The 2014-15 Budget: Analysis of the Human Services Budget

The 2014-15 Budget: Analysis of the Human Services Budget MAC TAYLOR • L E G I S L A T I V E A N A L Y S T • FEBRUARY 20, 2014 2014-15 BUDGET CONTENTS Executive Summary ..................................................................................................3 Overview ...................................................................................................................5 Human Services Compliance With Federal Labor Regulations ............................................................................7 Background ......................................................................................................................................7 The Governor’s Budget Responds to Federal Labor Regulations ..............................11 IHSS Overtime Restriction Raises Fiscal and Policy Issues ..........................................16 Potential Modifications to Proposed Overtime Restriction .........................................19 Other Implementation Issues Regarding Governor’s Overtime Restriction ..........22 Conclusion .....................................................................................................................................23 In-Home Supportive Services ................................................................................24 Community Care Licensing Quality Enhancement and Program Improvement .................................................................................26 Background ...................................................................................................................................26 Governor’s Proposal and LAO Analysis ...............................................................................27 LAO Overall Take on the Governor’s Proposal ..................................................................35 CalWORKs ................................................................................................................36 Overview of the Governor’s Proposal ..................................................................................37 Implementation of Previously Enacted Program Changes ..........................................38 State-Local Realignment and the CalWORKs Budget ....................................................41 Automatic Grant Increase Mechanism ................................................................................44 Proposed Parent/Child Engagement Demonstration Pilot .........................................46 DSS State Hearings Division ..................................................................................49 Developmental Services ........................................................................................52 Background ...................................................................................................................................52 The Governor’s Budget Proposal ...........................................................................................54 LAO Comments on Overall Budget Proposal ....................................................................55 Health and Human Services Agency IT Strategic Planning Proposal ............................................................................59 2 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET EXECUTIVE SUMMARY Overview of Human Services Budget. The Governor’s budget proposes $9.9 billion from the General Fund for human services programs—a 2.5 percent net decrease below 2013-14 estimated expenditures. For the most part, the year-over-year changes reflect the implementation of previously enacted policy changes as opposed to new policy proposals, but there are a few significant policy proposals that we highlight below. The largest General Fund budget adjustment relates to a year-over-year increase of $600 million in 1991 health realignment revenues that are being redirected to help pay for grant costs in the California Work Opportunity and Responsibility to Kids (CalWORKs) program, thereby reducing General Fund expenditures by a like amount. Apart from the CalWORKs program, the budget reflects either stable funding or relatively modest General Fund expenditure growth in all other major human services programs. Concerns With Governor’s Policy Proposal to Comply With Federal Overtime Regulations in the In-Home Supportive Services (IHSS) Program. New federal labor regulations effective January 1, 2015 will generally require the state to pay overtime to home care workers—including IHSS providers—for all hours worked in excess of 40 in a week. (The state is currently exempt from paying overtime for these workers.) In response to these regulations, the Governor’s budget proposes to restrict overtime in the IHSS program and establish a provider backup system for IHSS recipients in unforeseen circumstances. While our analysis finds that the Governor’s proposal would result in a net fiscal benefit to the state, we raise various policy concerns with the proposal, including concerns about the proposal’s erosion of consumer choice and the uncertainty whether there would be a sufficient number of IHSS providers available to meet the demand for second providers created by the overtime restriction. We recommend the Legislature consider potential modifications to the Governor’s proposal to address these concerns, while still maintaining most of the proposal’s fiscal benefits. Potential modifications to the Governor’s overtime restriction include providing a targeted exemption for providers of certain recipients, providing a limited allotment of overtime to certain providers, authorizing overtime when other providers are unavailable, and consideration of a new model of service provision to IHSS recipients with live-in providers. Governor Makes Comprehensive Proposal to Begin Addressing Program Deficiencies in Community Care Licensing (CCL). In response to recent health and safety issues discovered at facilities licensed by the CCL division of the Department of Social Services (DSS), the Governor’s budget proposes a comprehensive plan to reform the CCL program, including an increase of 71.5 positions. The plan includes recognizing the changing needs of clients in Residential Care Facilities for the Elderly, increasing licensing fees and penalties, making field staff available for more inspections, creating new enforcement tools, establishing a quality assurance unit, creating a more robust training program, and establishing a technical assistance unit to support licensees. We think that the Governor’s general approach to respond to the identified failings of CCL makes sense. We do, however, recommend several modifications to the proposal’s accompanying budget-related legislation. www.lao.ca.gov Legislative Analyst’s Office 3 2014-15 BUDGET Proposed CalWORKs Parent/Child Engagement Demonstration Pilot Not Justified. The Governor’s budget includes a proposal for a $115 million, three-year demonstration project to test a multifaceted intervention to address the needs of CalWORKs families with multiple barriers to employment. One component of the pilot would test the impact of providing “high-quality” child care (which appears to mean child care featuring a stronger educational focus), while another component would test the impact of parental involvement in the child care setting. While we find that the administration’s proposal raises valid concerns, we recommend that the Legislature reject it. First, we find that a number of components of the intervention largely duplicate existing CalWORKs services, some of which are in the beginning stages of implementation. Second, as the state currently funds child care programs with an educational focus for similar low-income children, a new pilot is not necessary to demonstrate the impact of these programs on child outcomes. (We note, however, that the fact that CalWORKs families cannot easily access educationally focused child care programs funded by the state raises an important policy issue for legislative consideration.) Finally, the potential added value of testing the impact of parental involvement activities is not sufficiently compelling to justify a CalWORKs pilot, particularly given the pilot’s substantial cost. 4 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET OVERVIEW Background on Human Services Programs Legislation enacted in 2013 shifted additional General Fund costs in the CalWORKs program California’s major human services programs to local realignment revenues that previously have provide a variety of benefits to its citizens. These been used to provide health services to indigent include income maintenance for the aged, blind, individuals. These realignment revenues have been or disabled; cash assistance and welfare-to-work freed up given that many indigent individuals are services for low-income families with children; newly eligible for coverage in the state-funded protecting children from abuse and neglect; Medi-Cal Program. Specifically, the budget shifts providing home care workers who assist the aged $300 million in CalWORKs General Fund costs to and disabled in remaining in their own homes; these local realignment revenues in 2013-14 and an collection of child support from noncustodial additional $600 million (for a total of $900 million) parents; and subsidized child care for low-income in 2014-15. The 2013 legislation additionally families. provided that the costs of specified ongoing Human services are administered at the increases to CalWORKs assistance payments will state level by DSS, Department of Developmental be shifted to revenues from the growth of existing Services (DDS), Department of Child Support local realignment revenues that otherwise would Services, and other California Health and Human have supported other social services programs. Services Agency (CHHSA) departments. The These recent changes to realignment are discussed actual delivery of many services takes place at the in greater detail below in the “CalWORKs” section local level and is carried out by 58 separate county of this report. welfare departments. The major exception is Supplemental Security Income/State Supplementary Expenditure Proposal by Major Programs Payment (SSI/SSP), which is administered mainly Overview of Human Services Budget Proposal. by the U.S. Social Services Administration. The Governor’s budget proposes expenditures Recent Major Changes in Funding for Human of about $9.9 billion from the General Fund for Services Programs. As a result of realignment- human services programs in 2014-15. As shown related legislation in 2011 and 2013, the budget in Figure 1 (see next page), this reflects a decrease reflects shifts to counties of a significant amount of of $132 million—or 2.5 percent—from revised General Fund costs in human services programs. General Fund expenditures in 2013-14. Specifically, as a result of 2011 legislation, the Summary of Major Budget Proposals and budget (beginning in 2011-12) reflects shifts to Changes. As shown in Figure 1, the budget reflects local realignment revenues of about $1.1 billion of generally stable or modest growth in General General Fund costs in the CalWORKs program Fund expenditures across most human services and about $1.6 billion in child welfare and adult programs, with CalWORKs being the major protective services General Fund costs. As a result exception. The 47 percent decrease ($569 million) of the latter shift, the state’s role with respect to in CalWORKs General Fund expenditures can child welfare and adult protective services is largely largely be explained by a year-over-year increase of one of oversight of county administration of these $600 million in 1991 health realignment revenues program areas. www.lao.ca.gov Legislative Analyst’s Office 5 2014-15 BUDGET that are being redirected to help pay for CalWORKs comply with new federal labor regulations. These grant costs, thereby reducing General Fund regulations require, among other things, that IHSS expenditures by a like amount. The CalWORKs providers be paid overtime for work over 40 hours a budget also reflects a 5 percent increase in cash week. We provide an analysis of this proposal later. grant levels costing $168 million, although this is The 4.6 percent increase ($36 million) in funded almost entirely from realignment revenues General Fund expenditures in the County (with $6 million General Fund). The CalWORKs Administration and Automation budget line item budget also reflects a net increase of $91 million largely reflects a $30 million increase for CalFresh from the General Fund to implement a number administration (due to the caseload impact of of recent policy changes—that result in costs and outreach conducted with the implementation of the savings—related to early engagement, family federal Patient Protection and Affordable Care Act stabilization, and subsidized employment. Finally, [ACA]) and a $12 million increase for two human the budget proposes a six-county, three-year services automation projects. Parent/Child Engagement Demonstration Pilot Caseload Trends in CalWORKs, at a three-year cost totaling $115 million General Fund ($9.9 million Varied Growth Through Recession. While in 2014-15). We discuss the grant increase, caseload grew for most of the state’s human implementation of recent policy reforms, and the services programs during the recent recession, proposed pilot program in detail later. there was substantial variability among them. (One The 4.4 percent growth ($84 million) in IHSS key exception is the state’s foster care caseload, General Fund expenditures mainly reflects the which has declined since 2001 and through the partial-year cost ($99 million General Fund in recession. In part, this reflects the creation of the 2014-15) of the Governor’s policy proposal to Kinship Guardian Assistance Payment program Figure 1 Major Human Services Programs and Departments—Budget Summary General Fund (Dollars in Millions) Change From 2013‑14 to 2014‑15 2012‑13 2013‑14 2014‑15 Actual Estimated Proposed Amount Percent SSI/SSP $2,752.6 $2,782.3 $2,816.5 $34.2 1.2% Department of Developmental Services 2,674.5 2,803.1 2,934.7 131.6 4.7 CalWORKs 1,544.5 1,206.2a 636.9b -569.3 -47.2 In-Home Supportive Services 1,705.9 1,910.0 1,994.1 84.1 4.4 County Administration and Automation 617.0 763.2 798.7 35.5 4.6 Department of Child Support Services 298.9 313.0 312.9 -0.1 — Department of Rehabilitation 55.3 57.0 57.0 — 0.1 Department of Aging 31.4 32.2 32.2 — — All other social services (including state support) 239.3 261.7 294.7 33.0 12.6 Totals $9,919.3 $10,128.7 $9,877.7 ‑$251.0 ‑2.5% a Primarily reflects (1) the impact of a year-over-year reduction in a funding swap between CalWORKs and the California Student Aid Commission that decreased year-over-year General Fund expenditures in CalWORKs by $262 million and (2) the use of certain funds previously used for health services under 1991 realignment to pay for CalWORKs grants, reducing General Fund expenditures in CalWORKs by $300 million. b Primarily reflects a year-over-year increase in the use of certain funds previously used for health services under 1991 realignment to pay for CalWORKs grants, reducing year-over-year General Fund expenditures in CalWORKs by $600 million. 6 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET in 2000 that facilitates a permanent placement 1.3 percent increase over the most recent option for relative foster children outside of the estimate of the 2013-14 caseload. We discuss the foster care system.) For example, over the 2007-08 administration’s projection in further detail below to 2011-12 period, the CalFresh and CalWORKs in the “IHSS” section of this report. For historical caseloads increased by 97 percent and 27 percent, perspective, the IHSS caseload has remained respectively, while the IHSS caseload—less relatively flat throughout the five-year period from susceptible to economic fluctuations—increased 2009-10 through 2013-14, in part reflecting policy by 8 percent. The SSI/SSP caseload grew modestly changes that constrained caseload growth. during this time period (3.4 percent)—in part CalWORKs Caseload Continues to Decline. In reflecting recent grant reductions that in effect the midst of the recent recession, the CalWORKs reduced the eligible population—and is projected to caseload rose substantially and peaked at over grow relatively modestly in 2014-15. 597,000 cases in June 2011. The caseload has We now turn more specifically to caseload been declining since that time due to enacted trends in the IHSS and CalWORKs programs and policy changes and an improving labor market. the budget’s assumptions regarding caseload for The budget assumes a CalWORKs caseload of these two programs in 2014-15. 545,647 cases in 2013-14, a 2.5 percent decline IHSS Caseload Projected to Grow Modestly in from the previous year. The year-over-year 2014-15. The budget projects the average monthly decline in caseload is assumed to accelerate caseload for IHSS to be 453,417 in 2014-15—a somewhat to 3 percent in 2014-15, resulting in a caseload of 529,376. HUMAN SERVICES COMPLIANCE WITH FEDERAL LABOR REGULATIONS Background changes, discussed below, that affect the home care industry. These new federal labor regulations Recent Federal Labor Regulations have budgetary implications for both the state’s Affect Home Care Workers IHSS program and DDS. In this analysis, we describe the federal labor regulations, explain The federal Department of Labor recently how these regulations impact IHSS and DDS, released new regulations that affect home describe the Governor’s proposals to comply with care workers. A home care worker can be any the regulations, and provide modifications to the individual who provides home care services, Governor’s IHSS proposal for consideration by the including certified nursing assistants, home health Legislature. aides, or personal care aides such as providers for Federal Labor Regulations Require Home California’s IHSS program. Personal care refers Care Workers to Be Paid for Certain Work to assistance with activities of daily living—such Activities. The federal labor regulations require as bathing, grooming, and bowel and bladder home care workers to be paid for certain work care—provided to a consumer by a home care activities, effective January 1, 2015. Generally, worker. The new federal labor regulations— employers have been exempt from the requirement effective January 1, 2015—make two significant www.lao.ca.gov Legislative Analyst’s Office 7 2014-15 BUDGET to pay home care workers for the following work when it is claimed by an employee on his/her activities that will now require payment. timesheet, regardless of whether the overtime is authorized or not. • Wait Time During Medical Narrow Exemptions to Overtime Pay Appointments. Time spent waiting for Requirement When Consumer, His/Her Family, consumers during medical appointments or Household Is the Employer. When a worker must be paid. is employed by a consumer receiving services or • Travel Time During the Work Day. Time the consumer’s family or household, the federal spent traveling during the employee’s labor regulations provide for narrow exemptions regular work hours, such as travel time to to the requirement to pay overtime. One of these shop for food or perform other errands on exemptions—known as the “live-in domestic behalf of the consumer, must be paid. For service worker exemption” is available when a home care workers employed by a “third- worker is employed by—and resides with—the party employer,” travel time between consumer receiving services or the consumer’s consumers during the workday must family or household. In these cases, the consumer, also be paid. (A third-party employer is his/her family, or household may claim the live-in an employer other than the consumer domestic service worker exemption to avoid paying receiving services. In the case of the IHSS the worker overtime for hours that exceed 40 in program, the state can be understood to a workweek (and would instead pay at least the be the third-party employer.) state-mandated hourly minimum wage for all hours worked). However, this exemption is not • Mandatory Worker Training. Time available to a third-party employer, such as the spent attending training required by the state in the existing program model of IHSS. (It employer must be paid. may be possible for an IHSS recipient to claim this Federal Labor Regulations Require Home exemption under a different program model for the Care Workers to Receive Overtime Pay for delivery of IHSS-like services, which we discuss Working More Than 40 Hours Per Week. later in this report.) Employers of home care workers have