The 2010-11 Budget: How the Special Session Actions Would Affect Health Programs

POLICY BRIEF The 2010-11 Budget: How the Special Session Actions Would Affect Health Programs MAC TAylor • l e g i s l A T i v e A n A l y s T • JAnuAry 22, 2010 The Governor declared a fiscal emer- are still receiving information about these pro- gency on January 8, 2010, calling the posals from the administration that may prompt Legislature into a special session to us to modify our recommendations. begin taking action on the $19.9 billion in solu- Governor Seeks Increased Federal tions he proposes to address the budget problem Share for Support of Health Programs and create a $1 billion reserve. Around 40 per- cent of the Governor’s budget solution relies on Obtaining additional federal funds is at the funding or flexibility to be provided by actions core of the Governor’s budget proposals. The of the federal government. Another 40 percent Governor’s plan assumes an additional $3 billion consists of reductions to state spending. The for health programs alone in the ways described remainder of the Governor’s proposals consist below. of various fund shifts. These include a proposal The Federal Medical Assistance Percentages that the Legislature put measures before voters in (FMAP) is the amount of federal matching funds June 2010 to allow use of a combined $1 billion received by states for expenditures for certain of Proposition 10 early childhood development health and social services programs. The Gover- funds and Proposition 63 mental health services nor’s budget plan assumes that the base FMAP funds to help balance the budget. will increase from its current rate of 50 percent The Governor’s various proposed actions to to 57 percent for savings of $1.8 billion in the obtain savings in the current and budget years budget year. The Governor’s budget plan also through actions in the special session have sig- assumes that the enhanced FMAP rate provided nificant implications for the state’s health services under the American Recovery and Reinvestment programs. In this report, we (1) discuss some of Act (ARRA) will continue through the budget the key overriding issues relating to the Gover- year instead of expiring on December 31, 2010, nor’s plan, (2) summarize the Governor’s health for savings of $1.2 billion. budget proposals, and (3) provide our initial As we discussed in The 2010-11 Budget: comments on a number of the major proposals Overview of the Governor’s Budget, in our view, in each specific program area. We note that we it is not realistic to expect the state will receive An lAo reporT all of the federal relief that is assumed in the Governor Proposes Expenditure Governor’s budget plan. We recommend that the Reductions and Fund Shifts Legislature operate on the assumption that fed- The Governor proposes to reduce General eral government relief will total billions of dollars Fund expenditures for health programs through a less than the Governor wants. This means that combination of reductions and fund shifts. These the Legislature faces some very difficult choices savings are estimated to amount to $108 million in regard to increasing revenues and reducing in the current year and $1.8 billion in the budget programs, including health programs, in order to year. In Figure 1, we summarize the Governor’s balance the state budget. special session proposals. As displayed here, the savings estimates Special Session Proposals reflect our adjustments to include the effect of During the special session, the Governor pro- extending ARRA but exclude the Governor’s pro- poses that the Legislature adopt almost $1.9 bil- posal for a 7 percent increase in the FMAP base. lion in budget solutions in health programs in That is because, while we believe that it is rea- the current year and budget year combined and sonable to assume that the state will receive an put measures on the June 2010 ballot to facilitate extension of the enhanced FMAP provided under General Fund budget relief of a combined $1 bil- ARRA, we believe it is unlikely that the state will lion from Proposition 10 and Proposition 63 be given a 7 percent increase in its base FMAP. funds. In some cases, the approval of solutions prior to March 1 is necessary to achieve the sav- ings estimated in the Governor’s budget. Program ExPEnditurE rEductions In the cases of a number of the reductions Assistance Program (Medi-Cal). The Medi-Cal proposed for health programs, early action is Program provides health care services to quali- needed to achieve budget solutions due to the fied low-income persons, primarily consisting of lead-time necessary to implement some of them. families with children and the aged or disabled. Delays would result in an erosion of the savings Federal law establishes minimum requirements that could be achieved. Therefore, we recom- for state Medicaid programs regarding the types mend that the Legislature consider any potential of services