Health & Welfare | Daily Report

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To help close a $25.4 billion budget shortfall, Gov. Jerry Brown has proposed reallocating $1 billion in reserves from Proposition 10, which uses tobacco taxes to fund "First 5" childhood development programs, to Medi-Cal. But that's money First 5 says it does not have.

Voters approved Prop. 10 in 1998, creating the California Children & Families Commission – known as First 5 for its focus on the first five years of childhood development. Funds come from a 50 cent tax on each pack of cigarettes, with 80 percent going to 58 county commissions and 20 percent to a state commission. The commissions decide how to use the money on a local level, with unspent funds carried over each year.

Brown says the state and local commissions amassed more than $2 billion in reserves by June 30, 2009. He wants to use half of it for Medi-Cal services for children up to age 5.

But the First 5 Association, a nonprofit membership group for the county commissions, says it does not have $2 billion in reserves, let alone half of that. Records show county reserves are just over $355 million as of June 30, 2010, said Sherry Novick, the association's executive director. The state commission's reserve, according to the governor's budget, stood at just $395,000 a year earlier.

And those figures will almost certainly be smaller by the time voters consider the budget proposal in June. First 5 coffers shrink as tobacco consumption and tax revenues fall; the governor's budget assumes a 3 percent annual decline.

According to a budget analysis by the nonpartisan Legislative Analyst's Office, "the actual amount available for the one-time sweep would depend on the commissions' fund balances as of June 30, 2011."

Both the state Department of Finance and First 5 Association said they based their reserve calculations on independent audits of each county. The discrepancy appears to stem from what to count in a reserve.

Novick says Brown's budget proposal reflects First 5's fund balance in 2009 but does not account for reserved and designated funds.

"If they really were to take a billion dollars, they would basically be taking money away from a billion dollars worth of direct services," she said.

Last year, the county commissions' fund balance was $1.9 billion, Novick said. Nearly half of that – 48.5 percent – was contractually obligated to current projects. Another 33.1 percent was designated but not yet in contract. Unreserved and undesignated funds – the reserve, Novick said – represented 18.4 percent of the budget.

"Because this is a declining revenue stream, you never spend your money all in one year," she said. You "draw on the fund balance as your income drops, so as to not cut services radically and suddenly."

The Department of Finance stands by its calculation of First 5 reserves.

"Given historical spending patterns and large reserve balances, it is unlikely that $1 billion is not available," department spokesman H.D. Palmer said in an e-mail. "Perhaps the First 5 Association is referring to possible long-term plans for encumbering the funding."

In addition to the one-time reserve shift in 2011-12, Brown's proposal asks voters to authorize a permanent 50 percent transfer of all Proposition 10 revenues to support early childhood services through the state's general fund. The Department of Finance estimates the move would add an estimated $216 million to the general fund in its first year, 2012-13.

This is not the first time the state has looked at First 5 to help balance the budget. Currently, the First 5 state commission is helping fund the Healthy Families and Early Start programs.

In 2009, Proposition 1D sought to temporarily transfer First 5 money to the general fund for children's health and human services. The initiative failed, with 66 percent of voters opposed.

Before his death last summer, Sen. Dave Cox, R-Fair Oaks, tried twice to abolish the First 5 commissions. His bills to direct Prop. 10 funding to the general fund, for the legislature to dole out to the Healthy Families and Medi-Cal programs, languished.

Voters passed Prop. 10 by a 1 percent margin. But an initiative to repeal it two years later was defeated, 72.2 percent to 27.8 percent. Before voters are asked to consider Prop. 10 once again, First 5 commissions hope to work with lawmakers to craft alternatives to Brown's proposal.

Lack of local control is Novick's primary concern with Brown's proposal. First 5 commissions are plugging holes in many programs and services hit by state budget cuts, she said, but each county tailors spending to its own needs.

"Obviously, we want to help. We understand everyone's giving up something to get the state out of this situation," she said. "All of our commissions would argue that figuring out the best use of the dollars is best done locally."

For example, among the programs funded by First 5 Sacramento is the Child Abuse Prevention Center in North Highlands.

Losing First 5 funds would be a big blow, said Sheila Boxley, CEO and president of Prevent Child Abuse California, which is housed at the center and provides families with training, support and in-home visitation services. State funding that could trickle down to her agency is tight, she said. But many of the children the agency serves could benefit from funds transferred to Medi-Cal too.

"The notion of, should we provide them with access to health care, or should we take care of their emotional, economic and physical development – to say that that's a choice between the two is a Sophie's choice," she said.