California State Senate Fails to Pass Prison Health Construction Bond: Federal Court Receiver Demands $3.5 Billion, With More to Come, Worsening State Budget Deficit7 min read

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The California State Senate has just adjourned, having failed to pass SB 1665 (Machado) which would have authorized $7 billion in bonds to pay for prison health care construction that the federal court receiver indicated he needs in order to bring California’s system into constitutional compliance with orders in cases pending against the state. By a vote of 24 to 15, with 27 votes needed for the two-thirds required for passage, the Senate failed to pass this bill, despite passages from a letter from the receiver read on the Senate floor by Senator Machado. The only votes for the bill came from Assembly Democrats.

The stage is set, given the reaction of the receiver, which his office has indicated will be his only public commentary today, for the receiver to go to court for an order that funds be immediately paid by the state of California, thus worsening the state’s deficit for the current fiscal year and severely impacting it in the 2008-09 fiscal year beginning July 1 which has an estimated $15 billion deficit without further cuts or revenue.

We will report more on developments on the prison and budget crisis, including the apparent demise of a settlement of the prison overcrowding lawsuit which the parties had hoped would be formalized tomorrow. Senator Machado told the Senate that this settlement was “DOA.”

For now, here is the information as released by the receiver:

J. Clark Kelso, Federal Receiver for the California Prison Health Care Receivership Corp. has issued the attached letter to the Department of Finance (Attached as “Genest Letter”)

The release of this letter will be the Receiver’s only public commentary for today. The following are excerpts of the letter:

What happens next?
Absent favorable action today on SB 1665 (Machado), it is my intention to file with your office a demand that the State of California commit to setting aside $7 billion in the Receiver’s account to be used for the Health Care Facility Expansion and Improvement Programs provided for in the Receivership’s Strategic Plan, “Achieving a Constitutional Level of Medical Care in California’s Prisons.”

How does this affect California’s Budget?
SB 1665 was introduced to provide cost-effective bond financing for these construction programs, financing that would avoid the need to adversely impact the General Fund for the next three years. In my judgment, given the disastrous condition of the State’s General Fund and budget, SB 1665 is the only fiscally responsible approach for providing the necessary financing.

I remain hopeful that the Senate will act favorably upon SB 1665, and that I will not be forced to ask you to immediately sweep all available funds and to take other extraordinary reallocations of funds to provide financing for my construction program. However, I can no longer stand idly by while the State continues its pattern of prevarication.

How much money is needed and by when?
I will be needing to commit $70 million immediately (Le., in the current fiscal year), and anticipate needing $3.43 billion during FY 2008-2009, $2.0 billion during FY 2009-2010 and the final $1.5 billion during FY 2010-11.

What if the need for inmate beds decreases?
I have committed to the State in SB 1665 that I would undertake this construction program in three phases, and that before I proceed to the second or third phases, I would undertake a reassessment of the prison population to determine whether additional construction was still necessary in light of possible changed circumstances. I now commit to you the same approach. I will not proceed to phases 2 or 3 without reassessing actual need. I will also work with you and your staff to establish some form of project review and reporting similar to the processes used by the Public Works Board so that there is appropriate public oversight of my construction program. I am not seeking to avoid oversight; I am simply seeking a clear pathway forward.

The “Genest Letter” in Full

May 29,2008
Mr. Michael Genest
Director Department of Finance
State Capitol
Sacramento, CA 95814

Dear Mike:

Absent favorable action today on SB 1665 (Machado), it is my intention to file with your office a demand that the State of California commit to setting aside $7 billion in the Receiver’s account to be used for the Health Care Facility Expansion and Improvement Programs provided for in the Receivership’s Strategic Plan, “Achieving a Constitutional Level of Medical Care in California’s Prisons.”

As you may recall from my letter to you of April 19, 2008, we are on schedule to engage design firms this July for our 10,000-bed Health Care Facility Expansion Program and to break ground on the first facility by January 2009. We are also progressing rapidly on our Health Care Facility Improvement Program at several sites. These programs, as you know, are essential components of the Receivership’s Strategic Plan, absolutely necessary to bring the level of prison health care services up to federal constitutional standards. The four United States District Court Judges responsible for coordinating the medical care (Plata), mental health care (Coleman), dental care (Perez) and disability access (Armstrong) class actions recently signed an agreement whereby the Receiver takes the lead concerning health care related prison construction projects. As a result, the construction programs in the Plan of Action are designed to address medical, mental health, and disability access concerns. Without timely financial support from the State, remedial work in four major cases will be unacceptably delayed.

SB 1665 was introduced to provide cost-effective bond financing for these construction programs, financing that would avoid the need to adversely impact the General Fund for the next three years. In my judgment, given the disastrous condition of the State’s General Fund and budget, SB 1665 is the only fiscally responsible approach for providing the necessary financing.

The federal court in Plata v. Schwarzenegger has been waiting for six years for the State to comply with its orders. The federal court in Coleman v. Schwarzenegger has been waiting for 13 years for the State to comply with its orders. I have previously explained to the Administration and Legislature that the Federal Court needs the State’s unequivocal, full support for this construction program. The Receiver, responsible for medical, mental health and disability access construction cannot be placed in the position of proceeding without the certainty of state funds concerning a very complex construction program. An incrementalist approach -which is how the State usually funds non-critical, multi-year projects and major capital outlays -necessarily introduces significant uncertainties and delays in completing construction. Furthermore, it unnecessarily increases costs and represents an inefficient, bad way of doing business. That is why SB 1665 was drafted to authorize the full $7 billion in funding for these projects now, and that is why I am demanding that the State now commit to setting aside $7 billion in the Receiver’s account. In order to correct the health care related unconstitutional conditions which plague California’s prisons, the Receiver requires immediate access to these funds to effectuate timely and cost-effective remedial action. The timetable set by the State’s rigid budget processes is simply inadequate given what needs to be done.

I have committed to the State in SB 1665 that I would undertake this construction program in three phases, and that before I proceed to the second or third phases, I would undertake a reassessment of the prison population to determine whether additional construction was still necessary in light of possible changed circumstances. I now commit to you the same approach. I will not proceed to phases 2 or 3 without reassessing actual need. I will also work with you and your staff to establish some form of project review and reporting similar to the processes used by the Public Works Board so that there is appropriate public oversight of my construction program. I am not seeking to avoid oversight; I am simply seeking a clear pathway forward.

I will be needing to commit $70 million immediately (i.e., in the current fiscal year), and anticipate needing $3.43 billion during FY 2008-2009, $2.0 billion during FY 2009-2010 and the final $1.5 billion during FY 2010-11.

I remain hopeful that the Senate will act favorably upon SB 1665, and that I will not be forced to ask you to immediately sweep all available funds and to take other extraordinary reallocations of funds to provide financing for my construction program. However, I can no longer stand idly by while the State continues its pattern of prevarication.

J. Clark Kelso
Receiver

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