been Federal Labor Regulations Have exempt from the requirement to pay overtime at Impact on IHSS Program the rate of one-and-a-half times the regular pay rate for all hours worked that exceed 40 in a week. The federal labor regulations we describe However, effective January 1, 2015, federal labor have significant implications for the state’s IHSS regulations require home care workers to be paid program. Effective January 1, 2015, IHSS providers overtime. Under federal law, the requirement to that deliver personal care and domestic services pay overtime may not be waived by agreement to IHSS recipients will be compensated for certain between the employer and employee. Further, an work activities, including wait time during medical announcement or notice by the employer that no appointments and travel time during the work day, overtime work will be permitted will not infringe which are currently not compensated by the IHSS on the employee’s right to receive overtime pay program. Additionally, IHSS providers will be for hours that exceed 40 in a workweek. In other eligible to receive overtime pay for hours worked words, the employer is required to pay overtime that exceed 40 in a workweek. Below, we provide 8 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET background information about the IHSS program unions representing IHSS providers to set that is relevant to understanding the implications wages and benefits. The Public Authority of the federal labor regulations. also maintains a registry of providers who The IHSS Program Is a Medi-Cal Benefit That may be available to work for IHSS recipients Provides Personal Care and Domestic Services. who are unable to identify their own The IHSS recipients are eligible to receive up to provider. (We note that recent legislation 283 hours per month of assistance with tasks provides for the future transfer of collective such as bathing, dressing, housework, and meal bargaining responsibilities from the county preparation that are delivered by an IHSS provider level to the state level in certain counties.) in the recipient’s home. The recipient has the right Because of this division of IHSS employment to determine when service hours are provided responsibilities, it is our understanding that the within the month. For nearly all recipients, the IHSS recipient, the state, and the Public Authority IHSS program is delivered as a benefit of the state’s at the county level are all considered to be joint Medicaid health services program (known as employers of IHSS providers for the purposes of Medi-Cal in California) for low-income populations. the new federal labor regulations. The state and The IHSS program is therefore subject to federal the Public Authority are third-party employers Medicaid rules. For more background on IHSS, because they are entities other than the consumer please refer to the “In-Home Supportive Services” receiving services. However, because of the financial section of this report. structure of the IHSS program in which county Division of Employer Responsibilities in the costs are effectively capped given recently enacted IHSS Program. Employer responsibilities in the maintenance-of-effort (MOE) requirements, IHSS program are divided among three entities. the state would assume all of the nonfederal • Recipient. The recipient has the right costs associated with newly paying for overtime to hire, supervise, and train the IHSS and for the work activities newly required to be provider and can fire the provider for any compensated. reason. Essentially, the recipient has the Individuals Must Follow Four Steps Before right to receive care from a provider of his/ Being Enrolled as IHSS Providers. Currently, her choosing—a concept we refer to as prospective IHSS providers must complete four steps “consumer choice.” in order to be enrolled as a provider and receive payment from the state, including completion of an • State. The IHSS providers submit their application, a criminal background check, a brief timesheets to a state processing facility and IHSS program provider orientation, and completion receive payment from the state for the hours of an enrollment agreement. they work during each pay period. The state IHSS Providers Receive Wages Negotiated is responsible for paying for certain benefits, at the County Level. Because the wages of IHSS including state disability insurance, providers are negotiated at the county level, they unemployment insurance, and workers’ vary by county—currently ranging from the compensation insurance. state-mandated hourly minimum wage of $8 to • Public Authority. The Public Authority at $12.20 per hour. Providers currently receive the the county level currently negotiates with negotiated wage for all hours worked, regardless of whether they work in excess of 40 hours in a www.lao.ca.gov Legislative Analyst’s Office 9 2014-15 BUDGET week. Chapter 351, Statutes of 2013 (AB 10, Alejo), Estimated IHSS Cost of Complying With Federal increases the state-mandated hourly minimum Labor Regulations Absent Program Changes wage from $8 to $9 effective July 1, 2014—and Absent any changes to the IHSS program, the to $10 effective January 1, 2016. In 2014-15, the administration estimates the annualized cost to minimum wage increase to $9 will affect IHSS comply with the federal labor regulations to be providers in 17 counties, where wages are currently $620 million ($288 million General Fund). There less than $9 per hour. are three main components of this cost estimate. IHSS Providers and Recipients Impacted • Overtime Costs. Based on the existing by Federal Labor Regulations. The DSS, which workload of IHSS providers statewide, administers the IHSS program, estimates that the DSS estimates that the cost of 385,425 individuals will work as IHSS providers in paying overtime would be $402 million 2014-15. About 49,000 providers, or 12.7 percent ($186 million General Fund) annually. This of the estimated workforce, currently work more estimate likely understates the actual cost than 160 hours per month and will therefore be of paying overtime as some IHSS providers impacted by the requirement to pay overtime for would choose to work additional hours hours that exceed 40 in a workweek. We note that for other recipients in order to receive some providers work for more than one recipient. overtime pay for hours exceeding 40 in a The DSS estimates that 453,417 low-income workweek. individuals who are aged, blind, or disabled will receive IHSS in 2014-15. About 37,000 recipients, • Costs of Newly Compensable Work or 8.2 percent of the estimated caseload in 2014-15, Activities. The DSS estimates that the cost are expected to receive more than 160 service hours of paying IHSS providers for wait time per month from a single IHSS provider. The IHSS during medical appointments and travel recipients who receive more than 160 service hours time during the work day is $192 million per month are generally individuals who are reliant ($89 million General Fund) annually. on the IHSS program for significant assistance with • Administrative Activities. The DSS activities of daily living. estimates that the cost of administrative IHSS Providers Are Often Family Members activities to implement the new payments or Relatives of Recipients. About 70 percent of is $26 million ($13 million General Fund) IHSS recipients (an estimated 317,000 recipients) annually. These costs would fund such receive their care from a family member or administrative activities as county social relative provider. About half of IHSS recipients worker time to answer questions from IHSS (an estimated 222,000 recipients) receive their recipients and providers, making provider care from a live-in provider, and 84 percent of timesheet changes, and modifying the Case these live-in providers are family members of the Management, Information, and Payrolling recipient. These family members could be, for System (CMIPS) II information technology example, a parent providing services to a minor (IT) system used by the IHSS program—in child, a spouse providing services to a husband order to handle authorization and payment or wife, or an adult child providing services to a for the newly compensable work activities parent. and overtime. 10 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET Federal Labor Regulations Also The Governor’s Budget Impact the Community Services Responds to Federal Program Administered by DDS Labor Regulations The federal labor regulations we describe The Governor’s budget responds to the also have a budgetary impact on the state’s federal labor regulations by (1) funding the cost Community Services Program for eligible associated with newly compensable work activities, individuals with developmental disabilities that (2) limiting the cost of overtime in the IHSS is administered by DDS. The budgetary impact program by restricting IHSS providers to no more for the Community Services Program is relatively than 40 hours of work per week, and (3) providing minor when compared to the impact on the a small rate increase to certain RC vendors in order IHSS program. For more background on the for vendors to mitigate the fiscal impact of the Community Services Program, please refer to the requirement to pay overtime to their employees. At “Developmental Services” section of this report. the time of this analysis, the administration had Community Services Program Provides not yet released budget-related legislation providing In-Home Assistance, Among Other Services and further detail on its overtime proposals for IHSS Supports. The Community Services Program and DDS. We provide details of the Governor’s provides eligible individuals with developmental proposals that were made available to us at the time disabilities with a broad range of services and of this analysis. supports they need to live in the community. The DDS oversees 21 nonprofit organizations For IHSS, Budget Proposal Has known as regional centers (RCs), which purchase Three Main Components services and supports from vendors (generally The administration estimates the annual organizations that hire employees to deliver ongoing cost of funding the three main services) for consumers. In some cases, consumers components of its IHSS proposal—(1) paying for receive IHSS as a Medi-Cal benefit and receive newly compensable work activities, (2) funding other in-home services paid for by RCs, either on administrative activities to prevent overtime, and an ongoing basis or temporarily to provide respite (3) maintaining a “Provider Backup System”—is to the primary caregiver. $239 million ($113 million General Fund) annually. Consumers and Workers Affected by In Figure 2 (see next page), we provide a cost Federal Labor Regulations. Due to current data summary of the Governor’s proposal to respond to limitations, the number of consumers who receive the federal labor regulations in 2014-15 and 2015-16. in-home assistance that exceeds 40 hours per (We note that Figure 2 includes the estimated costs week—and the number of workers who provide of the Governor’s IHSS proposal as corrected by in-home assistance that exceeds 40 hours per the administration for a technical budgeting error.) week—is not known by DDS. These consumers We discuss each component of the Governor’s IHSS who receive more than 40 hours of in-home proposal below. assistance per week and home care workers who Pay for Newly Compensable Work Activities. provide this assistance will be affected by the The Governor’s budget proposes $87 million federal labor regulations. ($40 million General Fund) in 2014-15 to comply with the federal labor regulations that require the www.lao.ca.gov Legislative Analyst’s Office 11 2014-15 BUDGET state to compensate IHSS providers for certain appointments is unknown, the actual cost previously exempted work activities beginning of paying IHSS providers for wait time January 1, 2015, or, for six months of 2014-15. The during recipients’ medical appointments is department estimates that the full-year cost is uncertain. $188 million ($88 million General Fund) in 2015-16. • Providers’ Travel Time Between IHSS The Governor’s budget funds compensation for wait Recipients. The Governor’s budget estimates time during medical appointments and travel time that 19 percent of IHSS providers serve during the work day, but not the mandatory provider multiple recipients. It is assumed that these orientation, as explained below. providers who work for multiple recipients • Providers’ Wait Time During IHSS will spend one hour per month—on Recipients’ Medical Appointments. average—traveling between recipients. The current in-home IHSS assessment Based on these assumptions, the six-month conducted by a county social worker cost of this work activity is estimated to be assesses a consumer for the amount of time $6 million ($3 million General Fund). Like needed to travel to medical appointments, wait time during medical appointments, but makes no assessment for the amount there is currently no data collected by the of wait time that may be involved. The IHSS program on the exact amount of time Governor’s budget assumes that the IHSS providers spend traveling between 85 percent of IHSS recipients who receive IHSS recipients during the work day. medical accompaniment will have their Therefore, the cost of paying IHSS providers provider wait three hours per month—on for travel time is uncertain. average—during appointments. Based on these assumptions, the six-month cost • Mandatory Provider Orientation. While of this work activity is estimated to be the federal labor regulations require IHSS $81 million ($37 million General Fund) in providers to be paid for any mandatory 2014-15. However, because the exact amount training, the Governor’s budget does not of time that providers wait at medical request funding for the cost of paying Figure 2 Cost of Governor’s IHSS Proposal to Respond to Federal Labor Regulations (In Millions)a 2014-15 2015-16 General Total General Total Fund Funds Fund Funds Newly compensable work activities $40 $87 $88 $188 Administration to restrict overtime 27 53 10 19 Provider Backup System (including higher wage 10 21 15 32 for backup providers and related costs)b Totals $77 $161 $113 $239 a Administration’s cost estimates of its proposal. b This reflects the estimated cost of the Provider Backup System as corrected by the administration for a technical budgeting error. The error caused the Governor’s Budget to overstate the cost of the Provider Backup System by $22 million General Fund in 2014-15 and $48 million General Fund in 2015-16. 12 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET individuals to attend the mandatory are estimated to decrease in 2015-16 primarily orientation prior to enrollment as an because the processing of workweek agreements IHSS provider. The DSS has indicated to by county social workers and clerks mostly occurs us that it assumes that the state may not in the first year of implementation. need to pay individuals for participating In addition to the workweek agreements, in the mandatory orientation since it as a method to deter providers from working occurs before the individual enrolls as an overtime, the proposal provides for suspending IHSS provider. Based upon our review of IHSS providers who claim more than 40 hours per the federal labor regulations, we find this week on their timesheet on at least two occasions. assumption to be reasonable. However, After the first instance of overtime claimed on because the mandatory orientation is brief a timesheet, the IHSS provider would receive a (about one to two hours in most counties) warning notice that he/she cannot claim more and is only required to be completed once than 40 hours per week on his/her timesheet. for individuals newly seeking to become After the second instance, the IHSS provider IHSS providers, we do not estimate a would be suspended from the program for a significant General Fund cost if this period of one year. activity is ultimately determined to require County social workers and clerks would compensation. conduct all administrative activities associated with the overtime restriction, including: (1) mass Administrative Costs to Prohibit IHSS mailings about the overtime restriction and Providers From Working Overtime. The workweek agreement, (2) answering questions Governor’s budget proposes to respond to the from IHSS providers and recipients about the federal labor regulations requiring overtime overtime restriction, (3) reviewing the workweek pay for home care workers by establishing an agreements and entering the agreements into administrative structure that would prohibit CMIPS II, (4) suspending and reenrolling certain IHSS providers from working overtime—at IHSS providers, (5) adding IHSS providers to the an estimated cost of $53 million ($27 million Public Authority registry, and (6) coordinating General Fund) in 2014-15. This restriction would services for the Provider Backup System, generally require an IHSS recipient who receives described below. more than 40 hours of care per week from a single Provider Backup System for Unforeseen provider to secure a second provider. To help IHSS Circumstances. The Governor’s budget proposes providers set their schedules to avoid working $69 million ($32 million General Fund) in 2014-15 overtime, the proposal requires all recipients and for the costs associated with establishing a Provider providers to complete “workweek agreements” Backup System at the county level. (In Figure 2, we to ensure no provider is scheduled to work display the estimated costs of the Provider Backup more than 40 hours per week. These workweek System in 2014-15 and 2015-16 after correcting agreements must be submitted to the county, for a technical budgeting error, discussed below.) reviewed by a county social worker, and entered This system would supply a backup provider for by clerks into CMIPS II. The full-year cost of the an unforeseen circumstance in which an IHSS administrative activities to restrict overtime is recipient is in need of immediate assistance but estimated to be $19 million ($10 million General his/her regular provider has already worked Fund) in 2015-16. These administrative costs www.lao.ca.gov Legislative Analyst’s Office 13 2014-15 BUDGET 40 hours within the week, and other options, such small-scale programs in San Francisco and Los as a second provider or the informal support of Angeles Counties that have some similarities to the a family member or neighbor, are unavailable. proposed Provider Backup System. In such circumstances, the consumer could call Apart from paying for backup provider wages, the system to request a backup provider who the estimated cost for the Provider Backup System would be available in a short amount of time to in 2014-15 includes $4 million General Fund to provide assistance. Service hours delivered by a make relevant changes to CMIPS II and $250,000 backup provider would be counted toward—and General Fund for paying overtime to some IHSS not in addition to—a recipient’s total allotment of providers who may claim more than 40 hours per monthly IHSS hours. The backup provider would week, despite the overtime restriction, on no more receive a higher wage than the standard rate in than two occasions. the county to compensate him/her for the need to Budget Proposes to Increase Rates provide services on short notice. Paid to Certain DDS Vendors The majority of the costs for the Provider Backup System funds a wage premium for backup The Governor’s budget proposes $7.5 million providers above the county’s negotiated wage in ($4 million General Fund) in 2014-15 to respond order to compensate them for providing services to the new federal labor regulations for DDS. on short notice. The estimate assumes that the These costs would double in 2015-16 to $15 million cost of compensating the backup provider would ($8 million General Fund). This amount funds a be—on average—25 percent higher per hour than 2.25 percent increase in the rates paid to certain the estimated statewide average cost per hour RC vendors that provide in-home assistance to of $12.33 in 2014-15. This translates into a wage individuals with developmental disabilities. The premium of $3.08, and an average wage of $15.41 rate increase intends to provide vendors with per hour for backup providers in 2014-15. (We sufficient funding to mitigate the fiscal impact of note the exact amount of the wage premium for the requirement to pay their employees overtime backup providers will be specified in forthcoming for hours that exceed 40 in a workweek. Vendors budget-related legislation.) The administration may mitigate this fiscal impact by, for example, assumes that IHSS recipients with at least hiring more employees to deliver in-home services. 