offered and who is eligible to receive erosion that would occur as a result of delaying them. Required services include hospital inpa- action as it deliberates over the Governor’s pro- tient and outpatient care, skilled nursing care, posals or any alternative proposals that it wishes and doctor visits. In addition, California offers to consider. We discuss a number of the specific an array of services considered optional under proposals below. federal law, such as physical therapy and durable medical equipment. California has also expand- M -C edi al ed eligibility beyond the levels required under In California, the federal Medicaid program federal law. is administered by the Department of Health Care Services (DHCS) as the California Medical 2 Legislative Analyst’s Office www.lao.ca.gov An lAo reporT Budget Assumes Savings From of utilization controls such as benefit caps for Unspecified Cost Containment Strategies inpatient services, increasing co-pays and pre- miums, and other programmatic changes similar Governor’s Proposal. The administration pro- to changes that have been implemented in some poses to implement a variety of cost-containment other states. In order to guarantee full savings in strategies in the budget year for General Fund the budget year, early action by the Legislature savings of $917 million. The administration has would be required due to payment lags and ben- not provided a specific proposal to achieve these eficiary notification requirements. savings at the time this analysis was prepared. LAO Recommendation. We believe the ad- However, according to DHCS, savings would ministration’s proposed approach to cost contain- in concept be achieved through a combination Figure 1 governor’s Proposed special session solutions (In Millions) general Fund savings Federal Program/description 2009-10 2010-11 Funds Loss Program Expenditure reductions medi-cal Implement a variety of cost-containment strategies — $917.1 $1,470.7 Eliminate Adult Day Health Care $1.9 134.7 218.5 Eliminate full-scope Medi-Cal benefits for certain immigrants 1.2 118.0 — Expand antifraud activities — 21.7 Unknown Roll back rate increases for family planning services 0.1 15.4 73.4 Defer institutional provider payments 94.3 -38.5 NA california children’s services Reduce eligibility — $4.1 $21.6 Healthy Families Program Reduce eligibility from 250 percent FPL to 200 percent FPL $10.5 $63.9 $191.3 Increase premiums and eliminate vision benefit — 21.7 42.8 regional centers Program Extend 3 percent provider payment reduction — $60.9 Unknown Funding shifts Proposition 63 Ballot initiative to amend the Mental Health Services Act — $452.0 Unknown regional centers Title XX block grant — $42.7 — Budget impact of program reductions in other areas — -50.0 Unknown totals $108.0 $1,763.7 $2,018.3 Note: Federal funds loss includes the impact of extending the enhanced Federal Medical Assistance Percentages (FMAP) provided under the American Recovery and Reinvestment Act but excludes the Governor’s proposed 7 percent increase in the FMAP base. FPL = federal poverty level. www.lao.ca.gov Legislative Analyst’s Office 3 An lAo reporT ment has merit and that the level of savings esti- elimination of ADHC (as well as cuts to other mated by the administration may be achievable. programs). This amount may be insufficient to ac- However, we withhold recommendation until the count for the additional costs of providing DDS administration provides a detailed proposal for services for developmentally disabled clients, implementing these cost-containment measures. who would continue to receive services required under the state Lanterman Act. Moreover, the Eliminate Adult Day Health Care administration’s budget plan does not account for Adult Day Health Care (ADHC) provides some possible cost shifts to other services such social, therapeutic, and health services such as as institutional care or the In-Home Supportive medication management, rehabilitation, and Services (IHSS) program. meals that are intended to delay or prevent the On the other hand, the administration budget institutionalization of individuals who could re- plan does not reflect savings from eliminating main in the community. About 37,000 Medi-Cal administration costs of the program. At the time beneficiaries currently receive ADHC services of this analysis, the DHCS had not yet estimated at an estimated General Fund cost of $170 mil- the number of state ADHC administrative staff lion (about $444 million total funds) in 2009-10. and associated costs that could be eliminated The ADHC benefit is considered optional by the along with the program. We are working with federal government and states are therefore not the department to obtain this information. required to provide such care as part of their LAO Recommendation. Due to the state’s Medicaid programs. continuing poor fiscal situation and the need Governor’s Proposal. The Governor propos- for immediate savings, we recommend