Crossroads conversation

In early August, SN&R CEO Jeff vonKaenel sat down for a wide-ranging, three-way conversation with a past and a present leader of the state’s Health and Human Services Agency. Secretary Kim Belshé, appointed to lead the agency by Gov. Arnold Schwarzenegger, and former Secretary Grantland Johnson, appointed by former Gov. Gray Davis, both know what it’s like to run this massive organization (with current revenues of $83 billion a year) and be responsible for literally hundreds of programs and services related to the health and well-being of all Californians. The following is an edited version of their conversation.

Like many others right now, I’m worried about what’s happening with California and the safety net for poor people and seniors. And I’m discouraged that the level of discussion at the Capitol has been so polarized. Kim, you’re a Republican. Grantland, you’re a Democrat. Are there areas of agreement and commonality when it comes to the safety net?

Former Secretary Grantland Johnson: Ha, ha. Well, we only have a few hours—we need a few days.

OK, let’s start with this. If your agency was a Fortune 500 company, it would be 21st worldwide, in between IBM and Procter & Gamble, in terms of size and number of employees. Can one of you talk about the scope of what the agency covers?

Secretary Kim Belshé: We have 12 departments, roughly 32,000 employees, roughly $83 billion dollars in total funds. We represent basically about a third of the state general fund. Of note is that this third of the budget is afforded very few of the protections that other parts of the budget—such as K-through-14 education and public safety—are afforded. It’s an unfortunate reality that the agency charged with serving and supporting the most vulnerable of Californians is in some respects the agency most vulnerable to budget reductions.

Basically, this agency oversees services that touch the lives of really every single person in this state. A lot of folks think we’re only about poor people, public assistance, CalWORKs (which is the principal income support program for low-income women and children), Medi-Cal (our state program for low-income, uninsured women and children), as well as seniors and people with disabilities. But we also oversee public health programs. We oversee food-safety programs. We oversee programs that all Californians rely upon and benefit from when it comes to their health, well-being and safety. We spend $83 billion dollars a year—that sounds like a really big number—but what most people don’t appreciate is a significant percentage of those dollars are federal funds, and what comes with those federal dollars are very prescriptive federal rules and requirements. So even in a very large bucket of money such as $83 billion dollars, there’s relatively little discretion in terms of how those dollars are spent. And with federal health reform and with federal stimulus funding, that flexibility has been further constrained.

When Gov. Davis came into office earlier in the decade, the financial times were considerably better. There was an effort by the governor to really hold the line on spending, notwithstanding a lot of pressure from the Legislature. But that pressure ultimately led to some proposals to expand Medicaid, so California went beyond what the federal government required, because Gov. Davis ultimately agreed to do that, and from a social-policy perspective, in my judgment, that was the right decision to insure a stable and sufficient safety net of medical-care services.

Fast-forward to where we are today: The bottom has fallen out on revenues, the state doesn’t have the ability now to go back and revisit program expansions that were enacted during good economic times; those revenues have gone away, and yet the spending continues and the federal government now is saying you have to maintain that level. Again, good social policy to maintain that eligibility, but the state doesn’t have the financial resources. It requires cutting in other areas or raising revenues, and we see how difficult either [of those can be].

Johnson: I think that is an accurate assessment. [The Davis administration] came into office in 1999, the dot-com boom was really underway, and it created a false sense of security. Now, one of the things that happened as a result of the dot-com bust was the state was faced with a financial crisis, the economy was in a downturn. … If you recall, the whole issue of a rainy-day fund really became a prominent part of that discussion: What do you do in good times in order to buffer you for the inevitable economic downward cycle? And the tension between the executive branch and Legislature is that the Legislature gets elected to make things happen, and that translates for them into spending. So the tension between the governor and the Legislature is always over this question of how do you hold the line and at the same time adequately sort of satisfy or satiate the desire to want to do something, and that was the tension we faced, OK? And as much as the governor tried to hold the line, you know, he was getting buffeted from his own party by saying, “You’re just a scrooge,” basically. I remember we had a discussion in 2001, and I think the shortfall was something like $2.5 billion, and I said, “Look, make the cuts. Half the cuts are going to come from my budget, but I would rather have the cuts be made now than to wait.” Because the longer you wait … the difference between the expenditures and revenue exacerbates exponentially.

It seems clear that this budget is going to be much more severe, that there are going to be cutbacks as cruel as any in memory. Why don’t you both talk about the impact that’s going to have on typical Californians?

Johnson: I think it’s going to be a direct thing. I think that this administration is facing a much more difficult situation than we faced because all of the easy, low-hanging fruit, all the tricks that we used to play with the budget don’t work because we’ve exhausted them.