60 monthly service hours will use the Provider However, as we noted earlier, the DDS does not Backup System. Accepting the administration’s have data available on the number of consumers assumptions regarding the utilization of the who currently receive in-home assistance that Provider Backup System and the incremental exceeds 40 hours per week nor does it maintain cost increase of about $3 per hour for provider data on the number of workers who provide backup services, we find the administration has in-home assistance that exceeds 40 hours per overestimated the cost associated with paying for week. While we find it reasonable to assume that authorized service hours delivered by a backup vendors will incur increased administrative costs to provider by $22 million General Fund in 2014-15 minimize overtime pay, we are uncertain because (and by $48 million General Fund in 2015-16). of data limitations whether a rate increase in the This overestimation is due to a technical budgeting amount of 2.25 percent is appropriate. error, the administration acknowledges. In Analyst’s Recommendation. Although the nearby box, we provide an overview of two we find it reasonable that vendors would incur 14 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET Programs Similar to Provider Backup System Used in San Francisco and Los Angeles Counties A number of Public Authorities at the county level have administered small-scale programs that have some similarities to the proposed Provider Backup System. The In-Home Supportive Services (IHSS) hours provided by these programs are counted toward—and not in addition to—a recipient’s total allotment of monthly service hours. Below, we provide an overview of the programs in San Francisco and Los Angeles Counties that recipients may use when their regular provider is unavailable. San Francisco’s Public Authority Operates On-Call Program. Consumers in San Francisco who need an IHSS provider on short notice can get assistance from the On-Call Program operated by the Public Authority. The On-Call Program is intended for several unforeseen circumstances: (1) when a consumer suddenly needs a provider but has not yet hired one, (2) when a recipient’s regular provider is not available, and (3) when the consumer is being discharged from a hospital or nursing home without a regular provider in place. The On-Call Program phone line is available Monday through Friday from 8:30 a.m. to 5 p.m. with messages retrieved until 8 p.m. On weekends and holidays, an assigned counselor checks the On-Call line for messages five times throughout the day. The On-Call Program averages about 130 requests per month from consumers seeking assistance. The On-Call counselors dispatch a provider from a select group of providers who are willing to make themselves available on short notice and who receive a higher wage of $16 per hour plus a $5 transportation allowance (compared to the standard wage of $11.75 per hour in San Francisco with no transportation allowance). Los Angeles’ Public Authority Operates Backup Attendant Program (BUAP). The BUAP began as a pilot program in 2007 with the intent of providing high-need IHSS recipients in Los Angeles County with a backup provider available on short notice for urgent, temporary needs. Today, IHSS recipients who receive 25 hours or more of personal care each month are eligible to access BUAP when their provider and usual substitute provider are not available. The BUAP phone line is available Monday through Friday 8 a.m. to 5 p.m. When a consumer calls, the BUAP operators use a computer database to identify a backup provider who can best meet the consumer’s needs. All backup providers are required to undergo training or a proficiency exam in the provision of paramedical services, such as administering medications, wound care, or tube feeding. Backup providers also receive a higher wage of $12 per hour (compared to the standard wage of $9.65 per hour in Los Angeles County). We note that BUAP is not heavily utilized. In 2013, only 142 IHSS recipients were enrolled in BUAP. The BUAP phone line received 254 calls and provided 1,342 backup service hours for the full year in 2013. www.lao.ca.gov Legislative Analyst’s Office 15 2014-15 BUDGET administrative costs to limit overtime, it is the Governor’s proposal will work as intended to difficult to determine the actual cost to vendors restrict overtime without causing recipients to in the absence of data. In order to assess whether forgo authorized service hours. a 2.25 percent rate increase for certain vendors is Some IHSS Recipients Will Experience appropriate on an ongoing basis, we recommend an Erosion of Consumer Choice. As we note, DDS report to the Legislature—no later than the administration estimates that about 37,000 May 1, 2016—on the results of the rate increase recipients who receive more than 160 service hours on impacted vendors. The DDS could potentially per month from a single provider will be impacted gather and report relevant information, such as by the overtime restriction. About 49,000 providers the average number of new employees that were currently work more than 160 hours per month and hired by vendors based on organizational size, would experience a reduction in income because the average administrative cost of hiring a new of the proposed overtime restriction. Under the employee, and other methods used by vendors Governor’s proposal, high-hour recipients would to mitigate the fiscal impact of overtime pay for need to hire, supervise, and train an additional employees who would otherwise work more than provider. Further, recipients who receive less 40 hours in a week. than 160 service hours per month would need to ensure that their providers—who may work for IHSS Overtime Restriction multiple recipients—do not exceed 40 hours in Raises Fiscal and Policy Issues any workweek. For some recipients who receive We find the Governor’s proposal to restrict less than 160 service hours per month, this may overtime for IHSS providers to be worthy of involve switching to a provider who can fully consideration by the Legislature as a reasonable accommodate their care without exceeding starting point for addressing the fiscal impact of 40 hours in a workweek or hiring a second the federal labor regulations on the IHSS program. provider. The overtime restriction may prove to The Governor’s proposal complies with the federal be an inconvenience for recipients who have an labor regulations in a manner that controls costs established plan of care with a single preferred without reducing authorized service hours for IHSS provider. For consumers who receive care from recipients. Notwithstanding its merits, below we a live-in provider, or from a family member or identify fiscal and policy issues that the Governor’s relative, the overtime restriction and potential proposal raises. Later, we offer modifications to need to hire a second provider may prove to be the Governor’s proposal that the Legislature may undesirable. Finally, for recipients with certain wish to consider to mitigate some of these policy disabilities, such as a developmental disability, we concerns. understand anecdotally that some may experience challenges in adjusting to a new provider. The Restricting Overtime Raises a requirement that no single provider work more Number of Policy Issues That Impact than 40 hours per week can be understood as an IHSS Recipients and Providers erosion of the existing consumer choice of some Below, we raise a number of policy issues with IHSS recipients who would no longer be able to the Governor’s proposal to restrict IHSS providers receive all of their care from a single provider of from working more than 40 hours in a week. Some their choice. of these policy issues call into question whether 16 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET Uncertain Whether IHSS Providers Will wage, it remains uncertain whether the Provider Be Available to Fully Meet Predictable, Regular Backup System will be able to successfully pair Care Needs. Because the Provider Backup System all consumers with backup providers who meet is only intended for unforeseen circumstances, consumers’ individualized needs in a manner an IHSS recipient who predictably and regularly that maintains their quality of care and preserves needs more than 40 hours of assistance per week their preferences. The consumer may live in a would need to retain at least two providers. It is geographically isolated area, may communicate in a uncertain if a sufficient number of IHSS providers language other than English, may have paramedical would be available to meet this new demand for needs, or other specialized needs during the period second providers—in some cases, for a small in which the unforeseen assistance is required. number of weekly hours. Depending on the labor The system would need to have a sufficient pool of market in a particular geographic area and a backup providers as well as an effective matching county’s negotiated wage—both of which change process in order to adequately meet consumers’ over time—along with a consumer’s needs and individualized needs and preserve consumers’ right preferences, there may or may not be a sufficient to hire a provider of their choosing. pool of available providers. Governor’s Proposal to Restrict Overtime We note that the following factors will likely Generally Lacks Flexibility. By restricting all assist consumers in identifying second providers: overtime that exceeds 40 hours in a workweek, the Public Authorities currently maintain registries Governor’s proposal inherently lacks flexibility. of available IHSS providers (some providers on This lack of flexibility could have some significant the registries may not be currently working at all), policy consequences. some existing IHSS providers who regularly work • Could Impede Consumers’ Access to Care. less than 40 hours per week may be willing to In the case of predictable, regular care for work additional hours for other recipients, and—in high-hour recipients, we are concerned 17 counties where wages are currently set below about situations in which a county faces $9 per hour—the increase in the state-mandated a shortage of available providers and is hourly minimum wage to $9 may encourage some therefore unable to provide a consumer individuals to work as IHSS providers. On the with a list of possible second providers. other hand, the Governor’s proposed one-year Under this scenario, the county would suspension of IHSS providers who claim overtime not have the flexibility to authorize on two occasions, discussed further below, could overtime for a recipient’s regular provider somewhat reduce the pool of available providers. until a second provider can be identified, Uncertain Whether the “Right” Backup and a consumer may be forced to forgo Provider Will Be Available for Unforeseen authorized care that exceeds 40 hours in a Circumstances. For consumers who are in need week in the interim. of a backup provider to provide unforeseen assistance within a workweek, we find that a • Could Result in Inefficient Response higher wage for backup providers is a reasonable to Some Unforeseen Circumstances. way to work toward ensuring that a sufficient pool Although the cost per hour of a backup of backup providers is available from which to provider is less expensive than the cost per draw on short notice. However, even with a higher hour of overtime for a regular provider, www.lao.ca.gov Legislative Analyst’s Office 17 2014-15 BUDGET there may be other factors to consider— overtime—before he/she receives the such as convenience and a consumer’s warning notice. Short of appealing the preference—when the care needed is suspension, the provider would have no unforeseen and requires a provider to recourse but to wait for the period of exceed 40 hours in a week, but is expected one year to elapse. In cases in which the to be limited in duration to just a couple provider has made an honest mistake, the hours. For instance, a recipient could fall one-year suspension may be unwarranted and require assistance from the provider and the recipient would likely experience a to get up, or a doctor’s appointment may disruption in care that may cause him/her last longer than expected. Under the to rely on the Provider Backup System or to Governor’s proposal, there is no flexibility forgo care while a new regular provider can for a provider to claim overtime for these be identified. types of short, unforeseen care needs if he/ she has reached—or is approaching—the Fiscal Assessment of Governor’s 40-hour workweek limit. However, such a Proposal to Restrict Overtime situation may be an inefficient use of the After correcting the technical budgeting error, Provider Backup System, which includes the administration estimates that the Governor’s not only the higher wage of the backup proposal to restrict overtime for all IHSS providers, provider but associated administrative including administrative activities to prevent costs to coordinate services in a short time overtime and maintenance of the Provider Backup frame. System, would cost $51 million ($25 million General Fund) annually. This is significantly less than • Enforcement of Overtime Restriction the estimated cost of paying for the overtime— Could Lead to Some Unnecessary $401 million ($186 million General Fund) annually. Disruptions in Care. The Governor’s Both the cost of the Governor’s proposal and the proposed one-year suspension of IHSS estimated cost of paying the overtime are subject providers who claim overtime on two to some uncertainty. On the one hand, the cost of occasions—without any exceptions—raises restricting overtime under the Governor’s proposal concerns in that it may suspend some IHSS is somewhat uncertain because the ongoing providers and unduly cause a disruption administrative costs could be higher than assumed in care for individuals receiving care from and the ongoing Provider Backup System costs could these providers. For example, if a provider be higher if utilization exceeds the administration’s does not receive the warning notice— assumptions. On the other hand, the cost of paying because of a change of address or for some for overtime would likely be higher than estimated other justifiable reason—and as a result, by the administration since providers could change claims overtime on two occasions, the their behavior (such as by working additional hours provider would be suspended for a period for other recipients) in order to receive overtime pay. of one year and the recipient would lose Despite this uncertainty, the General Fund cost his/her regular provider. The provider may of restricting overtime as proposed by the Governor also submit two timesheets simultaneously would still likely be significantly lower than the or in close succession—both claiming alternative—paying for overtime for all IHSS 18 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET providers. We therefore find that on a purely fiscal • Consumer Choice. Does the modification basis, the Governor’s proposal makes sense. Even preserve or infringe on the existing if the annual ongoing costs of restricting overtime choice of a recipient to hire a single were significantly higher, the state would still likely provider of his/her choosing? Does the save more than $100 million General Fund annually modification create added inconvenience by implementing the Governor’s overtime restriction for the consumer? The modification instead of paying for overtime for IHSS providers. should mitigate—at least to some extent However, as we explained, there are programmatic for certain populations—the undesirable implications associated with the Governor’s policy consequence of reduced consumer overtime restriction. Below, we suggest potential choice and added inconvenience under the modifications to the proposal that the Legislature Governor’s overtime restriction. may wish to consider to mitigate, at least to some • Administrative Cost and Complexity. degree, these concerns. Is the modification administratively Potential Modifications to costly and complex to implement? Proposed Overtime Restriction The modification should not be overly burdensome to implement at the state and Because of the policy issues we raise with county levels. the Governor’s proposal to restrict overtime, the Legislature may want to consider potential • Need for Additional Providers. Would modifications to the Governor’s proposal. In the modification require the recruitment evaluating these modifications, the Legislature of new IHSS providers? The modification would want to weigh any additional costs of should not require a significant number of implementing the modification against the benefit additional providers. of mitigating a particular policy concern using the Within the framework of the Governor’s following criteria. proposal to restrict overtime, we find the • Costs Incurred for Overtime. What is the Legislature has options to modify the proposal in annual General Fund cost of overtime a manner that addresses the policy concerns we associated with the modification? raise. We assess each modification based on the Generally, mitigating an undesirable policy criteria described above. We note that because consequence of the overtime restriction— IHSS is a Medi-Cal benefit, the implementation such as requiring a new provider for a of some of these modifications would likely high-hour recipient who currently relies require approval from the federal Centers for on a single live-in provider—would result Medicare and Medicaid Services (CMS) to ensure in additional costs compared to what compliance with federal requirements. the Governor is proposing (through the payment of overtime at least for some Provide Targeted Exemption for circumstances). However, the Legislature Providers of Certain Recipients may wish to incur this cost if the The Legislature could consider a targeted modification mitigates, at least to some exemption from the overtime restriction for the degree, an undesirable policy consequence providers of certain IHSS recipients—recipients of the Governor’s overtime restriction. www.lao.ca.gov Legislative Analyst’s Office 19 2014-15 BUDGET who would find themselves in particularly without facing disciplinary action. This option disruptive situations if the overtime restriction could give providers who may already be in a applied to their providers. For example, a consumer’s home the opportunity to address targeted exemption could include providers of an unforeseen issue that is limited in duration (1) individuals with developmental disabilities to just a couple hours and could potentially who may face particular challenges in adjusting to reduce the number of calls placed to the Provider a new provider, (2) individuals in rural counties Backup System. We assess this modification to who may face difficulties in finding a suitable the Governor’s overtime restriction—using the second provider, or (3) individuals with live-in example of 48 hours of flexible overtime in a year— family or relative providers who strongly prefer to in Figure 4. receive all of their care from the family member Authorize Overtime When Other or relative. Because of federal Medicaid rules, we Providers Are Unavailable note there is significant uncertainty as to whether this modification would receive CMS approval. We noted earlier that it is uncertain if a In Figure 3, we assess this modification to the sufficient number of additional providers will be Governor’s overtime restriction based on the available in all counties to meet the new demand criteria discussed above. for providers under the Governor’s proposed overtime restriction. If a county is unable to Provide a Limited Allotment of Overtime provide a consumer with a list of alternative Hours to Certain IHSS Providers providers or a backup provider, the recipient could The Legislature could consider modifying presumably be forced to forgo authorized care. If the Governor’s proposal by authorizing a limited the Legislature wishes to ensure that all recipients allotment of overtime hours—for example, maintain their current level of access to services, 48 hours in a year—to IHSS providers who work then it could consider authorizing overtime for an for high-hour recipients in order to give these existing provider when a county is unable to give providers some flexibility to work hours exceeding recipients a list of alternative providers or supply a 40 in a week for special circumstances, such as backup provider. By authorizing overtime for the a recipient’s fall or a long doctor’s appointment, recipient’s existing provider in these situations, the Figure 3 A Targeted Exemption From the Overtime Restriction for IHSS Providers of Certain Recipients Criteria Assessment of Modification Relative to Governor’s Proposal Costs incurred for Additional costs, with amount dependent upon the overtime exposure of exempted overtime providers delivering services to the targeted recipient population. Consumer choice Enhances consumer choice for the targeted recipient population. Administrative cost and Results in some additional administrative activities—and thus added costs and complexity complexity—associated with authorizing and tracking overtime for exempted providers of the targeted recipient population. Need for additional Reduces number of additional providers that would need to be recruited, since the providers targeted recipient population would not need additional providers. 