that es to eliminate Medi-Cal ADHC services starting the Legislature adopt the Governor’s proposal June 1, 2010. This proposal would take effect to eliminate the ADHC benefit. We note that March 1, 2010 but, due to beneficiary notifica- other similar services such as IHSS and physi- tion requirements, would not begin to generate cal therapy benefits provided by Medi-Cal, are savings until June 2010. The budget assumes available for some of these beneficiaries. We General Fund savings of $1.5 million in 2009-10 further recommend that the Legislature direct the and $134.7 million in 2010-11 (assuming ARRA administration to develop a savings estimate that is extended). These savings would be in addition incorporates DHCS’ administrative savings and to savings already assumed in the budget from fully identifies the cost shifts that would result prior-year reforms and cost-reduction measures, from the elimination of ADHC. including the tightening of medical necessity As an alternative to the Governor’s proposal, standards, new requirements for on-site treatment the Legislature may wish to direct DHCS to seek authorization requests, and provider rate freezes. a federal waiver for the ADHC benefit to allow LAO Comments. The administration’s budget for certain limits on the benefit and targeting of does not adequately account for General Fund services to the most needy and vulnerable indi- cost shifts that could result from the proposed viduals. The eventual savings from this approach elimination of this benefit. The administration would depend upon the specific policy approved proposes to add $50 million to the budget of the in a waiver, but could potentially amount to the Department of Developmental Services (DDS) low tens of millions of dollars. However, pursuit budget to account for such cost shifts due to the of a waiver would likely mean that no savings 4 Legislative Analyst’s Office www.lao.ca.gov An lAo reporT would be achieved in the budget year because LAO Recommendation. We recommend obtaining federal approval is usually a lengthy the Legislature adopt the Governor’s proposal process. to eliminate full-scope benefits for adult newly qualified immigrants and PRUCOLs and continue Eliminate Full-Scope Medi-Cal Benefits to provide emergency and other services such as For Certain Immigrants long-term care to this population. Governor’s Proposal. The Governor’s bud- As an alternative to adopting the Gover- get proposes to eliminate full-scope Medi-Cal nor’s proposal, eligibility for full-scope Medi-Cal benefits for adult newly qualified immigrants benefits could be retained for immigrants that (legal immigrants that have been residing in the are currently enrolled and the benefits could be United States for less than five years) and those eliminated prospectively. While this approach with Permanent Residence Under Color of Law would protect current beneficiaries from the (PRUCOL). The department estimates this would possible interruption of their health coverage, it impact nearly 49,000 newly qualified immigrants would greatly diminish the level of savings that and about 17,000 PRUCOLs. The state pays all could be achieved in the budget year. the costs for providing full-scope benefits to Expand Antifraud Activities these beneficiaries except for certain services for which federal matching funds are available. Governor’s Proposal. The Governor’s bud- Some benefits would not be eliminated under get proposes to achieve General Fund savings the Governor’s proposal: of $21.7 million ($56.6 million from all funds) in 2010-11, by implementing antifraud activities that · Full-scope benefits for pregnant women focus on physicians and pharmacies. In order to and children who are newly qualified im- avoid an erosion of these potential savings, the migrants. Legislature would need to take action on this · Emergency services. proposal by March 1. The DHCS requests 38 new positions at a Gen- · Prenatal services (includes 60 days of eral Fund cost of $1.9 million ($5.1 million all funds) postpartum care). to implement this proposal. The antifraud initiative is summarized in Figure 2 (see next page). · State-only tuberculosis services. LAO Comments. Fraud continues to be a · State-only time-limited Breast and Cervi- problem in the Medi-Cal Program as demonstrat- cal Cancer Treatment Program benefits. ed by the annual Medi-Cal Payment Error Study produced by DHCS. For this reason, the state · State-only long-term care. has a significant level of staff resources commit- The proposal would take effect March 1, ted to ensuring the fiscal integrity, efficiency, and 2010 and, because of beneficiary notification quality of the Medi-Cal Program. Currently, the requirements, savings would not be realized until DHCS’ Audits and Investigations (A&I) Branch June 2010. The budget assumes General Fund has 712.5 approved positions. (We note that savings of $1.2 million in 2009-10 and $118 mil- DHCS has 373 positions that it