Belshé: Yes, as I said earlier, major portions of the budget enjoy particular protections. And those protections are, in part, a function of social-policy decisions and fiscal-policy decisions that the public has made. So when, in 1988, the people of California said Proposition 98 is consistent with their priorities and values—that put into the constitution some very clear constraints in terms of education funding. The people of California said that K-through-14 education is priority No 1. That’s roughly 50 percent of the budget right there. … I think Grantland and I would say, from where we sit, it has resulted in education funding being treated quite differently than other general-fund support.

So what are those other areas of general-fund support? The next big chunk of money is higher education, and clearly, in recent years, higher education has taken some very difficult reductions, fee increases, etc., the net effect of which has led the governor and, I think, the Legislature to say, “We really can’t cut more deeply there.” So that’s another 10 percent of the budget. Public safety—no one wants to be associated with releasing dangerous felons into the communities, and the public has said consistently that it is a priority, and indeed many of the costs driven through corrections are a function of ballot propositions that the public has supported. So that’s another 10 percent of the budget.

And so basically what’s left is health and human services, which is relatively unprotected. And for those of us who believe in these programs and recognize their value in terms of the health, well-being and safety of the people of California—particularly the lowest income, the most vulnerable—well, this is going to be very tough. And so that’s why you see some incredibly difficult proposals on the table, such as dramatic reductions in the In-Home Supportive Services Program, the outright elimination of the CalWORKs program, additional reductions in Medi-Cal, which reflect all that we think is left that can be done given court decisions and federal maintenance of existing laws. But when you have program growth of 13 percent in Medi-Cal, 14 percent in CalWORKs, 71 percent in In-Home Supportive Services over the last 10 years, there needs to be some reductions. It can’t only be a revenue conversation, and there are some folks who seem to only want to make the budget solution only about revenues.

This goes back to how divisive things have gotten. What can we do about the polarization?

Belshé: This is not unique to California. We are very polarized. The action of trying to find compromise and that middle ground, of moving to the middle, it’s a pretty lonely place to be, it seems, in California. And it’s not a position that is valued and rewarded.

Johnson: It’s punished.

If we project out into the future of health care in California, we seem to be heading for a train wreck. We have the baby boomers and their increased health-care costs, much higher administrative and marketing costs for insurance companies and the health sector, and rising costs of technologies. Is there a solution that puts us in a good spot 10 years from now?

Johnson: That’s why some people want to have a constitutional convention and go back and do the state constitution over again. Because it’s gotten so complicated with these decisions that are made separately and, in most cases, without regard for their interaction with other decisions. It’s gotten very, very difficult to make rational decisions in terms of the budget. So everybody gets involved in kicking the can down the street and, meanwhile, the structural deficit continues to grow, no matter what administration is in office. …

One of the things I learned going back to the 1970s is that there’s this mythology that major institutional change occurs because of some sort of big-bang occurrence. You know, there’s a huge breakthrough. But the reality is [more about] reforms that you enact incrementally. The evaluation has to be, does it take us closer to the ultimate endpoint that we desire to achieve? Rather than believe you’ll get there in one fell swoop, it really is a series of incremental progressive enactments of policies and reforms that again moves you closer and closer to the endgame.

Belshé: I think you’re right, Grantland. I think we, as a state, typically move forward toward change more incrementally. It’s one of the reasons I am a huge believer in governance reform.

Is there anything that you wish you’d known before you took this job that would have helped you now?

Belshé: Well, this has been an extraordinarily challenging time, given the state’s fiscal circumstances and the political context as well. But to lead is to choose, and I have chosen to lead during good times and not so good times. And the people who serve with me have chosen to stay and contribute. And we come to this agency with a commitment to the underserved and to the vulnerable. We care about the populations who rely upon the work we do. I have over my door a quote, it says, “Go forth and do good work for the people.” And it’s a reminder that in good times and un-good times, that’s why we’re here. And we don’t get to pick and chose; the fiscal times have chosen us.

Lots of people in Sacramento read SN&R, and that includes probably thousands of your employees. Any message you’d like to give to them?

Belshé: I so respect and admire the people who serve with health and human services, because they care about the programs and they care about the people. So my message to my peeps is one of respect and admiration for the work they do during extraordinarily difficult times.

Johnson: I concur wholeheartedly with that. I think we tend to really underestimate and underappreciate and trivialize the role of public servants. These folks work incredibly hard and are really dedicated and do not get anywhere near the credit that they deserve. They work under extraordinarily difficult and complicated circumstances. You know, they are the “B” team. They’re there when we come onboard, they are going to be here when we leave. Without them as the bedrock, it just doesn’t work. Nothing happens. And so we have to give a tremendous shout-out to public employees, both at the leadership level and at the level of the front lines—we owe them a tremendous amount of gratitude.