20 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET state could ensure that the IHSS recipient receives an alternative to the IHSS model for the provision authorized service hours until a second provider of personal care and domestic services. Under the or backup provider can be identified. We assess the Cash and Counseling Model, consumers receive modification of authorizing overtime for a provider a monthly sum of available funds, based on the in the event that the county is unable to provide cost of the hours of in-home services that they alternative options to the recipient in Figure 5. would otherwise have been authorized to receive under an IHSS-like program. Recipients have Consider “Cash and Counseling” Model for more flexibility in the use of these funds than they IHSS Recipients With Live-In Providers would in a program like IHSS. They can use these The Cash and Counseling Model Is an monthly sums to set wage levels; hire a provider; Alternative to IHSS. Some states have implemented and purchase permissible goods that make it easier what is commonly referred to as the Cash and to remain at home—expenditures not permitted Counseling (or “Self-Determination”) Model as now under IHSS. Under the Cash and Counseling Figure 4 Provide a Limited Allotment of Overtime, Such as 48 Hours Annually, to Certain IHSS Providers Criteria Assessment of Modification Relative to Governor’s Proposal Costs incurred for • Additional costs, with amount dependent upon the amount of the flexible overtime overtime allotment and utilization by providers. • For our example, assuming 49,000 providers working for high-hour recipients claim the full 48 hours per year, the overtime cost would be roughly $5 million General Fund annually Consumer choice • Some added convenience and greater consumer choice for the special circumstances in which overtime is used. Administrative cost • Results in some additional administrative activities—and thus costs and complexity— and complexity associated with designating and tracking the flexible overtime allotment to ensure it is not exceeded. Need for additional • Need for additional providers largely unchanged. providers Figure 5 Authorize Overtime When Other Providers Are Unavailable Criteria Assessment of Modification Relative to Governor’s Proposal Costs incurred for • Additional costs dependent upon the frequency and amount of overtime authorized. overtime Consumer choice • Enhances—to some degree—consumer choice by enabling a recipient to receive care from his/her existing provider in the event that a county is unable to provide alternative options. Administrative cost • Some additional administrative activities—and thus costs and complexity—associated and complexity with tracking instances of authorized overtime. Need for additional • Reduces need for additional providers in the short term. providers • Need for additional providers largely unchanged in the longer run. www.lao.ca.gov Legislative Analyst’s Office 21 2014-15 BUDGET Model, a counselor (often a social worker) helps operational details of the program. Additionally, consumers craft spending plans; offers advice on consideration of such a significant change to hiring, supervising, and training a provider; and the IHSS program should weigh the benefits to monitors use of the available funds. A bookkeeper consumers with live-in providers against the from a financial management services agency overall policy merits of this new model of care. We assists the consumer in the paperwork required to therefore recommend the Legislature require DSS pay a provider’s wages and withhold taxes. to report in budget hearings with its initial take on Under the Cash and Counseling Model, the policy merits and trade-offs of the Cash and Live-In Providers Could Potentially Qualify for Counseling Model as an option for IHSS recipients an Exemption From the Overtime Requirement with live-in providers. We assess this modification Under Federal Labor Regulations. Based upon of providing a Cash and Counseling Model to our review of the federal labor regulations, it recipients with live-in providers in Figure 6. appears that the Cash and Counseling Model Other Implementation could potentially have the effect of classifying the Issues Regarding Governor’s consumer as the sole employer of a live-in provider. Overtime Restriction Under such a scenario, the consumer could be able to claim the live-in domestic service worker If the Legislature wishes to work within the exemption from the requirement to pay overtime to framework of the Governor’s proposal to restrict a home care worker. In effect, this would mean that overtime, then we recommend the following two live-in providers could work more than 40 hours changes related to implementation of the proposal. per week and receive the set wage for all hours Recommend Revision to Enforcement of worked. As we noted earlier, half of IHSS recipients Overtime Restriction for IHSS Providers. We have a live-in provider. The ability of consumers described earlier that the Governor’s proposed with live-in providers to claim the live-in domestic one-year suspension of IHSS providers who service worker exemption under a Cash and claim overtime on two occasions—without any Counseling Model would depend largely on the exceptions—raises concerns in that it could be Figure 6 Cash and Counseling Model for IHSS Recipients With Live-In Providers Criteria Assessment of Modification Relative to Governor’s Proposal Costs incurred for • No change in costs to pay overtime. overtime • Reduced Provider Backup System costs. Consumer choice • Enhances the consumer choice of high-hour recipients with live-in providers, who could continue to receive all assistance from a single provider of their choice. Administrative cost • Substantial administrative activities—and thus costs and complexity—associated with and complexity providing the “counseling” component of the model. • Assuming all IHSS recipients with live-in providers chose the Cash and Counseling Model and received quarterly visits from a counselor, the cost of social worker time for these visits could be roughly $20 million General Fund annually. • Potential additional costs associated with financial management services. Need for additional • Reduces the number of additional providers that would need to be recruited. providers 22 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET unduly disruptive to some IHSS recipients. For Conclusion example, if a provider does not receive the warning We find the Governor’s proposal to restrict notice—because of a change of address or for overtime in the IHSS program has merit in that some other justifiable reason—and as a result, it complies with the federal labor regulations in claims overtime on two occasions, the recipient a manner that controls costs without reducing would lose his/her provider for a period of one authorized service hours for IHSS recipients. year. The provider may also submit two timesheets Our analysis finds that the Governor’s proposal simultaneously or in close succession—both would result in a net fiscal benefit to the state. claiming overtime—before he/she receives the We therefore believe the Governor’s proposal warning notice. Short of appealing the suspension, should be given consideration by the Legislature the provider would have no recourse but to wait as a reasonable starting point for addressing the for the period of one year to elapse. In such federal labor regulations in the IHSS program. instances, we find a one-year suspension to be Although our analysis finds that the Governor’s unduly punitive to both provider and recipient. We proposal results in a net fiscal benefit to the therefore recommend the Legislature revise the state, we raise various policy concerns with the enforcement of the overtime restriction by adding proposal. If the Legislature wishes to proceed a suspension that is one month in duration prior to within the Governor’s proposed framework of the one-year suspension. In effect, providers would restricting overtime, then we recommend the be suspended for a period of one month if they Legislature consider potential modifications to claim overtime on two occasions. We find that a address the policy concerns raised. Ultimately, shorter suspension would have a similar deterrent the Legislature would want to weigh its policy effect as a one-year suspension in preventing IHSS priorities against the cost of each modification providers from claiming overtime, but would not in order to arrive at a suitable approach for force a recipient to go without his/her preferred addressing the budgetary impact of the federal provider for an extended period of one year. We labor regulations in the IHSS program. find that if a provider claims overtime on a third Aside from the Governor’s proposal to restrict occasion, it would then be appropriate to suspend overtime in the IHSS program, we find his the individual for a period of one year. proposal to fund the costs of newly compensable Recommend Quarterly Reporting From DSS IHSS work activities to be reasonable. In regards on Authorized Hours Versus Paid Hours. To to the Governor’s proposal to provide a rate increase legislative oversight of recipients’ access increase for DDS vendors, we find it reasonable to service hours under the Governor’s overtime to assume that vendors will incur increased restriction, we recommend the Legislature require administrative costs to minimize overtime DSS to report quarterly on the total number of payments. Because of current data limitations on IHSS hours authorized compared to the total the exact amount of these costs, we recommend number of hours claimed by providers in each DDS report to the Legislature—no later than county statewide. A differential between these two May 1, 2016—on the results of the proposed rate indicators that is greater than the historical average increase on impacted vendors in order to assess may indicate a possible shortage of IHSS providers whether it is appropriate on an ongoing basis. in a particular county. www.lao.ca.gov Legislative Analyst’s Office 23 2014-15 BUDGET IN-HOME SUPPORTIVE SERVICES Background the caseload—the average federal reimbursement rate is 54 percent for the IHSS program. The Overview of IHSS. The IHSS program provides remaining nonfederal costs of the IHSS program personal care and domestic services to certain are paid for by the state and counties, with the state individuals to help them remain safely in their own assuming the majority of the nonfederal costs. homes and communities. In order to qualify for Counties’ Share of IHSS Costs Is Set in IHSS, a recipient must be aged, blind, or disabled Statute. Budget-related legislation adopted in and in most cases have income below the level 2012-13 enacted a county MOE, in which counties necessary to qualify for SSI/SSP cash assistance. generally maintain their 2011-12 expenditure Recipients are eligible to receive up to 283 hours level for IHSS—to be adjusted only for increases per month of assistance with tasks such as bathing, to IHSS providers’ wages (when negotiated at the dressing, housework, and meal preparation. Social county level through collective bargaining) and an workers employed by county welfare departments inflation factor of 3.5 percent beginning in 2014-15. conduct an in-home IHSS assessment of an Under the county MOE financing structure, the individual’s needs in order to determine the amount state General Fund assumes all nonfederal IHSS and type of service hours to be provided. The average costs above counties’ MOE expenditure level. number of hours that will be provided to IHSS In 2014-15, the county MOE is estimated to be recipients is projected to be 84 hours per month in $994 million, an increase of $34 million above the 2014-15 (after accounting for a previously enacted estimated revised county MOE for 2013-14. To the service reduction explained below). In most cases, extent wage increases negotiated at the county level the recipient is responsible for hiring and supervising are implemented in the remainder of 2013-14 or in a paid IHSS provider—oftentimes a family member 2014-15, the individual county’s MOE will increase or relative. by a percentage share of the annual cost of those The IHSS Program Receives Federal Funds as wage increases. a Medi-Cal Benefit. For nearly all IHSS recipients, the IHSS program is delivered as a benefit of the The Governor’s Budget Proposal state’s Medicaid health services program (known Year-to-Year Expenditure Comparison. The as Medi-Cal in California) for low-income budget proposes $6.4 billion (all funds) for IHSS populations. The IHSS program is subject to expenditures in 2014-15, which is a 4.9 percent net federal Medicaid rules, including the federal increase over estimated revised expenditures in medical assistance percentage reimbursement 2013-14. General Fund expenditures for 2014-15 are rate for California of 50 percent of costs for most proposed at $2 billion, a net increase of $84 million, Medi-Cal recipients. For IHSS recipients who or 4.4 percent, above the estimated revised generally meet the state’s nursing facility clinical expenditures in 2013-14. This net General Fund eligibility standards, the federal government increase incorporates the $34 million increase provides an enhanced reimbursement rate of in the county MOE (which offsets General Fund 56 percent referred to as Community First Choice expenditures) and several other factors described Option (CFCO). Because of the large share of IHSS below. recipients eligible for CFCO—about 40 percent of 24 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET • Costs to Comply With New Federal Labor the one-time 8 percent reduction in service Regulations. Increase of $209 million hours that applied in 2013-14. Total General ($99 million General Fund) in response to Fund savings from the 7 percent reduction recent federal labor regulations (affecting are estimated to be $181 million in 2014-15. overtime pay and other matters) to take This 7 percent reduction in service hours effect January 1, 2015. Please refer to the is part of an IHSS settlement agreement— “Human Services Compliance With Federal adopted by the Legislature—that resolves Labor Regulations” analysis in this report two class-action lawsuits related to for more detail on, and our analysis of, this previously enacted budget reductions. proposal. New Services Costs Related to Coordinated Care Initiative (CCI). The budget also reflects • Increase in IHSS Basic Services Costs. an increase of $49 million in total expenditures Increase of $68 million ($35 million ($22 million as reimbursement from the General Fund) because of (1) caseload Department of Health Care Services (DHCS) growth of 1.3 percent and (2) higher costs originating from the General Fund) for per hour because of the increase in the (1) increased IHSS hours for existing recipients state-mandated hourly minimum wage as a result of the CCI and (2) new IHSS recipients from $8 to $9 beginning July 1, 2014. who are expected to transition out of more costly (Because the state enacted the minimum institutional care settings and into IHSS because wage increase, the county MOE is not of the CCI. As part of the CCI, the IHSS program adjusted to reflect cost increases associated will shift from a Medi-Cal fee-for-service benefit with the new minimum wage.) to a Medi-Cal managed care plan benefit in • CMIPSII—Transition to New Phase. certain counties beginning April 1, 2014. For more Decrease of $40 million ($20 million background on the CCI, please refer to The 2013-14 General Fund) due to the transition Budget: Coordinated Care Initiative Update. from the design, development, and Caseload Growth. The Governor’s budget implementation phase to the maintenance assumes the average monthly caseload for IHSS in and operation phase for the CMIPS II 2014-15 will be 453,417, an increase of 1.3 percent IT system that stores IHSS case records, compared to the most recent estimate of the provides program data reports, and 2013-14 average monthly caseload. authorizes IHSS provider payments. As LAO Comments on Overall Budget Proposal. of November 2013, all 58 counties have We discuss elsewhere in this report the Governor’s transitioned to CMIPS II. proposal to respond to federal labor regulations as they apply to IHSS and DDS. The balance • Partial Rollback of Reduction in of the IHSS budget changes as outlined above Authorized Service Hours. Year-over-year appear reasonable. We have reviewed the caseload increase of $15 million ($8 million General projections for IHSS as they relate to caseload Fund) as a result of implementing current growth in prior years and do not recommend law that requires an ongoing 7 percent any adjustments at this time. We note that the reduction in IHSS authorized service 2014-15 caseload estimate does not take into hours beginning in 2014-15, rather than account a relatively small but likely increase in www.lao.ca.gov Legislative Analyst’s Office 25 2014-15 BUDGET IHSS recipients as a result of the CCI. If we receive overall assessment, we will provide the Legislature additional information that causes us to change our with an updated analysis. COMMUNITY CARE LICENSING QUALITY ENHANCEMENT AND PROGRAM IMPROVEMENT The CCL division of DSS develops and enforces primarily monitored and licensed by just over regulations designed to protect the health and 460 licensing analysts. These licensing analysts safety of individuals in 24-hour residential care are located in 25 regional offices throughout the facilities and day care. The Governor’s budget state and are responsible for conducting annually proposes expenditures of $118 million ($36 million about 24,000 inspections and 13,000 complaint General Fund) for CCL in 2014-15. This represents investigations. Current law requires CCL to an 11 percent increase above estimated 2013-14 conduct random inspections on at least 30 percent total expenditures (and a 37 percent increase above of all facilities annually, and each facility must be estimated 2013-14 General Fund expenditures). visited no less than once every five years. Although This increase is primarily the result of (1) the the CCL has had difficulty meeting these time Governor’s proposal to take steps to enhance the frames in the past, the division is generally meeting quality of CCL and (2) providing General Fund these time frames currently. monies to backfill federal funds that were lost as a Past Budget Reductions Have Increased the result of the reduction in the federal Social Services Time Between Annual Visits. Prior to 2002-03, Block Grant. Below, we provide some background most facilities licensed by CCL were required to on CCL and the Governor’s proposal. be visited annually. Budget-related legislation enacted in 2003 lengthened the intervals between Background visits for most facilities from one year to five years. The CCL oversees the licensing of various Additionally, the legislation included “trigger” facilities including child care centers, adult language that initially required CCL to randomly residential facilities, group homes, foster family visit 10 percent of facilities each year. If, in a given homes, and residential care facilities for the year, the number of citations identified exceeded elderly (RCFE). The division is also responsible for that of the prior year by 10 percent, the random investigating any complaints lodged against these visits that were required to be conducted would facilities and for conducting inspections of the increase by an additional 10 percent. As a result of facilities. The state monitors approximately 66,000 this trigger methodology, CCL is now required to homes and facilities, which are estimated to have randomly visit 30 percent of facilities each year, and the capacity to serve over 1.3 