identifies as fraud lion in 2010-11 from these changes. and abuse prevention resources. Some of these staff are in addition to the 712.5 in A&I and others are included in the 712.5.) In addition, www.lao.ca.gov Legislative Analyst’s Office 5 An lAo reporT the Department of Justice’s Attorney General’s and beneficiary notification requirements and the Bureau of Medi-Cal Fraud and Abuse has 218 timing of payments. The budget assumes Gen- positions responsible for handling matters related eral Fund savings of about $100,000 in 2009-10 to Medi-Cal fraud and patient abuse and neglect. and about $15 million in 2010-11. We note that The DHCS A&I staff currently uses research the state receives an enhanced federal participa- to identify the areas where the most significant tion rate of nine federal dollars for every dollar fraud is occurring and then staff conduct com- the state spends for some participants on these pliance-based sweeps of suspicious providers. services. However, the state pays all the costs The department’s practice is to redirect staff from for other participants, so on average the FMAP is other activities when it is in the program’s best somewhat less than 90 percent. interest to do so. This practice has been effective LAO Recommendation. We recommend for the department and we believe that it should the Legislature adopt this proposal to reduce continue to use this approach in the future. General Fund expenditures, given the state’s LAO Recommendation. We recommend fiscal difficulties. that the Legislature adopt the proposed savings Defer Institutional Provider Payments associated with the antifraud activities focused on physicians and pharmacies. We do not rec- Governor’s Proposal. The Governor propos- ommend the approval of any additional staff to es to defer payments to institutional providers, conduct these activities, however, because of the such as nursing homes and hospitals, on a one- significant level of fraud resources at the depart- time basis for a net General Fund fiscal effect ment’s disposal and DHCS’ ability to redirect of $55.8 million in the current and budget years staff to high-priority activities. combined. This net amount includes a current year General Fund cost deferral of $94.3 million Roll Back Rate Increases for Family and a budget year cost of $38.5 million General Planning Services Governor’s Proposal. Figure 2 The administration pro- medi-cal antifraud initiative poses to roll back a rate Estimated Savings increase that began Janu- (Dollars in Millions) ary 1, 2008 and brought antifraud total general staff rates for eight specified Focus Proposed activities Funds Fund request types of office visits for Physicians Training to reduce potential $2.8 $1.1 7.0 noncompliance certain family planning Physicians Rapid response sweeps to 38.6 14.8 14.0 services closer to the detect fraud Medicare reimbursement Pharmacy Beneficiary lock-in to a single 3.0 1.2 10.5 provider rates for similar services. Pharmacy Re-enrollment of incontinence 1.5 0.6 2.5 The proposal would take suppliers effect March 1, 2010, Pharmacy Focused reviews of durable 10.6 4.1 2.0 but savings would not medical equipment providers General Supervisory — — 2.0 be realized until June totals $56.5 $21.7 38.0 2010 because of provider 6 Legislative Analyst’s Office www.lao.ca.gov An lAo reporT Fund for payment of a federal penalty for viola- LAO Comments. Our review of the most tion of ARRA. The “prompt pay” provision of recent Medi-Cal caseload data indicates that the ARRA requires the state to pay a certain percent- Governor’s current-year estimate of the non-wel- age of providers within specific time limits. fare families caseload could be overestimated by LAO Comments. The administration asserts as many as 100,000 eligibles. Due to consider- that this violation of the prompt pay requirement able uncertainty in the recovery of the economy will not put at risk the enhanced FMAP associat- it is difficult to estimate caseload growth. How- ed with other payments to providers. We are still ever, more modest growth would be consistent attempting to verify the accuracy of this admin- with the trend during the recent recession as well istration claim. Furthermore, due to the federal as with historical trends in the caseload growth penalty, this cost deferral is akin to a loan with a of non-welfare families. It would also be consis- usurious interest rate. tent with the caseload growth trend projected for LAO Recommendation. We recommend welfare families. against the adoption of the Governor’s proposal LAO Recommendation. We recommend that to defer institutional provider payments in the the Legislature reduce current-year General Fund current year because the implicit cost of this de- expenditures in Medi-Cal by $35 million to re- ferral is too high due to the prompt pay penalty. flect the likely overstatement of the current-year The Legislature may wish to consider this option caseload. The proposed reduction assumes the at a later time in the budget year when it is un- non-welfare caseload grows by 5.7 percent from likely that the state would face such a penalty. 