New Report Shows Devastating Economic Impacts from Proposed HHS Cuts5 min read

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As the Legislature prepares to consider tough choices to balance an over $20 billion deficit, a new report reveals that the health and human service cuts proposed would also have a dramatic negative impact on California’s economy.

Compiled by Health Access California and available on the Health Access website, the report, “The Worst Prescription for California’s Economy: Analyzing the Economic Impacts of Health and Human Service Budget Cuts,” reveals that the severe cuts in the Budget Conference Committee’s proposal would have significant economic impacts; and that the Governor’s budget proposal would be even more dramatic damage to the state’s economy. Both would mean lost federal funding to California ; hundreds of thousands of lost jobs; and hundreds of thousands of Californians without coverage.

“These health and human service cuts are the worst of both worlds: they not only directly deny people the services that California families need, the cuts cripple our ability to get out of this economic downturn,” said Anthony Wright, executive director, Health Access California, the statewide health care consumer advocacy coalition. “The Governor’s cuts make no sense, since in order to save a few state dollars, California gives up a lot of federal dollars, for our health system, and our economy.”

The Governor’s proposed budget includes dramatic cuts, including the elimination of Healthy Families, CALWORKS, Adult Day Health Centers , as well as major cuts to IHSS home care and many other programs. In addition to the human impacts, the Governor’s budget cut proposals to health and human services would have dramatically negative economic consequences:

• California will lose $7.5 billion in federal funds for health and human services programs this year alone.

• Over 600,000 Californian jobs will be lost.

• The state’s economy (GDP) will shrink by more than two percent.

• Over two million more Californians will lose health coverage, increasing the number of uninsured by one-third.

“The Governor’s proposal to eliminate CalWORKs will devastate low income families and the communities they live in. Landlords won’t get the rent, electric companies won’t get paid, the corner store will have less customers but the homeless shelters will be full,” said Michael Herald of the Western Center on Law and Poverty. “Our legal service offices are getting unprecedented number of calls from frightened recipients worried they will become homeless. It is morally irresponsible of the Governor to threaten to cut off aid to vulnerable families while refusing to even consider tax increases.”

The economic consequences are particularly significant for health and human services for multiple reasons:

• Many health and human services are tied to federal matching funds, so for every dollar we cut from state spending, the state’s economy loses double, triple, or more in economic activity.

• Since spending in health and human services by definition happens in-state and is unable to be “outsourced,” there’s a significant “multiplier effect” where dollars are spent in the community and then spent again, creating economic activity. This study relies on Council of Economic Advisors (CEA) data and formulas for estimating the multiplier effect.

• Funding for health and human services are spent directly into the economy. Both as staff salaries (such as nurses) and as direct assistance to poor families, the beneficiaries of health and human service spending are low- and moderate-income Californians who are likely to spend that money quickly back into the community, by necessity, rather than save it. Studies indicate that such directed resources to lower-income families have a more substantial “multiplier effect” to the local economy.

These factors make it so that cuts to health and human services have a much bigger impact than a commensurate increase in taxes. In a tough budget situation where legislators must choose either service cuts or tax increases, the negative impact of bigger cuts is over 3 to 1. The study reviews an even more stark comparison with restoring the upper tax bracket, where the impact would be offset by a sizable deduction in federal income taxes.

“This package of cuts goes in the complete opposition direction of President Obama’s economic stimulus bill. President Obama had it right, that the top priority was to recover and reinvest in our country, starting with the people who need the most help,” said Wright. “While all our budget options have economic impacts, the choice is clear. If you want to revive the economy, the worst possible action is to make the health and human service cuts proposed, lose those federal dollars and all the resulting economic activity. Those who are concerned about the economic impact of tax increases should recognize that the economic impact of cuts are multiple times greater.”

“This new report is consistent with a recent study released by Beacon Economics, which demonstrates that cuts to human services programs such as Food Stamps, CalWORKs and General Assistance have severe negative economic impacts, with an estimated $1.32 in economic activity lost for every dollar cut. Investment in human services programs is critical to state and local economies,” said Frank Mecca of the County Welfare Directors Association.

The Budget Conference Committee also has negative economic impacts, even though they are significantly less severe than the Governor’s proposal. The economic impacts of the health and human service cuts in the Budget Conference Committee budget package include the loss of over $1.24 billion in federal funds for health and other programs in the budget year, about 220,000 Californian lost jobs, and a shrinkage in GDP of 1.3%. An estimated 550,000 more Californians will be denied health coverage, both in children being directly denied coverage, and in families losing health coverage due to job loss.

Health Access California is a statewide health care consumer advocacy coalition of over 200 groups. This article has also been published on the Health Access Weblog.

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