million Californians. the requirement that each facility be visited every Additionally, DSS contracts with counties to license five years continues. an additional 8,700 foster family homes and family The CCL Began to Use a Key Indicator Tool child care homes. (KIT). As a method to assist CCL in achieving CCL Staffing and Facility Monitoring. The the required inspection frequency, the KIT was roughly 66,000 homes and facilities statewide formally adopted by CCL in the fall of 2010. directly under the regulatory purview of CCL are This tool allowed CCL to increase the number of 26 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET enforcement visits licensing analysts were able components of the proposal and provide our to conduct within existing budget constraints. analysis and recommendations in conjunction with The KIT is a measurement tool that is designed each component that is discussed in detail. Overall, to measure compliance with a small number of we find the Governor’s proposal contains elements licensing standards to predict compliance with that seek to respond to the recent issues and all of the remaining licensing standards. In other shortcomings identified at CCL. Although we do words, whether or not a facility is in compliance not raise any particular concerns with the level of with certain measures is considered to be an staff requested by the department, we recommend indicator of whether it will be in compliance with some modifications to the accompanying budget- all measures. Due to the reliance on key indicators, related legislation. rather than the more comprehensive assessment, Recognizes the Changing it takes less time for licensing analysts to conduct Needs of Clients at RCFEs a KIT inspection than a more comprehensive inspection. Only facilities that are in generally There are currently over 7,500 RCFEs that good standing are eligible for the KIT inspection, are licensed by CCL for a capacity to provide care and at any given point during a KIT inspection, a for about 175,000 people throughout the state. licensing analyst may discover issues that trigger Historically, RCFEs have been considered to be a more comprehensive inspection. The DSS has different from skilled nursing facilities (SNFs) partnered with Sacramento State University to because their purpose is to serve those with less evaluate the KIT process and expects to have more acute medical needs than those who would qualify information and analysis of the KIT available in the for skilled nursing home placement. However, as spring of 2014. the population has aged, and the general policy Recent Issues at Licensed Facilities Have goal of caring for people in the least restrictive Gained Attention. Recent health and safety setting has been emphasized, the role of the RCFEs incidents at licensed facilities have gained the has also changed. Although the populations at attention of the media and the Legislature. These the RCFEs have changed to include those with include incidents of neglect and abuse, as well as more acute medical conditions, the regulatory and evidence in general of inconsistent and inadequate enforcement structure at CCL has not changed, oversight, monitoring, and enforcement of licensing and there are currently no staff in the division standards. with medical expertise. Additionally, there are increasing numbers of corporations applying for Governor’s Proposal licenses to operate multiple RCFEs in multiple and LAO Analysis regional office jurisdictions. Because the RCFEs In response to recent health and safety issues that are part of a larger corporation are inspected discovered at facilities licensed by CCL, the by licensing analysts from various regional offices, Governor’s budget proposes a comprehensive plan it is difficult for CCL to recognize patterns of to reform the CCL program. The proposal includes problems associated with specific corporations. an increase of 71.5 positions and $7.5 million Begins to Develop Medical Expertise. The ($5.8 million from the General Fund) for the Governor’s budget proposes to establish a nurse support of this proposed plan as well as budget- practitioner at CCL to begin research on potential related legislation. Below, we describe the main policy and regulatory changes that the department www.lao.ca.gov Legislative Analyst’s Office 27 2014-15 BUDGET and Legislature should consider to ensure that there RCFE residents, we find merit in the department’s is adequate oversight of the RCFE population that is proposal to have a public health nurse assessing the increasingly more medically fragile. appropriate role for RCFEs and whether changes to Establishes a Mental Health Populations the enforcement structure are needed to adequately Unit. In response to the changing needs of monitor these changing facilities. Building this residents in RCFEs, and recent legislation that is capacity at DSS would enable it to consider whether expected to increase the number of facilities that the RCFEs are an appropriate placement for those treat individuals with mental health needs, the with more acute medical conditions, and if so, department proposes to establish four positions to whether licensing requirements should be different create a mental health populations unit. This unit for RCFEs that provide services to those with more would create mental health and treatment expertise complex heath needs. Finally, this nurse could at CCL and be responsible for such things as assist the department in considering whether developing regulations, answering policy questions partnerships with the Department of Public Health from the field, and coordinating oversight activities (DPH) (the entity that licenses SNFs) should be with the DHCS. established for the monitoring of RCFEs that are Creates a Corporate Accountability Unit. authorized to serve clients with more complex The Governor’s budget proposes to establish two medical conditions. positions to create a corporate accountability unit Due to the increasing workload associated that would be responsible for identifying and with recent legislation, and the changing profile of addressing issues of systemic noncompliance by those applying for licenses to operate RCFEs, we RCFE operators with facilities in more than one of also recommend approving the Governor’s request the geographic areas overseen by regional offices. to establish a mental health populations unit and LAO Analysis: Changing Medical Conditions corporate accountability unit for CCL. of RCFE Clients Warrants Initiating Proposed Increases to Licensing Fees and Penalties Health Expertise at DSS. Traditionally, DSS has had a contract with a public health nurse Currently, licensed facilities are responsible for consultant to provide medical expertise on specific paying an application fee and an annual fee which complaint investigations. Potential evidence is set in statute. The revenue from these fees are that the population in the RCFEs is becoming used to partially offset the cost of CCL enforcement increasingly more medically complex is that and oversight activities. We note that the last fee DSS has become more reliant on the use of this increase for licensed facilities was a 10 percent contracted nurse in recent years. In 2011-12, increase in 2009. In addition to these annual fees, DSS used this nurse for 30.5 hours of services. facilities are assessed civil penalties in the event In 2012-13, the use of the contract nurse grew to they are found to have committed a licensing 252 hours. Finally, only six months into 2013-14, violation. Below, we describe the Governor’s the department has used the nurse for 272 hours proposal to increase licensing fees and penalties. of service. Another indication of the increasing Increases Application and Annual Licensing medical complexity of residents at RCFEs is that Fees for Facilities. This proposal increases the many RCFE providers have successfully secured application and annual licensing fees for facilities waivers to provide hospice level care in the by 10 percent. Additionally, the budget includes facilities. Given the changing medical conditions of trailer bill language that would require fees to 28 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET be adjusted annually by the Consumer Price • Serious Violations. Current law defines Index. The DSS estimates that this increase in a serious violation as such things as the application and annual licensing fees would (1) fire clearance violations, (2) accessible generate about $2 million in additional annual firearms, and (3) accessible bodies of revenue to support CCL operations. (The fee is water. The Governor’s budget proposes to estimated to generate a total of roughly $21 million add “violations that result in the injury, in 2014-15.) For the 2014-15 budget, the Governor illness, or death of a client” to the list assumes revenue from the fee increases to be of serious violations. In addition to this $1 million to account for the time needed to allow change, proposed budget-related legislation for a notification period for facility providers. increases the amount of the civil penalty Figure 7 provides examples of what this change in that can be assessed for these violations the fee structure would mean for various provider from a maximum of $150 per day to five types. times the licensee’s annual fee per day. This Requires DSS to Monitor the Appropriateness means that facilities with higher annual of the Fee Over Time. Proposed budget legislation fees (larger facilities) would pay more in requires the department to analyze the fees at least civil penalties than those with lower annual once every five years to determine whether the fees (small facilities). As noted above, under levels are appropriate or should be adjusted. this proposal, annual licensing fees will be Increases Civil Penalties. The Governor’s adjusted each year for inflation. Since this budget proposes to increase civil penalties proposal ties the civil penalties to annual imposed on licensees for three types of serious fees, the civil penalties would also be noncompliance—(1) initial finding of the violation, adjusted annually. (2) repeat violations, and (3) failure to correct • Repeat Violations. It is proposed that the violation. The fact that the maximum civil any facility that is cited for repeating the penalty under current law is $150 per day has been same serious violation within 12 months a concern for the department and stakeholders— of the previously cited violation will have especially in instances of significant noncompliance an immediate civil penalty assessed that is or even death of a client. The proposed changes are three times the facility’s annual licensing as follows. Figure 7 Selected CCL Fee Levels: Current Law Compared to Governor’s Proposal Current Law Governor’s Proposal Difference Examples of Facilities Application Annual Application Annual Application Annual Residential care facility for the $825 $413 $908 $454 $83 $41 elderly (4-6 people) Adult day program 275 138 303 152 28 14 (16-30 adults) Family child care center 66 66 73 73 7 7 (1-8 children) Child care centers 880 440 968 484 88 44 (31-60 children) CCL = Community Care Licensing. www.lao.ca.gov Legislative Analyst’s Office 29 2014-15 BUDGET fee. If the violation continues, a penalty of Broadens Eligible Uses of the Civil Penalty 1.5 times the annual fee will be assessed Fine Revenue. Currently, civil penalties that are daily until the violation is corrected. Under assessed on licensed facilities are deposited in current law, facilities with repeat violations the Technical Assistance Fund and are required are assessed an immediate civil penalty to be used by the department exclusively for the of $150 and $50 for each day the violation technical assistance, training, and education of continues. Figure 8 provides examples of licensees. Proposed budget-related legislation what the proposed change in civil penalties amends current statute to state that these funds for serious violations would mean for may be used for these activities. In addition to the various facility types. proposed statutory change in the allowable usage of the penalty revenues, the department is proposing • Failure to Correct Violations Within budget bill language that would allow the Director Specified Time Frame. If a violation is not of Finance to use the unspent revenue from the corrected within the time frame specified penalties deposited in the fund to offset the overall in the notice of the violation, a civil General Fund cost of the program. We note that the penalty that is 25 percent of the annual change in the civil penalty structure could result in fee is assessed for each day the violation significantly more penalty funds being deposited in continues. this fund than in prior years. Creates a Late Fee. The budget proposal LAO Analysis: Reporting Back on the requires the department to charge a late fee that Appropriateness of Fees Will Increase Legislative represents an additional 10 percent of the unpaid Oversight. We find that the Governor’s proposal civil penalty when the licensee fails to pay the to increase fees has merit. Since the changes the penalty by the due date. The late fee would not be Governor is seeking through the overall CCL assessed on licensees who are in compliance with proposal are aimed at improving the CCL system a payment plan developed by DSS. The proposal generally, it makes sense that facilities would share also prevents facilities that have not paid the civil in the cost of those improvements. Although we penalties from new admissions or expansions of are unsure of the exact level that the application facility capacity. and annual fees should be, the Governor’s approach Figure 8 Selected CCL Civil Penalty Levels for Serious Violations: Current Law and Governor’s Proposal Current Law Governor’s Proposal Initial Repeat Within 12 Months Initial Repeat Within 12 Months (Each (Each Examples of Facilities (Per Day) (First Day) Additional Day) (Per Day) (First Day) Additional Day) Residential care facility for $150 $150 $50 $2,270 $1,362 $681 the elderly (4-6 people) Adult day program 150 150 50 760 456 228 (16-30 adults) Family child care center 150 150 50 365 219 110 (1-8 children) Child care centers 150 150 50 2,420 1,452 726 (31-60 children) CCL = Community Care Licensing. 30 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET requires the department to report back on the fee (rather than at five times as proposed by the appropriateness of the fee levels on an ongoing Governor) and repeat violations equivalent to the basis. This report would enhance the Legislature’s annual license fee level (rather than at three times oversight of the fees and assist it in determining as proposed by the Governor). whether the growth in fees is outpacing or keeping This gradual increase to the civil penalties pace with the growth in the total program, and would still allow for a significant increase in whether any adjustments to the fee structure are penalty levels in the budget year, but also allow warranted. the Legislature to evaluate the appropriateness of LAO Analysis: CCL Penalties Should Be the penalties again in a year to determine whether Increased Incrementally. On the issue of civil additional increases should be implemented. We penalties, we think it is reasonable to increase the understand that the current, low civil penalties maximum penalty for the most serious violations for serious violations are especially concerning beyond what current law allows. It is difficult to when the violation is related to the serious injury, assess the “right” level of civil penalty that serves or even the death, of a resident. One option would to deter serious violations. Other states perform be to implement an even more significant increase similar licensing functions to CCL and there is in the civil penalty amounts for these particular variation in the levels of civil penalties in place violations. We recommend the Legislature require across states. California’s assessment of $150 DSS to report back annually with information per day for serious noncompliance, however, is that will help the Legislature evaluate the relatively low compared to other states. Although appropriateness of the levels of civil penalties it is difficult to determine the appropriate levels and determine whether further adjustments are at which to set civil penalties, we agree with the warranted. This report should include the number concept of basing the level of the civil penalty on of serious violation penalties issued, the number the size of the facility. This is because setting a flat of penalties that were appealed, and the rate of the rate for all facility types (such as the $150 in place collection of the penalties. under current law) could result in an unequal LAO Analysis: Reasonable to Use Penalty deterrent effect across facility types—a $150 penalty Revenues to Offset General Fund Costs. Because for a very small facility with a limited amount of the funding from penalties is not a predictable and revenue may be a larger deterrent than it would be reliable revenue source, the Governor’s budget does for a larger facility that generates more revenue. not assume revenue from penalties to fund the Additionally, the act that resulted in the civil CCL proposal. However, as we noted, the proposed penalty puts more people at risk in larger facilities legislation opens up the possibility to use these than in smaller facilities. funds for purposes beyond what current law allows. Because of the uncertainty surrounding Additionally, the proposed budget bill language the appropriate level of civil penalties, and would authorize the Director of Finance to use the variations in these levels across states, the unspent penalty revenues to offset General Fund Legislature may wish to consider a more gradual costs in the program. We find it to be reasonable ramp up of civil penalty levels than that which to use penalty revenue to fund the basic cost of is proposed by the Governor. For example, the the CCL program. We note that using fee and Legislature could set civil penalties for the initial penalty revenues to support licensing/permitting serious violation at three times the annual licensing and enforcement activities is a common practice www.lao.ca.gov Legislative Analyst’s Office 31 2014-15 BUDGET among state regulatory programs. However, if the positions to assist special investigators at CCL. Legislature has other priorities for the penalty These special investigators have peace officer status revenues, beyond offsetting General Fund costs, it and are responsible for investigating the most could enact statutory changes that stipulate such serious complaint allegations received by CCL. priorities. LAO Analysis: Centralizing Application Processing and Complaint Intake Could Makes Field Staff Available for More Increase State Oversight and Efficiency. We find Inspections by Centralizing Certain that centralizing these activities could result in Activities and Providing Support Staff efficiencies, increased consistency, and better The Governor’s proposal requests 34.5 positions state-level oversight for CCL operations. It is our to centralize two activities that are currently being understanding that the current process for applying provided at each regional office. By centralizing for a license is cumbersome from the applicant these activities at the state headquarters level, perspective. In some cases, an applicant that is it is intended by this proposal that staff at the applying for licensure in several different regions regional offices will be freed up to conduct more may receive different application-related questions inspections. and guidance from the different licensing analysts Creates a Centralized Application Processing in the various regional offices. By creating a Unit. Currently, applications for licensure are centralized application processing unit where staff handled at the regional office level. Licensing are trained specifically on processing applications, analysts who would otherwise be in the field CCL would be able to ensure that a single licensee conducting inspections dedicate a portion of with multiple applications gets one reviewer and their time to processing applications for licenses. one set of instructions. Additionally, from the The budget proposes to centralize this function state’s perspective, having the application processed by creating a specialized, trained application centrally would allow it to better track applicants processing unit at the state headquarters level. who are operating multiple facilities throughout the Establishes a Statewide Complaint Hotline. state. Similar to license application processing, By providing a statewide complaint hotline, complaints against licensed facilities are handled there would be benefits to both the public and state. at the regional offices. Licensing analysts who The public would have one number to call for any would otherwise be conducting inspections rotate complaint they would like to report to the licensing the responsibility to stay in the office to receive agency. Additionally, the public could call this complaint calls. The Governor’s budget proposes number to verify a facility’s licensure status and to centralize the complaint intake process and to the citation and complaint history for a particular create a statewide toll-free public complaint hotline. facility. From the state’s perspective, creating In 2012-13, DSS received 9,698 licensing related this centralized unit would allow for improved complaints. In addition to receiving calls related consistency in complaint intake and response. By to complaints, the regional offices receive general centralizing the intake of complaints, the state inquiries from the public and requests to verify will be able to better track the types of complaints licensing status. coming in statewide and potentially recognize Provides Support Staff to Assist Special patterns that may indicate a need for an inspection Investigators. The Governor’s budget requests six or increased enforcement. 