2008-09 and that the 2009-10 caseload is over- stated by 50,000 eligibles, or less than 1 percent Caseload Likely Overstated of the estimated total caseload. In Current Year H F P ealtHy aMilies rograM Governor’s Proposal. The budget estimates that the average monthly caseload of individuals The Healthy Families Program (HFP) is Cali- enrolled in Medi-Cal will be 91,700 individuals, fornia’s implementation of the federal Children’s or 1.3 percent greater in the current year than the Health Insurance Program, which provides health department’s May 2009 projection for 2009-10. insurance for low-income children. California Most of the current-year increase is attributed to receives roughly two federal dollars for each growth in the number of individuals in families state dollar used to provide health care coverage who, while enrolled in Medi-Cal, are eligible for to about 900,000 children. but not enrolled in the California Work Opportu- Reduce Eligibility, Increase Premiums, nity and Responsibility to Kids (CalWORKs) cash And Scale Back Benefits assistance program. The Governor’s budget as- sumes that an additional 164,200 eligibles in the Governor’s Proposal. The 2010-11 Gover- non-welfare families category will enroll in Medi- nor’s Budget proposes several changes to HFP Cal, nearly 13 percent more than was anticipated in order to reduce General Fund costs for the last May. A portion of the current-year increase program by $96 million in the current and bud- in the non-welfare families caseload is offset get years combined. The most significant change by the anticipation that fewer families receiving would reduce eligibility for HFP from 250 per- CalWORKs will enroll in Medi-Cal. www.lao.ca.gov Legislative Analyst’s Office 7 An lAo reporT cent of the federal poverty level (FPL) to 200 per- also consider the Governor’s eligibility proposal. cent of FPL (about $37,000 for a family of three), If the Legislature wishes to reduce eligibility as effective May 1, 2010, for a savings of $10 mil- proposed, we suggest adopting this proposal as lion in the current year and $64 million in the soon as possible along with trailer bill language budget year. This proposal would affect an esti- that would trigger whatever changes in eligibil- mated 206,000 children. The Governor’s budget ity levels would be necessary to conform with also proposes to increase premiums from $16 to changes in federal law. This approach would $30 per child per month, for children in families help ensure that the state does not run afoul of earning 150 percent of the FPL to 200 percent requirements that may be included in federal of the FPL (up to a family maximum of $90 per health care reform legislation that states maintain month) and to eliminate vision coverage from the their current eligibility levels for their children’s package of covered benefits. Premium and vision health care programs. changes would be effective July 1, 2010, for sav- Alternatively, if the Legislature wishes to ings of $22 million in the budget year. maintain current eligibility levels, we would rec- LAO Comments. The proposed changes ommend the Legislature also increase premiums generally require two months lead time to imple- for children in families earning from 200 percent ment. The Legislature may have until March 1, to 250 percent of the FPL, in order to achieve a 2010, to achieve the full savings associated with portion of the proposed savings. A premium in- limiting eligibility, and May 1, 2010 to achieve crease for children in this eligibility category from the full savings associated with eliminating the $24 to around $40 per child per month would vision benefit and raising premiums. However, it be commensurate with the premium increase would be advantageous to enact a full package proposed for the 150 percent to 200 percent of of changes at once in order to reduce administra- the FPL category. We intend to work with the tive costs and to avoid the confusion caused by department to refine an alternative proposal and multiple notifications to families whose children provide estimated cost savings. We believe these are enrolled in HFP. higher premium levels may also reduce incen- Federal Health Care Reform May Limit tives for families who have private sources of Choices. The pending proposals in Congress for coverage to enroll in HFP, thereby targeting the health care reform legislation would likely require program to those families most in need. states to maintain their current eligibility levels for C C ’ s aliFornia Hildren s erviCes their children’s insurance programs. Thus, it is not clear whether the Legislature will ultimately be Align Eligibility Reduction With able to achieve the savings associated with eligi- The Healthy Families Program bility changes if a federal health care reform bill Governor’s Proposal. The Governor’s bud- is signed. If it wishes to try to achieve the savings get proposes to change the eligibility criteria for proposed by the Governor, the Legislature may HFP so that clients whose income is between have to act quickly to reduce eligibility. 