state officials to plan in an era of budget deficits.

Concurrently, K-12 education funding increased $5.2 billion from 2007 to 2011.  The percentage of funding out of the general fund for K-12 education rose 18.7 percent.  But that is a statistical fluke due to the total dollars in the annual general fund budget declining by $16.4 billion from 2007 to 2011.

The number of children enrolled in K-12 public education declined over the last five years by nearly 1 percent (0.98 percent), or 61,265 children. It is not apparent that California needs a new tax for K-12 public schools that would equate to about a 9 percent increase in general fund revenues.

Brown’s Tax Increase Would Plug Rising Medicaid Costs

Brown’s 2012-13 state budget is predicated on an expected $8.5 billion in new taxes from Proposition 30 on the November ballot.  It now appears that most of Brown’s tax increase would really have to go toward plugging the increase in Medicaid costs due to Obama’s SS Disability policies.

Brown is claiming that 89 percent of Prop. 30’s funds would go to K-12 schools and 11 percent to community colleges.  But budget line items are fungible or interchangeable.  So by funding $8.5 billion to K-12 schools and community colleges, this frees up an equal amount of funds to be allocated elsewhere — such as to Medicaid.

But Prop. 30 could not be easily sold to the voters if they knew that the tax increase would indirectly go to funding Medicaid. So like in a pea shell game, Brown has switched, to public education rather than Medicaid, the public perception of what shell his $8.5 billion tax is under.

Loose SS Disability Rules Led to Rise in Recipients

The eligibility requirements for Social Security Disability may not be an official policy of the Obama Administration.  But Obama’s appointed program heads have interpreted its policies for nearly three years.  Relaxed eligibility rules have led to a large increase in SS Disability recipients.

According to Forbes.com, the Social Security Administration shifted to placing more weight on self-reported pain, loosened screening of mental illness, and now accepts evidence from the applicant’s own doctor.  Mental illness recipients grew from 16 percent in 1983 to 33 percent in 2010.  Back pain awards grew from 13 to 28 percent.  Over half of SS Disability recipients are considered mentally ill or have back pain.

In 2008, when Obama was elected, there were 7.2 million adults age 18 to 64 on Social Security disability.  By 2011, there were 8.7 million, for an increase of 1.5 million — reflecting a 20.8 percent jump.  Parking 1.5 million formerly employable people on SS Disability has lowered the official national and California unemployment rates. This is a strategy borrowed from former British Prime Minister Tony Blair when he came into office in 1997 to make the unemployment rate look better.

This tactic is helping the image of the Obama Administration by lowering the public perception of the unemployment rate.  But it is ending up busting California’s general fund budget. This fact has been quietly kept under the radar in California up to now.  Voters are more likely to vote for “school children” than those put on disability, with easily feigned mental illness and back pain to cover up a higher unemployment rate than is being shown.

A look at the California state general fund budget from 2007 to 2012 indicates that a $46.7 billion increase in federal funds has mostly plugged the rise in Medicaid costs from 2007 to 2011.  But in 2012-13, federal funds will decline by more than $30 billion.  This will make it difficult to fund an $11.7 billion increase in Medicaid costs resulting from the Obama administration’s shift of the unemployed to the Social Security permanent disability program.

Brown has ended up being a political water carrier for Obama’s policy to artificially reduce the unemployment rate by shifting people to permanent SS Disability, resulting a hole in California’s general fund budget.  The Obama administration should now be compelled to own up to a budget deficit they created and go to the well of the federal treasury rather than the California taxpayer to finance it.

Effect of Obama-Cal Policy on Swing State Elections

Voters in those key swing states in the upcoming national election need to know that it has been the Obama administration’s policies to reduce the perceived unemployment rate in California with an $11.7 billion per year increase in SS Disability payments. Swing states have been subsidizing California to the tune of $11.7 billion over the past 5 years for new lax SS Disability payments for mental illness and back pain may bear on the mental calculation that voters make for who shall be the next president.

TABLE 2:

Medicaid & K-12 Education as Share of State General Fund — 2007 to 2011

	2007-08	2011-12	Change 2007 to 2012	2012-13	Change 2011 to 2012
General Fund	$102.9	$86.5	– $16.4	$92.5	+ $6.0
Federal Fund	$56.2	$102.9	+ $46.7	$72.8	– $30.1
Gen. & Fed. Funds Total	$159.1	$189.4	+ $30.3	$165.3	– $24.1
MEDICAID
*Dollars	$27.1	$38.8	+ $11.7	N/A	N/A
K-12 EDUCATION
*Dollars	$27.8	$33.0	+ $5.2	N/A	N/A
*Percent General Fund	27.0%	38.2%	+ 18.7%	N/A	N/A
Source: http://siepr.stanford.edu/publicationsprofile/2455