32 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET LAO Analysis: Support for Special the facility is closed and residents are transferred Investigators Appears Reasonable. It is reasonable to other facilities. The proposal does not apply to to provide these support staff for the special small facilities that serve less than six residents and investigator peace officers at CCL. These assistants are also the principal residence of the licensee. It would perform the activities that do not require is our understanding that the funds to pay for this peace officer status, but are currently being done by process would be paid from the revenues generated peace officers. By freeing the investigators of this by the facility. To the extent these revenues are not workload, they could be available for more field enough, the department could advance funding work. from the Technical Assistance Fund (the fund that holds the civil penalties) to cover the costs. Creates New Enforcement Tools for CCL The budget-related legislation requires the licensee Currently, CCL has the authority for three to ultimately reimburse the department for the major enforcement actions after discovering advanced costs. instances of serious noncompliance—(1) create LAO Analysis: New Enforcement Tool Makes a corrective action plan (2) issue civil penalties, Sense in Concept, but Details Warrant Careful and (3) revoke or suspend the license of a facility. Consideration. We agree with this proposal In some cases, while issuing a civil penalty or in concept. As a result of the complex issues corrective action plan may not seem like enough involved in revoking the license of a facility, it is of a penalty for a particular violation, revoking the reasonable to authorize CCL to use the additional license may seem to be too severe. Additionally, enforcement tool involving a temporary manager there are significant logistical details involved when and receivership structure. However, we note a decision has been made to revoke a license—most that the Governor’s proposed trailer bill language importantly, alternative placements for residents includes many implementation and policy details or clients of the facility that had its license revoked related to such things as (1) limits on the amount must be secured. For the clients of these facilities, of funding the temporary manger or receiver is these relocations can be physically and emotionally able to spend while acting in this role, (2) appeal challenging. rights of the licensee, and (3) length of time that Governor’s Budget Establishes a Temporary the temporary manger or receiver is authorized to Manager and Receivership Process. The Governor’s act in this capacity. It is our understanding that budget proposes to provide DSS with an additional this temporary manager and receivership process enforcement tool for CCL. Essentially, in instances was largely modeled off of the process DPH uses where the department determines that the residents in its oversight of SNFs. Given the significant of a particular facility are likely to be in danger implementation details that are specified in the of serious injury or death, and the immediate proposed legislation, we recommend that the relocation of clients is not feasible, a temporary Legislature require the department to report manager or receiver could be appointed to act as at budget hearings on (1) the main differences the provisional licensee. The temporary manager between the CCL proposal and how DPH currently or receiver would stay in the role until the facility administers its receivership and temporary has become compliant with the law, a new operator manager process for SNFs, and (2) the rationale for takes over the facility and becomes the licensee, or these differences. www.lao.ca.gov Legislative Analyst’s Office 33 2014-15 BUDGET Establishes a Quality Assurance Unit implementation of the IT project. Additionally, if there are certain activities that the Legislature The current IT systems used for CCL were not would want the new system to have the capacity designed to have the capacity to produce automated to perform, these priority functions should be reports that allow for statewide oversight and communicated to the administration during the tracking of complaints, penalty actions, or budget hearings process. Examples of these priority enforcement outcomes. As a result, compiling functions could be the ability for the new system data for CCL to use to perform oversight and to allow the public to access current and historical provide information to the public is mostly done licensure and citation history online and the ability manually and is not usually able to be done quickly. to run statewide compliance and demographic The Governor’s budget proposes to establish six reports. positions to form a unit dedicated to conducting quality assurance reviews on a regular basis. This Creates a More Robust Training Program unit would be tasked with reviewing the data that for Managers and Licensing Analysts is available in the current system to (1) respond Training for Licensing Analysts. The to requests for information, (2) identify training department indicates that in difficult budget times, needs in the field, and (3) identify patterns that may it reduced the amount of training it required indicate vulnerabilities in the current enforcement licensing program analysts to complete from six process. weeks of intensive training to 18 hours of webinar The administration has acknowledged the training and 80 hours of in-person training. The shortcomings of its current CCL IT infrastructure. Governor’s budget proposes to restructure the In response to this, the administration has training for licensing analysts to require two indicated that it is currently in the early stages additional weeks of in-class training and an of analyzing the costs and potential benefits of ongoing training requirement. implementing a new IT system for CCL. Training for Licensing Managers. Although LAO Analysis: Given Current IT Limitations, licensing managers participate in 80 hours of Quality Assurance Unit Proposed Is Reasonable. state-required general supervisory training, DSS Given that there is an immediate interest in the currently does not have CCL-specific training for collection of quality licensing data, we recommend licensing managers. The licensing managers are approving the department’s request to create a responsible for reviewing complaint investigations quality assurance unit. It is our understanding and administrative actions taken by the licensing that this unit would be able to track performance analysts. In some cases, the documents they are of staff at the regional office level. Additionally, reviewing involve allegations of injury, illness, or this unit would be able to identify training needs death. The Governor’s budget proposes one position based on patterns it may uncover in the review and funding for a contract with an academic of data. Although we recommend approving the institution to develop a CCL-specific training establishment of a quality assurance unit, since curriculum for licensing managers. the department is currently in the early stages LAO Analysis: A More Robust Training of evaluating the costs and benefits of a new IT Program Could Increase Enforcement system, we recommend that these positions be Consistency. It is our understanding that there limited-term to allow for a future evaluation is significant variation and inconsistency across of the workload as the state moves towards the 34 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET the state in terms of how licensing analysts and the law and assist in preserving the health and managers perform their enforcement-related safety of the clients. duties. The lack of a robust training program Currently, facilities with residential clients for licensing analysts and managers is likely a are required to have certified administrators who contributor to this. We recommend adopting the are responsible for the operation of the facility. administration’s proposal to create a more robust These administrators must attend 40 hours of training program for analysts and managers. department-approved training in order to be Providing this training could result in a more certified. This proposal also includes a component consistent application and enforcement of that would provide for the department to conduct licensing statutes and regulations across the state. quality assurance monitoring of the training This training is increasingly important when programs facility administrators are required to coupled with the Governor’s proposal to increase attend. fines for civil penalties. Because the civil penalties LAO Analysis: Increased Intervals Between are proposed to be higher under the Governor’s Inspections Makes Up-Front Guidance proposal, it is even more important that the Important. We find that these additional licensing analysts and managers are appropriately resources to provide more up-front guidance assessing these penalties. to licensees, administrators, and licensing analysts in the field is a good investment. Since Provides Resources to Support the Governor’s proposal increases penalties for Licensees and Administrators noncompliance, it is important that program One issue that has been raised by licensees rules and expectations are clearly communicated is that the increase in the time between periodic, to facility licensees and administrators to ensure scheduled annual inspections has resulted in that the state is holding them accountable for CCL providing more “reactive” enforcement complying with rules that were effectively than “proactive” enforcement. It is thought that communicated to them. if licensing analysts were visiting facilities more LAO Overall Take on the frequently, they could provide advice to licensees Governor’s Proposal that would help them maintain compliance with the law and avoid penalties in the first place. To Governor’s Approach to First Address CCL address some of the concerns from the licensees, Infrastructure Makes Sense. Overall, we find the Governor’s budget contains two components this to be a comprehensive proposal that seeks to that aim to provide more guidance to facility respond to identified failings of CCL, including licensees and administrators to potentially the recent health and safety issues uncovered in reduce the instances of noncompliance. The first facilities licensed by CCL. We understand that component of the proposal is the establishment of there is interest in exploring options to decrease a technical assistance unit at the state level that is the time intervals between required licensing visits, available to respond to questions and requests for but we find that it is reasonable to first address guidance from licensees and licensing analysts. It these general, programmatic infrastructure-related is our understanding that this unit would be able issues—such as developing a training curriculum to provide field staff and licensees with guidance for analysts, evaluating the changing role of to ensure that the actions they take comply with RCFEs, reforming the fee and penalty structure, www.lao.ca.gov Legislative Analyst’s Office 35 2014-15 BUDGET and changing the way complaints and applications identified at CCL. Although we do not raise any are processed—prior to making an increased particular concerns at this time with the level investment in additional inspectors at the local of the staffing request—71.5 positions proposed level. This is because, until the administration (with the exception of recommending that addresses the current inefficiencies and six positions be approved as limited term)—we do shortcomings of CCL, the actual level of additional make several recommendations for modifications resources needed to appropriately increase the to the accompanying budget-related legislation. frequency of inspections is unknown. Addressing Specifically, we recommend that the Legislature the inefficiencies and implementing a new quality consider: assurance unit and IT system for CCL could lead to • Implementing a more gradual increase a more targeted, informed approach to conducting in the level of civil penalties assessed for inspections and oversight. Further, there are some findings of serious noncompliance, with aspects of the Governor’s proposal, such as training periodic reports to the Legislature. improvements, that should be in place before there is a significant increase in licensing analysts to • Using the budget hearing process to conduct inspections. (1) require the department to provide more detail on the temporary manager and Summary of LAO Analysis and receivership process, and (2) communicate Recommendations CCL IT-related priorities to the In summary, we support the administration’s administration. proposal to begin to respond to the recent problems CALWORKS The CalWORKs program was created in 1997 CalWORKs Work Requirement. As a condition in response to the 1996 federal welfare reform of receiving aid, CalWORKs families that include legislation, which created the federal Temporary able-bodied adults are required to be employed Assistance for Needy Families (TANF) program. or participate in WTW activities (hereafter CalWORKs provides cash grants and welfare- referred to as the “work requirement”) and are to-work (WTW) services for families whose entitled to receive services intended to help meet income is inadequate to meet their basic needs. this requirement. Adults that fail to comply with Grant amounts vary across the state and are the work requirement without good cause are adjusted for family size, income, and other factors. sanctioned by being removed from the calculation For example, a family of three in a high-cost county of the family’s grant, resulting in decreased that has no earned income currently receives a assistance (generally about $125). monthly cash grant of $638 per month (equivalent Barriers to Employment. Many CalWORKs to 39 percent of federal poverty guidelines). A recipients face circumstances, commonly referred family in these circumstances would generally also to as “barriers,” that make it difficult to obtain be eligible for food assistance through the CalFresh long-term employment. These barriers can program in the amount of $494 per month and include low educational attainment, low English health coverage through Medi-Cal. proficiency, lack of work experience, responsibility 36 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET of caring for disabled parents or children, lack CalWORKs program in 2014-15, a net increase of of child care, learning disabilities, poor mental $83 million over estimated current-year funding. health, substance abuse, domestic violence, prior This increase is the net effect of a $176 million criminal convictions, and others. In some cases, increase in employment services and $5 million the CalWORKs program will exempt recipients in other increases, partially offset by a total of with certain barriers from the work requirement. $98 million in decreased funding for cash grants, In other cases, the CalWORKs program provides child care services, and program administration. services intended to help address the barriers. These year-over-year changes largely reflect These services include adult basic education, (1) lower costs due to expected CalWORKs caseload English as a Second Language services, subsidized decline; (2) the implementation of program changes child care, unpaid and subsidized work experience enacted in previous years, including various opportunities, mental health and substance abuse significant changes to CalWORKs employment treatment, domestic violence services, and others. services and a 5 percent grant increase effective CalWORKs Funding. CalWORKs is funded March 2014; and (3) a $10 million increase through a combination of California’s federal in funding tied to a proposed Parent/Child TANF block grant allocation ($3.7 billion Engagement Demonstration pilot project. Each of annually), the state General Fund, and county these items is discussed in greater detail below. funds (including significant amounts spent by While total funding for CalWORKs would counties as a result of state-local realignment). increase under the Governor’s proposal, General In order to receive its annual TANF allocation, Fund support for CalWORKs would decrease from the state is required to spend an MOE amount $1.2 billion in 2013-14 to $637 million in 2014-15. from state and local funds to provide services to This primarily reflects a decision made as part of families eligible for CalWORKs. In recent years, the 2013-14 budget package to use certain funds this MOE amount has been $2.9 billion. While provided to counties under 1991 realignment the CalWORKs program makes up the majority for local health programs to offset General of TANF and MOE spending, it is important to Fund expenditures in the CalWORKs program. note that the TANF block grant is used to fund a Under the Governor’s proposal, the amount of variety of programs in addition to CalWORKs, health realignment funds used to offset General and some General Fund expenditures outside Figure 9 CalWORKs are counted CalWORKs Budget Summary toward the MOE All Funds (Dollars in Millions) requirement. Change From 2013-14 2013-14 2014-15 Overview of Estimated Proposed Amount Percent the Governor’s Cash grants $3,072 $3,051 -$22 -1% Proposal Employment services 1,185 1,361 176 15 Stage 1 child care 406 385 -22 -5 As shown in Figure 9, Administration 567 511 -55 -10 Othera 172 177 5 3 the Governor’s budget Totals $5,402 $5,485 $83 2% proposes $5.5 billion a Excludes federal Temporary Assistance for Needy Families funds used to provide financial aid for certain in total funding for the low-income students in the Cal-Grants program. www.lao.ca.gov Legislative Analyst’s Office 37 2014-15 BUDGET Fund costs in CalWORKs would increase by 2014-15. The following section briefly describes $600 million in 2014-15 to a total of $900 million. the state’s progress in implementing these changes (For more information on the redirection of health and the associated fiscal impact assumed in the realignment funds, see the Medi-Cal write-up Governor’s budget. in our report The 2013-14 Analysis of the Health Phase-Out of Short-Term Budget.) Young Child Exemptions CalWORKs Caseload Decline Expected to Continue During Budget Year. The CalWORKs Beginning in 2009-10 and continuing through caseload rose substantially during the recent half of 2012-13, the Legislature temporarily recession, peaking in June 2011 at over 597,000 broadened the circumstances under which cases. Since that time, the caseload has been counties could exempt CalWORKs recipients from declining due to enacted policy changes and an the work requirement. Budgetary savings were improving labor market. The budget estimates achieved by not providing subsidized child care that the average monthly caseload in 2013-14 will and employment services to most of the exempted be 545,647 cases—2.5 percent lower than during population (some exempted recipients chose the previous year. The average monthly caseload is to participate in WTW activities despite their projected to further decline by 3 percent in 2014-15 exemption). These temporary exemptions were to 529,367 cases. A