200 percent and 250 percent of the FPL would LAO Recommendation. We recommend the no longer be eligible. Conforming changes in Legislature adopt the Governor’s premium and eligibility in the California Children’s Services vision coverage proposals. The Legislature should 8 Legislative Analyst’s Office www.lao.ca.gov An lAo reporT (CCS) would impact 5,560 children. An estimat- d M H ePartMent oF ental ealtH ed 556 of these children would be eligible for a The Department of Mental Health (DMH) component of the CCS Program supported with directs and coordinates statewide efforts for only state funds. The Governor’s proposal would treatment of mental disabilities. The department’s result in a net decrease in General Fund spend- primary responsibilities are to (1) provide for ing of $4.1 million in 2010-11. the delivery of mental health services through LAO Recommendation. We recommend a state-county partnership, (2) operate five state the Legislature conform changes in CCS eligibil- hospitals, (3) manage state prison treatment ity with whatever changes it chooses to make to services at the California Medical Facility and eligibility in HFP. at Salinas Valley State Prison, and (4) administer D various community-based mental health pro- epartment of D S grams directed at specific populations. The state evelopmental erviceS hospitals provide inpatient treatment services for The DDS provides community-based ser- mentally disabled county clients, judicially and vices to about 240,000 developmentally dis- civilly committed clients—including sexually abled persons through 21 nonprofit corporations violent predators (SVPs), mentally disordered of- known as regional centers (RCs) that are located fenders (MDOs), and persons found not guilty by throughout the state. The RCs are responsible for reason of insanity (NGIs), incompetent to stand eligibility determinations and consumer assess- trial (ISTs), and mentally disabled clients trans- ment, the development of an individual program ferred from the California Department of Correc- plan for each consumer, case management, and tions and Rehabilitation. purchasing services. The DDS also operates five developmental centers and one smaller leased Adjust for Overbudgeting of State facility, which provide 24-hour care and super- Hospital Caseload in Current Year vision to approximately 2,150 developmentally Governor’s Proposal. The Governor’s budget disabled persons. assumes a state hospital population of 6,202 in the current year, the same level funded in the Extend the 3 Percent 2009-10 Budget Act. Provider Payment Reduction LAO Comment. Our analysis of hospital cen- Governor’s Proposal. The administration sus data through mid-January 2010 indicates that proposes to extend the 3 percent provider pay- caseload will be below DMH’s estimate for the ment reduction enacted as part of the 2009-10 current year. In particular, our caseload estimate budget to reduce General Fund expenditures by includes 40 fewer ISTs, 52 fewer MDOs, and $60.9 million in 2010-11. 7 fewer of the other types of forensic patients. LAO Recommendation. We recommend the Under a methodology agreed to by the Legisla- Legislature approve an extension of the 3 per- ture and the administration in 2002, current-year cent provider payment rate reduction. Given the caseload adjustments are generally made for state’s fiscal condition, we think this is a reason- each major category (IST, MDO, NGI, SVP, and able proposal. “other forensic”) if they vary by 2.5 percent from the budgeted amount. The variations are shown in Figure 3 (see next page). www.lao.ca.gov Legislative Analyst’s Office 9 An lAo reporT LAO Recommenda- Figure 3 tion. On this basis, we state mental Hospital census Lower than Expected believe that the Gover- (2002 Methodology) nor’s budget plan over- Budgeted actual estimates the General census for census on Percentage Fund support needed in 1/13/2010 1/13/2010 difference difference the current year by about IST 1,150 1,110 -40 -3.5% $6.3 million and we rec- NGI 1,235 1,220 -15 -1.2 MDO 1,230 1,178 -52 -4.2 ommend the Legislature SVP 829 808 -21 -2.5 reduce funding accord- Other forensic 141 134 -7 -5.1 ingly. This budget adjust- totalsa 4,584 4,450 -134 -2.9% a ment assumes that the Excludes (1) County Lanterman-Petris-Short patients and (2) California Department of Corrections and Rehabilitation inmates and wards at state hospitals and Department of Mental Health psychiatric average half-year funding programs at Salinas Valley Prison and California Medical Facility. per bed is $64,000. IST = Incompetent to Stand Trial; NGI = Not Guilty by Reason of Insanity; MDO = Mentally Disordered Offender; SVP = Sexually