California Ranks 50th in State Spending Transparency: What We Can Do About It

Although many California political leaders espouse their support for transparency, the state lags behind most others in opening its spending data to public scrutiny.  So while Lieutenant Governor Gavin Newsom, has called on governments to “lean into [the] notion of openness and transparency,” the state he may soon lead is leaning in quite the opposite direction.

In its March 2015 report card, the US Public Interest Research Group (US PIRG) gave California a grade of “F” for its efforts to provide spending transparency – a distinction shared only by two other states, Alaska and Idaho.  US PIRG also assigned each state a more granular numerical score on a 0-100 scale. California’s score of 34 placed it last among the fifty states – 9 points below Alaska.  US PIRG notes:

California…is weighed down by the bureaucratic fragmentation of its information. While the state has made some interesting and useful data sets available to the general public … California does not succeed in providing a “one-stop” transparency portal.

Bureaucratic fragmentation has also frustrated private efforts to elicit the state’s checkbook. In 2013, American Transparency – a not-for-profit that operates openthebooks.com – filed a Public Records Act with the State Controller’s Office (SCO) requesting detailed state spending data. SCO’s legal counsel rebuffed the request on the grounds that the controller does not hold all the spending records, and is not required under the Public Records Act to create records not already in its possession. Apparently state spending data is scattered across roughly 500 agencies, departments and commissions which pay some or all of their vendors directly.

The fragmentation issue might be resolved by Senate Bill 573 which would require the governor to hire a Chief Data Officer, who would then be tasked with creating a state-wide open data portal leveraging information from all state agencies. The bill, proposed by Dr. Richard Pan (D-Sacramento), received favorable publicity but was tabled by the Senate Appropriations Committee on August 27. Pan would have to re-introduce the bill next year if he wants it to pass before the next legislature is seated.

In the meantime, it will be up to civil society organizations to advance state spending transparency. As a part of our state’s civil society, we at the California Policy Center are eager to help.

Starting with Medi-Cal Reimbursements

Ideally, a state checkbook should contain all vendor payments. It need not include employee salaries because these are already published by both SCO and by Transparent California. While it would be extremely challenging for one or more outside organizations to compile all of this spending, a large portion of it can be assembled by examining a few of California’s largest agencies.

The entity that makes the most vendor payments is the Department of Healthcare Services which administers the state Medi-Cal program. In the last fiscal year, Medi-Ca106191228-20140630-Audl payments totaled $87 billion, including $17 billion from the General Fund, $14 billion from Special Funds and $56 billion in Federal Funds.

So just getting our hands around the payments made by this one department would go a very long way toward documenting the state’s overall spending.  Over the next few weeks, the California Policy Center will compile a DHCS checkbook to demonstrate the benefits of state spending transparency.

Our preliminary review suggests that the number one recipient of Medi-Cal funding is Los Angeles County USC Medical Center, known locally as LAC+USC. The 664-bed county hospital received over $700 million in Medi-Cal funds during the fiscal year ended June 30, 2014. LAC+USC is one of three LA County public medical centers. The two other county hospitals together received an additional $700 million in Medi-Cal funding during the same fiscal year, yielding a total of over $1.4 billion in state and federal Medi-Cal funds devoted to LA County hospitals. Medi-Cal reimbursements accounted for over 70% of all three hospitals’ patient revenues.

The prevailing view is that Medi-Cal payments are too low to adequately compensate providers. But, in the case of LAC+USC, the hospital reported $77 million of “Net Income”, i.e. revenues in excess of expenses, also known as “profit” in the private sector.  That said, it should be noted that the hospital suffered a loss on operations, and was profitable because it received $284 million in non-operating revenue.

Most of LAC+USC’s expenditures take the form of employee compensation and benefits, as well as physician fees. These three categories accounted for over $900 million of the hospital’s $1.375 billion in total operating expenses.

A review of 2013 Transparent California data shows that nine out of the ten highest paid Los Angeles County employees are physicians – apparently affiliated with one or more of the three County hospitals. All nine of these doctors received total compensation from the County in excess of $500,000 during calendar year 2013.

It appears that at least a couple of these individuals received compensation from other medical facilities. For example, Dr. John Peter Gruen, a neurosurgeon who received a total of $628,001 in County compensation is also affiliated with Huntington Memorial Hospital in Pasadena and Keck Medical Center of USC.

As this brief analysis suggests, the ability to obtain state spending details and juxtapose this information with other data sets should yield new insights into how our tax dollars are being managed. Next month, look to this space for much more information about California Medi-Cal spending.

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About the author:  Marc Joffe is a policy analyst for the California Policy Center. He is also the founder Public Sector Credit Solutions, established in 2011 to educate policymakers, investors and citizens about government credit risk. PSCS research has been published by the California State Treasurer’s Office, the Mercatus Center and the Macdonald-Laurier Institute among others. Prior to starting PSCS, Marc was a Senior Director at Moody’s Analytics. He has an MBA from New York University and an MPA from San Francisco State University.

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