declining CalWORKs caseload eliminated effective January 2013, and counties generates program savings as fewer families are required to meet with all formerly exempt receive cash assistance and WTW services. In the recipients by the end of 2014 to inform them that, Governor’s budget, these savings are more than unless the recipients are eligible for and choose to offset by net costs associated with ongoing and take an additional exemption, they are now subject proposed initiatives discussed below. We find the to the work requirement and are entitled to receive administration’s caseload estimate reasonable and supportive services. As shown in Figure 10, the rate consistent with our expectations of a long-term of exemption from the work requirement increased downward caseload trend as the labor market dramatically in 2009-10, but has begun to decrease and earnings prospects for low-income families since early 2013 as counties have begun to make continue to improve. contact with formerly exempt recipients. The DSS The following sections will (1) discuss the estimates that 11,769 cases remain to be contacted implementation of recently enacted program before the end of December 2014. The Governor’s changes; (2) review the role of realignment in the budget proposal includes $99 million (General CalWORKs budget, focusing on a recently created Fund) to provide child care and employment mechanism that funds future CalWORKs grant services to families newly participating in WTW. increases with 1991 realignment growth revenues; This amount appears reasonable and is consistent and (3) evaluate the Governor’s Parent/Child with our understanding of the pace and cost of Engagement Demonstration proposal. phasing out the short-term exemptions. Implementation of Previously WTW 24-Month Time Limit Enacted Program Changes As part of the 2012-13 budget package, the Several significant program changes enacted in Legislature enacted two fundamental, ongoing prior years will continue to be implemented during changes to CalWORKs. First, the state rules that 38 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET govern the activities a recipient may participate rule flexibility may result in a greater number of in to meet the work requirement were altered families finding employment with wages high to provide greater flexibility to recipients to enough to disqualify them from CalWORKs participate in activities and receive services that assistance. Second, some adult recipients will best align with addressing barriers to employment. reach the 24-month time limit, fail to comply Second, a new 24-month limit on adult eligibility with federal work rules, and not be granted for CalWORKs assistance under these more extensions, resulting in decreased cash assistance flexible rules was introduced. Once 24 months and employment services for these families. The of assistance under the flexible state rules are administration has not estimated any savings exhausted, adult recipients are required to meet from the WTW 24-month time limit during the work requirement under relatively less-flexible 2014-15. We believe this is appropriate for a few federal work rules, which generally have a reasons. First, if a greater number of recipients heavier emphasis on employment, as opposed to found employment because of the program Graphic Sign Off education, training, or certain activities designed changes, we would expect the CalWORKs Secretary to address barriers to employment (such as mental caseload to decline. However, there are many Analyst health or substance abuse treatment). Recipients factors that could cause the CalWORKs caseload that fail to meet the applicable work rules at any to decline and data are not available to isolate MPA time while receiving aid are sanctioned by having the effect, if any, of the new time limit and Deputy their family’s grant reduced by the adult portion. related changes. Second, the earliest any recipient Months of participation under the 24-month could reach the 24-month time limit is January time limit need not be consecutive, meaning that cases that participate in activities that meet federal Figure 10 requirements in a given Rate of Exemptiona From CalWORKs Work Requirement month will not have that month counted against 45% their limit. Additionally, 40 counties may grant up to 35 20 percent of cases that 30 have passed the 24-month 25 limit and meet certain criteria an extension to 20 Short-Term Exemptions in Effect continue to participate 15 under state rules. 10 We expect that the 5 implementation of the WTW 24-month time 2009 2010 2011 2012 2013 limit may result in some a Rate of exemption defined as number of individuals exempt from the work requirement divided General Fund savings by the total number of individuals that could potentially be subject to the work requirement (including those exempt from the work requirement, sanctioned, and enrolled in welfare-to-work in two primary ways. activities). First, increased work ARTWORK #140100 www.lao.ca.gov Legislative Analyst’s Office 39 Template_LAOReport_mid.ait 2014-15 BUDGET 2015; however, there are many situations that can Expanded Subsidized Employment. Counties result in a month not being counted toward the were allocated $39 million in September 2013 to 24-month limit, thereby extending the earliest create additional subsidized employment positions date for most to reach the 24-month limit past for CalWORKs recipients. This amount was January 2015. Based on limited, preliminary data, budgeted to allow for gradually building up the less than one-third of recipients participating in number of new subsidized positions to roughly WTW had the month of November 2013 count 8,250 by June 2014. Chapter 21 defined broadly how against their limit. Based on this limited data, we the additional funds could be used and required expect that the number of recipients exhausting counties to submit plans to DSS describing in their 24-month limit in the latter half of 2014-15 greater detail how they intend to use the funds. The will be relatively small. Additional data needed to DSS reports that several counties have submitted more precisely estimate the fiscal and policy effects plans to date, with more expected in the coming of the 24-month limit will become available as months. For 2014-15, the Governor proposes to implementation continues during 2014. increase the amount of funding for expanded subsidized employment to $134 million (General Early Engagement Strategies Fund), with offsetting grant savings of $38 million As part of the 2013-14 budget package, the (a net amount of $96 million). Offsetting grant Legislature enacted Chapter 21, Statutes of 2013 savings occur because of reductions in cash (AB 74, Committee on Budget), which included assistance received by subsidized employment three strategies intended to help recipients more recipients to reflect increased wages. This amount effectively engage with the WTW component represents funding to continue 8,250 positions of CalWORKs in light of increased work rule through the 2014-15 fiscal year. As we have noted flexibility and the introduction of the 24-month in previous analyses, this represents a substantial time limit. Similar to these previous changes, expansion of the role of subsidized employment the early engagement strategies were in part in the CalWORKs program. In light of the intended to further assist CalWORKs recipients to Legislature’s approval of expanded subsidized address barriers to employment. These strategies, employment in the 2013-14 budget package, we collectively known as “early engagement,” include find that the magnitude of increased funding for an expansion of subsidized employment; additional subsidized employment is consistent with the costs funding for counties to provide enhanced services, of continued implementation for a full year. known as “family stabilization services,” to certain Family Stabilization Services. Counties were CalWORKs families; and funding to develop allocated $11 million in November 2013 to provide and implement a new statewide WTW appraisal intensive case management and specialized services tool. The Governor’s budget proposes a combined to adults and children in CalWORKs families $139 million (General Fund) for early engagement facing certain immediate, destabilizing needs in 2014-15, a $92 million increase over estimated during the second half of 2013-14. Chapter 21 spending on these initiatives in 2013-14. This broadly defines eligibility for family stabilization increase essentially reflects the costs of a full year services and what types of services may be of implementation. Progress on implementing each provided, and requires counties to submit plans of the early engagement strategies and proposed to DSS outlining how family stabilization funds funding for 2014-15 are discussed in detail below. will be used. However, implementing instructions 40 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET from DSS were delayed and no county plans had no earned income, the amount of cash assistance been received by DSS at the time this analysis was received will increase to $670 per month (41 percent prepared. For 2014-15, the Governor proposes of federal poverty guidelines), while the statewide to increase the amount of funding for family average grant is expected to rise to $480 per month stabilization services to $26 million (General during 2014-15. The administration estimates that Fund), which largely represents the same level of the cost of providing this grant increase from March funding as was provided in 2013-14 but for a full through June of 2014 is $58 million, with a full-year year of services. Without the experience of county cost in 2014-15 of $168 million. As described in implementation, it is difficult to assess the ongoing greater detail in the following sections, the costs of need for family stabilization services. We find the this grant increase are to be funded with certain budgeting methodology used by the administration 1991 realignment growth revenues, to the extent to establish the funding level for the services to be that such revenues are estimated to be available. The a good start and recommend that the Legislature Governor’s budget assumes that the realignment reevaluate the funding level for family stabilization growth revenues will be more than sufficient to as part of the 2015-16 budget process, taking cover the partial-year cost of the 5 percent increase into account county experience that will have during 2013-14, but that realignment revenues will accumulated by that time. be insufficient in 2014-15, such that $6.3 million of Standardized Appraisal. Chapter 21 expanded the total cost of the increase would be borne by the the scope of the appraisal performed for new General Fund. WTW participants, and required counties to use State-Local Realignment a new standardized appraisal tool to be developed and the CalWORKs Budget by DSS beginning in January 2014. The 2013-14 budget package included $8 million in additional State-local realignment plays an important role funding for counties to account for the additional in funding the CalWORKs program. The following time requirements of the new appraisal. However, section provides some background on state-local the development of the standardized appraisal has realignment, recent changes to realignment, and the also been delayed. As of the writing of this analysis, ways that these recent changes affect the CalWORKs DSS is in the final stages of engaging a contractor to budget. customize and implement a standardized appraisal 1991 Realignment tool that will be known as the Online CalWORKs Appraisal Tool, or OCAT, which is anticipated to be Program Changes. In 1991, the state enacted available to all counties by July 2014. The Governor a major change in the state and local government proposes $16 million (General Fund) in additional relationship, known as realignment. The 1991 funding for counties for 2014-15. This amount realignment package: (1) transferred several reflects a full year of implementation of OCAT. programs from the state to the counties, including indigent health, public health, and mental health Five Percent Grant Increase programs; (2) changed the way state and county As part of the 2013-14 budget package, the costs are shared for certain social services and Legislature also approved a 5 percent CalWORKs health programs (CalWORKs, IHSS, California grant increase that will take effect in March 2014. Children’s Services, and child welfare programs); For a family of three in a high-cost county that has and (3) increased the sales tax and vehicle license www.lao.ca.gov Legislative Analyst’s Office 41 2014-15 BUDGET fee (VLF) and dedicated these increased revenues allocation at 18 percent; (2) eliminated General for the increased financial obligations of counties. Growth allocations to the Social Services Funding Allocations Laws. The realignment subaccount; and (3) instead deposited these legislation established the Local Revenue Fund, General Growth revenues in the newly created and within it a series of accounts and subaccounts, Child Poverty and Family Supplemental Support into which dedicated revenues are placed to fund subaccount (hereafter referred to as the “Child different groups of programs. These included Poverty subaccount”), which pays for the costs of the Social Services subaccount, the Health certain future increases to CalWORKs grants. subaccount, and the Mental Health subaccount. Family Support Subaccount. The 2013 These three subaccounts, along with others added legislation additionally created the Family Support through subsequent legislation, are displayed subaccount in the Local Revenue Fund. This in Figure 11. A revenue allocation system was subaccount receives annual transfers of funds also established in which the total amount of from the Health subaccount in an amount that revenues allocated to each of these subaccounts roughly reflects estimated county indigent health in one year becomes the base level of funding in savings resulting from the expansion of Medi-Cal the next year. Growth in revenues between two through the ACA. The Family Support subaccount years is allocated to these subaccounts based on does not receive base or growth allocations from a separate set of statutory formulas. Under these dedicated 1991 realignment revenues. Funds formulas, growth revenues are first allocated to deposited into the Family Support subaccount the Caseload subaccount, which provides funding are used to pay for an increased county share to repay counties for the changes in cost-sharing of CalWORKs grant costs, directly offsetting ratios for programs funded through the Social General Fund expenditures. Services subaccount. Approximately 4 percent 2011 Realignment of any remaining growth revenues are then allocated to the County Medical Services Program Program Changes. The Legislature again subaccount. All remaining growth revenues, if enacted a major change in the state and local any, are then allocated to the General Growth government relationship in 2011 by shifting subaccount. Prior to the changes discussed certain additional state program responsibilities immediately below, revenues deposited in the and revenues to local governments (primarily General Growth subaccount were distributed back counties). As with the 1991 realignment, the among the Social Services, Health, and Mental 2011 realignment provided dedicated sales tax Health subaccounts, with about 8 percent going to and VLF revenues to support increased county the Social Services subaccount, a little more than fiscal responsibility for various criminal justice, half going to the Health subaccount, and about mental health, and health and social services 40 percent to the Mental Health subaccount. programs. The 2011 realignment resulted in the 2013-14 Budget Changes to General Growth creation of the Local Revenue Fund 2011, within Allocation. In 2013, budget-related legislation which numerous accounts were established to changed the way that growth revenues are distribute dedicated revenues among the realigned allocated. This legislation (1) reduced by roughly programs. two-thirds the amount of General Growth allocated to the Health subaccount by fixing the 42 Legislative Analyst’s Office www.lao.ca.gov Graphic Sign Off Secretary Analyst MPA 2014-15 BUDGET Deputy Figure 11 Allocation of 1991 Realignment Revenues Local Revenue Fund Revenue Collection Growth in VLF Growth in Sales Tax Base VLF Revenues Base Sales Tax Revenues Revenue Allocation Varies Social Services Caseload Subaccount Subaccount Health CMSP 4%a Subaccount Subaccount $900 Millionb Remaining 18% Growth Family Support Subaccount Mental Health General Growth About 40% Subaccount Subaccount $1.1 Billionc Remaining CalWORKs General Growth MOE Subaccount Child Poverty and Family Supplemental Support Subaccount a An additional amount equal to 4 percent of the Caseload subaccount allocation is allocated to the CMSP subaccount when the Caseload subaccount allocation is at least $20 million. b Amount estimated to be transferred in 2014-15. Actual amount transferred each year varies with estimates of local indigent health savings resulting from the expansion of Medi-Cal under the federal Patient Protection and Affordable Care Act. c Funds transferred to the CalWORKs MOE subaccount are provided from 2011 realignment funds. VLF = vehicle license fee; CMSP = County Medical Services Program; and MOE = maintenance of effort. Template_LAOReport_fullpage.ait ARTWORK #140038 www.lao.ca.gov Legislative Analyst’s Office 43 2014-15 BUDGET CalWORKs/Mental Health Transfer. Among Automatic Grant other things, the 2011 realignment legislation Increase Mechanism provides counties with revenue from the Local As noted above, budget-related legislation Revenue Fund 2011 for mental health programs, enacted in 2013 created a statutory mechanism freeing up county mental health funding by which CalWORKs grant payments will be provided through 1991 realignment. The 2011 automatically increased in years when a dedicated realignment legislation requires these freed up revenue stream (consisting of the growth in certain 1991 realignment funds to be used to pay for a 1991 realignment revenues) is estimated to be higher county share of CalWORKs grant costs sufficient to cover the cost of such an increase, as within each county, offsetting state General Fund well as the ongoing cost of all previous increases costs. This transfer of funds takes place as follows. provided under the mechanism. The 5 percent Each year a specified amount of 2011 realignment increase that takes effect in March 2014 is the first revenues is transferred to the Mental Health increase to be funded with the dedicated revenues. subaccount in the Local Revenue Fund (1991 Going forward, additional grant increases will be realignment). An equal amount of funding is then provided under a process that is laid out in statute. transferred from the Mental Health subaccount Specifically, the new statutory mechanism requires to a new subaccount created in the Local Revenue that the Department of Finance (DOF) regularly Fund, called the CalWORKs MOE subaccount. perform various calculations to determine the Similar to the Family Support subaccount, the level of grant increase, if any, to be provided CalWORKs MOE subaccount does not receive each year. Specifically, each January and May, base or growth funding from 1991 realignment in connection with the release of the Governor’s dedicated revenues. budget and May Revision, DOF will estimate the Significant CalWORKs General Fund amount of dedicated revenues available to support Spending Offset With Realignment Funds grant increases previously provided under the mechanism. If the available funds exceed the As a result of the realignment changes cost of previous increases, DOF will calculate the discussed above, significant CalWORKs costs that percentage increase in CalWORKs grants that otherwise would be borne by the General Fund can be supported by these excess funds. Such an are instead paid for with realignment revenues. increase would take effect the following October Specifically, in the Governor’s 2014-15 budget and would be ongoing. If, on the other hand, no proposal, General Fund spending on CalWORKs excess funds are estimated to be available, no is directly offset by (1) $1.1 billion from the additional grant increase will be provided. In the CalWORKs MOE subaccount, (2) $900 million event that dedicated realignment revenues are from the Family Support subaccount, and estimated to be insufficient to cover the costs of (3) $162 million from the Child Poverty previous grant increases, the previous increases subaccount. Taken together, funding from these remain in effect and the shortfall will be paid three realignment sources represent 72 percent of for from the General Fund. In this scenario, no proposed spending on CalWORKs grants from all future grant increases would be provided until funds, and 40 percent of proposed spending on past increases are fully supported by the dedicated the entire CalWORKs program from all funds. revenues. 