Posts Tagged 'budget crisis'

Gov. Schwarzenegger, show us the IHSS fraud

LA Times, Opinion, July 14, 2009

Gov. Schwarzenegger, show us the fraud.

By Deborah Doctor

Gov. Arnold Schwarzenegger has made fraud in California’s In-Home Supportive Services program a budget issue as the state tries to deal with its financial crisis.

The in-home program provides critical care to 430,000 low-income Californians in their homes so they are not forced to move into institutions or onto the streets. It is often cited — including by Schwarzenegger — as a key to keeping Californians out of nursing homes that would cost the state much more.

Everyone is against fraud, but what exactly is Schwarzenegger talking about? How much of the program’s money is wasted on fraud?

The governor can’t seem to make up his mind. A couple of years ago, he estimated it at 10%, so the state spent thousands and thousands of dollars retraining county social workers, who assess the program’s consumers. After home visits, the social workers discovered that the vast majority of Californians receiving aid were eligible and in need of the services.

On July 2, the governor told a news conference that “our In-Home Supportive Services program is riddled with fraud.” A day later, in an Op-Ed article in this newspaper, he wrote: “Although this kind of abuse of taxpayer dollars is not rampant, we know it exists.” And then last week, basing his numbers on what “some people say,” Schwarzenegger estimated that 25% of the IHSS program is fraud.

In his Op-Ed and in answer to follow-up questions about in-home-care fraud, the governor refers to recent grand jury reports from six counties that found there were no safeguards against fraud in their programs. He cites care providers who collect checks under aliases or who over-report their hours, and he says greater vigilance would save the state hundreds of millions of dollars this year alone.

But where are the details?

A Contra Costa Times reporter took a closer look. In San Bernardino County, according to a July 8 story, of 19,798 IHSS recipients, the grand jury found that there were about 60 fraud cases a year referred by investigators. The reporter, James Koren, pointed out that even if all 60 cases were ultimately proved to be fraud, that would yield a rate of 0.3% — not quite “massive amounts of fraud.”

Sacramento County, meanwhile, reported that, in fiscal year 2006-2007, there were 397 reports of suspected fraud out of 17,735 cases, a rate of 2.2%. Of these, 31 were accepted for prosecution, a rate of 0.2% of prosecutable fraud.

In Los Angeles County, the district attorney recently said that, as the largest county with 200,000 In-Home Support Services consumers, L.A. had the largest amount of abuse. However, the Los Angeles Commission for Public Social Services reviewed a 2008 grand jury investigation and found it lacking in documentation, with “no evidence to support the allegations.”

Which brings us back to the governor. He has cited one unfortunate situation — a son, the in-home caregiver for his father, who delivered appallingly poor care — and called that fraud. I understand the point, but in reality this is more an example of elder abuse, not fraud that costs taxpayers money. That’s because no one claims the father wasn’t eligible or deserving. Even if the state had discovered the abuse and stopped paying the son, it wouldn’t have ended the father’s need for help.

If the governor wants to find and eliminate fraud and protect seniors and people with disabilities, he should proceed based on evidence, not on unfounded estimates.

He must be honest about the high costs of proposed anti-fraud measures, such as his suggestion that we launch a mass fingerprinting program for those receiving care and for caregivers. That might help prevent some fraud, but show us the cost-benefit analysis that proves it saves money.

Finally, he should restore the cuts that have reduced the number of county social workers and Adult Protective Services and county ombudsmen, who are the “first responders” against fraud and abuse, and use the same diligence against all providers — including nursing homes, where there is meticulous documentation of needless death and abuse.

He should not single out Californians who need assistance to live at home and the people who help them stay safe.

Deborah Doctor is a legislative advocate at Disability Rights California, the state’s congressionally mandated agency for protecting and advocating for the rights of people with disabilities.

California’s Cavernous Corporate Loopholes



Opinion: California’s cavernous corporate loopholes

As voters try to decide how to repair the state’s budget, big companies are walking away with billions in tax giveaways.

By Lenny Goldberg

April 30, 2009

As voters prepare to ratify or reject the complex budget deals represented in the six propositions — 1A through F — on the May 19 ballot, there is one part of the budget deal they don’t get to decide on: huge new corporate loopholes. The last two budget agreements worked out by the Legislature and signed by the governor include provisions that permanently cut billions in revenue from the corporation tax — with the state getting next to nothing in return.

Corporate tax attorneys are chuckling over the absurd deal in the last agreement that lets multistate and multinational taxpayers decide, each year, how much income they want to report to California. Because this was negotiated in private, with no hearings and no independent expertise brought to bear, the result is a giveaway and a national embarrassment, in a state that had prided itself on a fair, successful corporation tax.

Here’s how it works. Each state typically figures out what percentage of a large company’s business is done in the state, and then taxes that percentage of income. Historically, if 10% of a multistate company’s payroll, property and sales are located in the state, then 10% of its nationwide or worldwide income is subject to tax. In the budget deal, California changed the formula to allow companies to choose to make that percentage based only on sales in California.

Other states have used this so-called single-sales factor, so that out-of-state companies selling into the state could pay more in tax and in-state companies with lots of payroll and property but that sell around the world would pay less. The claim — never proved to be true in any state — is that such a formula helps economic development.

Companies that pushed heavily for this tax break — e.g., NBC Universal — will now be able to base their California income not on their total economic activity in California but only on the percentage of their sales done in California, which is a far smaller fraction of their income. This is “money for nothing” — companies do not have to provide a single new job to receive a huge tax cut, which benefits their worldwide shareholders.

But here’s the worst part of the secret budget deal: The state provides multistate and multinational companies with a choice yearly of which formula they want to use when they file their taxes. So, depending on whether companies have losses or gains in a given year, they can choose to either attribute more losses or fewer profits to California, to minimize their taxes. The Legislative Analyst’s Office said this tax change will potentially cost billions per year, despite the lower projections given when it was enacted.

None of this manipulation helps smaller businesses and start-ups that operate only in California, and therefore pay tax on all of their income. But wait! If they invest outside the state, they too get to play the same games with their income reporting — hardly an incentive to do business in California.

On top of all this, the previous budget deal last September put two other permanent loopholes in place, again without hearings or public examination. One allows corporations to get refunds for taxes already paid for losses in previous years — so-called carry-backs. So they can now manipulate the formula to take larger losses in California and can get refunds based on that manipulation — at a cost to every struggling program and taxpayer in California.

Another permanent loophole allows firms that receive generous tax credits but can’t use them all to share them with affiliated corporations, to shelter the income of their affiliate. After that, they can recalculate their taxes and decide how much income to attribute to California.

The justification for these new loopholes? The Legislature accelerated tax payments by corporations — but only for two years. In exchange, the Legislature gave away massive, permanent revenue losses — about $2.5 billion yearly for these combined loopholes, according to legislative estimates, beginning in 2011 and amounting to potentially 25% to 30% of the state’s corporation tax revenue — without requiring that a single new job be created or even a sunset clause on the breaks in case the state doesn’t benefit from them.

The giveaways can only be taken back by a two-thirds vote, a virtual impossibility given the arrayed power of corporations in the Legislature and the GOP’s anti-tax stance. Or they can be taken back in an initiative, but voters would be barraged by a campaign about the “business climate.” No corporations can ever complain again about taxes in California, because they now can endlessly manipulate a system that was once a model for a fair corporation tax.

Lenny Goldberg is executive director of the California Tax Reform Assn. and a public-interest lobbyist in Sacramento.


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