Violent Predator. Funding sHiFts P 63 mental health program costs that have been paid roPosition M H s a by the state General Fund. Voters rejected a simi- ental ealtH erviCes Ct lar measure, Proposition 1E, in May 2009. Spe- Proposition 63 was enacted by the voters cifically, the new ballot measure would amend in the November 2004 election. The initiative existing provisions of Proposition 63 that would imposes a state personal income tax surcharge of otherwise prohibit these funds from being used 1 percent that applies to taxpayers with annual to offset the costs of existing state community taxable incomes of more than $1 million. The mental health programs. The administration pro- proceeds of the tax surcharge are earmarked to poses to authorize the expenditure of $452 mil- be used to create new community mental health lion from the MHSF—in 2010-11 and again in programs and to expand some existing programs. 2011-12—to backfill General Fund reductions The State Controller transfers the proceeds of the of the same amount in the Early and Periodic tax surcharge into a state special fund, named Screening, Diagnosis and Treatment (EPSDT) the Mental Health Services Fund (MHSF) that, in and Mental Health Managed Care programs. In turn, is used to support these programs. addition, under the administration’s proposal, the Ballot Initiative to Amend the Mental state’s failure to obtain a $6.9 billion increase in Health Services Act (Proposition 63) federal funds would trigger an additional transfer of $847 million from the MHSF to support vari- Governor’s Proposal. The administration ous mental health programs, including the state proposes to place before the voters in the June hospitals. 2010 election a ballot measure that would autho- LAO Comment. Our initial review indicates rize the use of the MHSF to temporarily support that there are sufficient funds available in the 10 Legislative Analyst’s Office www.lao.ca.gov An lAo reporT MHSF at this time to allow the redirection of LAO Recommendation. This is a conforming $452 million to support the EPSDT and Men- technical budget issue for DDS, since the Title tal Health Managed Care programs as well as XX block grant is budgeted in the Department of provide $847 million required under the trigger Social Services. There would be no impact from provision. However, there would be less money this funding shift on DDS programs and services. available to support Proposition 63 programs, Budget Impact of Program Reductions especially in the years beyond 2010-11. In Other Areas LAO Recommendation. At the time this analysis was prepared, the Legislature had not Governor’s Budget. The Governor’s pro- received the specific language of the adminis- posed reductions to IHSS, Supplemental Security tration’s proposed ballot measure. Therefore, a Income/State Supplementary Program (SSI/SSP), number of key details of the administration’s pro- and Medi-Cal would increase demand for RC posal are not yet known. However, we believe services. This is because, under the Lanterman that the Legislature should consider options such Act, individuals with developmental disabilities as this one to increase its flexibility in respond- must generally be provided the services included ing to the state’s fiscal crisis. There is a significant in their individual program plan via the RCs if fund balance in the MHSF that could be used on they are not available through other programs. a one-time basis. As noted earlier, the proposed DDS budget in- cludes $50 million to offset these types of costs. d ePartMent oF The administration, however, indicates that this is d s eveloPMental erviCes a placeholder amount that is to be adjusted later in the budget process. Title XX Block Grant LAO Recommendation. Our analysis indi- Governor’s Proposal. The administration cates that the cost of maintaining services for proposes to swap $42.7 million General from DDS consumers could be greater than $50 mil- the DDS budget for the same amount of Title lion. As a result, the net savings from reductions XX block grant funds from DDS. Title XX block in IHSS, SSI/SSP, and Medi-Cal are likely over- grant funds are available for RC expenditures for stated. In any event, the actual backfill amount children under age 18 whose family income is that should be budgeted by the Legislature less than 200 percent of FPL. should conform to legislative actions on other related budget issues. www.lao.ca.gov Legislative Analyst’s Office 11 An lAo reporT LAO Publications This report was prepared by greg Jolivette, Meredith Wurden, Farra Bracht, and lisa Murawski, and reviewed by shawn Martin. The legislative Analyst’s office (lAo) is a nonpartisan office which provides fiscal and policy information and advice to the legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the lAo’s internet site at www.lao.ca.gov. The lAo is located at 925 l street, suite 1000, sacramento, CA 95814. 12 Legislative Analyst’s Office www.lao.ca.gov