Children’s Services Funding: Behind the Scenes

The legislature placed Proposition 1D on the May 19, 2009, ballot as a part of a package of measures to address California's budget crisis. Prop. 1D amends Prop. 10 by cutting $608 million this year from First 5 programs, including about $340 million of First 5 funding reserves for 2009-10 and $268 million each year for five years. Prop. 1D diverts these funds to other existing state health and human services programs for children up to age five, allowing the legislature to use revenues from those programs to reduce the budget shortfall. It is estimated that First 5 total revenue losses will be between 50 and 65% of new funding or about $1.68 billion over five years for First 5 programs.

Diverting revenues from Prop. 10 will allow the legislature to continue funding existing General Fund obligations, but it stops the expansion of First 5 services.  If voters do not agree with these spending priorities, the legislature and the governor will be forced to return to the bargaining table and agree on possible new tax increases and spending cuts. 

In November 1998, California voters approved Prop. 10 (the First 5 initiative) with 51% of the vote. The ballot measure increased taxes on cigarettes and other tobacco products to pay for new early childhood development programs. Prop. 10 called for the establishment of a “First 5 California Children and Families First Commission” to administer and develop goals and guidelines for the programs. The program also set up county commissions to address the unique needs of individual communities. 

First 5 provides the following services.

• School Readiness Program: Includes Power of PreSchool, Special Needs Project (for children with disabilities), and CARES (encourages education and stability in the education workforce).  The School Readiness Program served 292,774 California residents in FY 2007-08. 
• Health Access Program: Works to ensure that community members in the program's 23 participating counties have access to medical, dental, and vision care. Health Access provides insurance for children under the age of five living at or below 300% of the federal poverty level but are ineligible for Medi-Cal.
• Migrant Educational Even Start (MEES): Targets migrant farmworker families and provides services to ensure that students are ready for kindergarten. During the 2007-08 year, the MEES program served 5,323 children in 44 California counties.
• Kits for New Parents: Includes a variety of resources and informational materials such as obesity-prevention guidelines, child safety practices, tips for feeding babies, and information on oral health, nutrition, child care, safety, and discipline. First 5 provided 434,678 new parent kits in English and Spanish during the 2007-08 year. 
• First Smiles: Provides consumer information and training for dental and medical professionals on early detection and prevention of early childhood dental caries. 
• Low Income Investment Fund (LIIF): Provides technical assistance, training, and funding for the development of child care facilities. 
• California Smokers' Helpline: Provides counseling, educational materials, and information on local resources to help individuals stop smoking.

In addition, First 5 county commissions provide the following family services: adult education and literacy programs, parenting education, basic need services (food, clothing, housing), targeted intensive family support, and behavioral, substance abuse, and mental health services. 

Eighty percent of Prop. 10 revenues are distributed to California's 58 county commissions based on the ratio each county's births to state births. The remaining 20% of revenues are distributed to the following departments in the First 5 State Commission: mass media (6%), education (5%), child care (3%), administration (1%), and an unallocated account (2%).

In 2004, voters amended the California Constitution by passing Prop. 58, a balanced budget amendment. This requires that the legislature enact a balanced budget every year using estimates of yearly revenues and expenditures. 

In early 2009, California was in the midst of a $42 billion budget shortfall.  Lower revenues coupled with weakened financial markets curtailed the state's ability to obtain credit and plunged the state into a fiscal crisis. Experts warned that if the governor and legislature could not agree on a balanced budget, the state controller would be forced to use existing cash flows for high-priority expenditures related to education, state employee payroll and benefits, Medi-Cal, and debt service; and delay lower-priority payments such as tax refunds, student aid grants, and payments to local governments. Most experts concluded that California would have to find new sources of revenues.

On March 10, 2009, Governor Arnold Schwarzenegger called a special election for May 19, 2009, to address the $42 billion budget gap. California voters are being asked to approve the governor and the legislature's compromise budget plan, which includes $14.8 billion in spending cuts, $12.5 billion in tax increases, $8 billion in projected new federal stimulus spending, and $5 billion in borrowing from future lottery revenues. The budget also creates a spending cap and provides $2.5 billion in tax cuts and credits for those who purchase newly constructed homes and for other business interests.

Supporters of Prop. 1D argue that the budget compromise and Prop. 1D were agreed upon with bipartisan support and would help end the budget stalemate. They contend that First 5 was proposed and enacted during a time of relative economic prosperity and that the fiscal crisis demands that the state reprioritize spending to meet the new fiscal realities.

The opponents of Prop. 1D argue that Prop. 10 provides important social services to children under five and their families that should not be cut. Prop. 10 included a funding mechanism (tobacco tax) that did not increase General Fund obligations. Further, they argue it is poor public policy to reduce funding during a fiscal crisis when the need for social services is likely to increase, while including tax breaks to business interests and new home buyers.