44 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET Dedicated Revenues Estimated to be distributing remaining growth funds Insufficient for Additional Increase in October to other accounts, including the Child 2014. As noted previously, DOF estimates that Poverty subaccount. The application dedicated revenues will be insufficient to fully cover of the methodology for calculating the the cost of the 5 percent grant increase in 2014-15. Caseload subaccount allocations is difficult Under the process laid out in statute, this means to predict—allocations to the subaccount that no additional grant increase would be provided have varied significantly, ranging from less in October 2014. We find the DOF estimate than $1 million to more than $100 million reasonable; however, we note that the estimated in the past decade. As a result, growth in amount of dedicated revenues may be updated as revenues dedicated to provide additional part of the Governor’s May Revision as additional grant increases may not be stable from year information becomes available to estimate revenues to year. and costs in 2013-14 and 2014-15. • CalWORKs Caseload Projections. Finally, Magnitude of Future Grant Increases the size of grant increase that can be paid Uncertain, but Likely Around 2 Percent Annually. for with a given amount of dedicated Beyond 2014-15, we estimate that CalWORKs revenues depends on the number of grants could be increased through the statutory CalWORKs cases that receive assistance. mechanism on average by around 2 percent each As the caseload continues to decline, a year. We further estimate that this level of grant given amount of dedicated revenues can increases will largely keep pace with annual provide a larger percentage grant increase. increases in the federal poverty guidelines, such Fluctuations in the CalWORKs caseload that the level of grants as a percentage of federal will affect both the cost of previously poverty guidelines may remain relatively constant provided grant increases as well as the size over the next few years. This estimate is subject to of future grant increases. uncertainty, and the amount of grant increase that can be provided in any given year will vary. The Future Grant Increases Sensitive to Economic three main sources of uncertainty in the estimate Conditions. It is important to note that our are: estimate of the likely magnitude of future grant increases assumes continued steady, moderate • Revenue Growth Projections. As shown in growth in the economy. In a hypothetical scenario Figure 11, the amount of dedicated funds in which the state economy experiences a moderate deposited in the Child Poverty subaccount recession, growth in dedicated revenues could slow depends first on the amount of growth in or stop and the costs of grant increases previously sales tax and VLF revenues deposited in provided under the statutory mechanism would the Local Revenue Fund. Year-over-year increase as more families enter the CalWORKs changes in these revenue streams are caseload. This would likely result in a period of sensitive to economic conditions and are years in which no new grant increases would be difficult to predict with precision. provided and the General Fund would bear some of • Caseload Subaccount Allocations. As the costs of previous grant increases. shown in Figure 11, the allocation to the Caseload subaccount is met before www.lao.ca.gov Legislative Analyst’s Office 45 2014-15 BUDGET Proposed Parent/ in certain parental involvement activities for a Child Engagement number of hours each week with their children at Demonstration Pilot the child care location. The demonstration would involve an estimated 2,000 families in six counties. Overview Participating counties would be selected through a competitive application process. The demonstration Governor Proposes Testing New Approach would result in General Fund costs of $10 million to Addressing Needs of Families With Multiple in 2014-15, and an estimated total General Fund Barriers to Employment. The Governor proposes cost of $115 million over three years. This total in 2014-15 to begin a demonstration project cost would be made up of roughly $5 million for that would focus on improving outcomes for intensive case management and barrier-removal CalWORKs families that face multiple barriers services, $80 million for high-quality child care, to employment and are at higher risk of being and $31 million for parental involvement activities, sanctioned. As noted previously, sanctions occur with minor offsetting savings assumed to result when adult recipients do not comply with the from higher earnings of pilot participants. work requirement. When sanctioned, the adult is Specific Demonstration Elements to Be excluded from the calculation of the family’s grant, Determined by Implementing Counties. While the resulting in reduced monthly cash assistance for the administration has indicated some of the features it family (generally about $125). The administration wants included in the demonstration, other features highlights a few issues relating to families with of the intervention to be demonstrated would be multiple barriers to employment that motivate the determined by the six implementing counties. For proposal, specifically: (1) children in these families example, it appears that counties would largely are less likely to access high-quality child care, determine what standard and type of child care (2) parents in these families may not be engaged providers would be used (for example, counties in the educational development of their children, could partner with State Preschool programs or and (3) these families have very limited income licensed family child care homes), the format of and resources and, if sanctioned, receive decreased parental involvement activities, and which families assistance and are not accessing CalWORKs WTW would participate (participation by families would services that could help address their barriers to be voluntary). Counties would be expected to employment. consult with local child care organizations, such Proposed Pilot Seeks to Address These Issues as Local Child Care and Development Planning by Providing Intensive Services for Children and Councils, as they develop their applications. A Parents. To enable an evaluation of a potential project consultant from DSS would work with approach to address these issues, the pilot, selected counties as they plan for implementation. beginning in March 2015 and extending through Participating counties would be required to submit December 2017, would (1) provide intensive case regular progress reports and a final report on management and services under the existing various outcomes, including child care attendance, CalWORKs program intended to address the participation in parental involvement activities, parents’ barriers to employment and improve parent work readiness and employment, and school work-readiness; (2) provide “stable, high-quality” readiness. child care; and (3) require parents to participate 46 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET Assessment work. Stable, high-quality child care might also be expected to improve child developmental Administration Raises Valid Concerns. outcomes. The final component of the intervention, In general, we find that the concerns raised by parental involvement activities in the child care the administration about CalWORKs families setting, might be expected to affect both adult facing multiple barriers to employment are valid, work-readiness outcomes and child developmental particularly when these families are sanctioned. outcomes. We address each component of the As of November 2013, about 52,000 adults were intervention below. sanctioned (roughly 16 percent of all adults that Intensive Case Management and Barrier could be subject to the work requirement) and Removal Component Overlaps With Existing the number of sanctions is gradually rising. CalWORKs Services. The proposed pilot would Given the numerous negative outcomes that are provide intensive case management and barrier associated with poverty, particularly for children, removal services to CalWORKs families with we believe that focusing on addressing barriers multiple barriers to employment. In our view, this to employment for those families that face aspect of the intervention has the greatest direct the most significant barriers is an appropriate relevance to improving parent work-readiness priority for the Legislature. In including access to outcomes—one of the fundamental objectives of high-quality child care as a component of the pilot, the CalWORKs program. However, this component the administration also raises some important also appears to largely overlap with existing questions about the role of standards-based child CalWORKs services, particularly in light of recent care in the CalWORKs program. program changes (enacted by the Legislature in Proposed Pilot Intervention Is Complex. The 2012 and 2013), some of which are still under pilot seeks to address multiple concerns using a implementation. As discussed previously, recent multifaceted intervention and would examine significant changes to the CalWORKs program, effects on several outcomes. As noted, the pilot including increased flexibility in work rules and would seek to improve outcomes for both parents early engagement strategies, were intended to and children in families with multiple barriers increase the capacity of the CalWORKs program to to employment—specifically, work-readiness help recipients address barriers to employment. In and employment outcomes for adults and particular, Family Stabilization Services includes school-readiness and developmental outcomes an intensive case management component and for children. The three main components of the provides specialized services to families facing intervention might intuitively be expected to affect an identified destabilizing situation that would different sets of outcomes. The first component, interfere with participation in WTW—a condition intensive case management and barrier-removal that we believe would apply to at least some of the services, might be expected to primarily affect adult families that the proposed pilot would target. We work-readiness and employment outcomes. The note that the Legislature has already required an second component, stable, high-quality child care, evaluation of the extent to which changes related might be expected to affect both adult and child to the WTW 24-month time limit (including the outcomes, but in different ways. Lack of child care new work rules) result in addressing barriers to is a common barrier to employment—providing employment more effectively. child care makes it possible for adults to participate in other barrier-removal activities and ultimately www.lao.ca.gov Legislative Analyst’s Office 47 2014-15 BUDGET CalWORKs Families Already Entitled to Child known about the effect of parental involvement Care as Means to Improve Adult Employment activities on adult work-readiness or employment Outcomes. As part of the CalWORKs program, outcomes. While we acknowledge the possibility that families that are employed or participating in such activities could affect these adult outcomes, WTW activities already are guaranteed access to we think this effect would be very indirect and that subsidized child care. This pilot therefore would not the potential value added from demonstrating the provide anything substantially different in terms of impact of parental involvement on work readiness addressing adult work-readiness and employment does not justify the pilot. outcomes than what is currently available. Parental Involvement as Means to Improve State Child Care Programs With Educational Child Outcomes Outside CalWORKs Program Emphasis Currently Exist, but Access Issues for Focus. The potential effect of parental involvement CalWORKs Families Arise. In terms of addressing on child outcomes would be more direct. Providing child outcomes, the pilot could provide a different parental involvement activities in a child care setting type of child care program than CalWORKs is an approach that could be worth investigating. families currently access. Currently, some child However, we do not believe the added value of care providers that serve CalWORKs families must investigating the impact of parental involvement meet basic health and safety standards, but are not on child outcomes would justify the proposed pilot required to include educational components in their either, given the CalWORKs program’s focus on programs. The Governor’s proposal suggests that the assisting parents to become work ready as a means to child care offered as part of the pilot demonstration reduce child poverty. would include a greater emphasis on “quality,” which Recommendations would appear to feature a stronger educational focus. (Increasingly, research indicates that early childhood On Balance, Recommend Rejecting Governor’s programs that focus on education can have positive Proposal to Create New Pilot Program. While the impacts on children’s outcomes.) The state, however, Governor raises valid concerns about CalWORKs already funds several child care programs that have families with multiple barriers to employment, we considerable educational components, suggesting have several issues with the proposal. Specifically, the state does not need to create a new pilot program in our view (1) certain aspects of the proposed to demonstrate the impacts of such programs. pilot would provide services that largely duplicate CalWORKs families historically have had a difficult those already available in the CalWORKs time accessing these programs because of the way program, particularly given recent significant the state structures services—an important policy statutory changes that are still partially under question for the Legislature to consider. implementation; (2) the state currently funds child Little Evidence to Suggest That Parental care programs with an educational focus for similar Involvement Activities Would Directly Improve low-income children, so a new pilot is not necessary Employment Outcomes. In our view, the parental to demonstrate the impact of these programs on involvement component is the primary aspect of child outcomes; and (3) the potential added value of the pilot relating to adult outcomes that appears to testing the impact of parental involvement activities both exceed the services generally available through is not sufficiently compelling to justify a CalWORKs CalWORKs and present an opportunity to test a pilot, particularly given the pilot’s substantial cost new strategy through a demonstration. Little is ($115 million over three years). 48 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET Recommend Legislature Explore Ways programs funded by the state, but this issue does to Address Inconsistencies in Child Care merit legislative consideration. We recommend Standards. The proposed pilot does not directly the Legislature explore alternative ways to provide address challenges faced by CalWORKs families CalWORKs families more access to child care in accessing educationally focused child care programs with an educational focus. DSS STATE HEARINGS DIVISION Background entities called Health Benefit Exchanges. Through these exchanges, individuals and small businesses State Hearings Division (SHD). The mission are able to obtain information about health of the SHDa division of DSS—is to resolve coverage and purchase coverage. The California disputes of applicants and recipients of various Health Benefit Exchange (also known as Covered health and social services in an impartial, California) built a web-based portal designed to independent, and timely manner, ensuring that be a streamlined resource from which individuals due process is met. Appeal claimants can dispute and small businesses are now able to research, how an application or benefits/services are/ compare, check their eligibility for, and purchase were handled for various programs, including coverage. Medi-Cal, CalWORKs, CalFresh, and IHSS. Covered California has designated SHD to Federal and state law, along with judicial adjudicate all appeal requests related to various decisions, require DSS to provide claimants with of its determinations, including those regarding a timely due process in the adjudication of claims. Advanced Premium Tax Credits and Cost-Sharing To comply with the timeliness standards, SHD Reductions, Modified Adjusted Gross Income is generally required to adjudicate claims within (MAGI) Medi-Cal, and Small Business Health 90 days from when a claimant requests an appeal Option Programs. The SHD currently provides (within 60 days for CalFresh claims). According the appeal function for the Medi-Cal caseload, to a court decision, the state is assessed financial which will also increase to cover new populations penalties to the benefit of the claimants if the and additional enrollees under the ACA. The timeliness standards are not met by DSS. Penalties implementation of the ACA is projected to vary by program and are based on complex increase in 2014-15 SHD’s overall caseload by penalty formulas that can change from month to 53 percent above 2012-13, an equivalent of over month depending on whether SHD adheres to a 9,400 appeals. 95 percent timeliness standard. In January 2014, State Hearings System (SHS). The SHD is the penalty rate per day of a late decision was supported—technology wise—by an antiquated $82.50 for Medi-Cal, $55 for CalWORKs, $12.50 mainframe application and 21 “ad-hoc” for CalFresh, and $82.50 for IHSS. Penalties levied applications to track, schedule, and manage on the state for untimely SHD adjudication in appeal claims received from claimants in all 58 2012-13 totaled $5.2 million. counties. Collectively, these systems are known ACA-Related Growth in Appeals Caseload. as the SHS. According to DSS, the SHS does not In order to make health care coverage more meet existing SHD needs and will not be able accessible and affordable, the ACA establishes www.lao.ca.gov Legislative Analyst’s Office 49 2014-15 BUDGET to support the increased caseload associated • Staff Resources for Appeals Case with ACA implementation. Management System (ACMS). The Since the base technology for the SHS was Governor also proposes 11 three-and- built over 30 years ago, business needs of the SHD one-half-year or four-year limited-term have changed so that the system can no longer positions to develop and begin to address new information tracking requirements, implement and maintain the new ACMS information security challenges, additional over a four-year period. The ACMS project reporting needs, and other changes. Although is intended to replace the SHS with a these requirements have been addressed for the modernized case management database time being through the development of the 21 that would consolidate intake, scheduling, ad-hoc systems, these applications are largely and reporting functions. The ACMS manual and are not a sustainable solution to project is estimated to cost $12.3 million SHD’s changing business needs. and expected to be complete in March of Office of Systems Integration (OSI). The 2017. The proposal also requests $130,000 OSI—an office of the Health and Human Services in expenditure authority for one one-year Secretary—was established in 2005 to provide limited-term position at OSI to provide project management, oversight, procurement, and procurement and acquisition expertise to support services to a portfolio of large, complex, DSS on the ACMS project. and high criticality health and human services IT projects. Since its inception, OSI has developed LAO Findings a track record of successfully managing and ACA Caseload Projections Appear deploying mission critical IT systems that support Reasonable. The SHD’s standard caseload health and human services programs at the state, assumption is that 2.5 percent of applicants federal, and local level. of programs overall for which it performs an appeals function will request a state hearing, Governor’s Budget Proposal while 25 percent of hearing requests will result The Governor’s budget includes a proposal to in a full hearing. The SHD applies this standard address the growth in SHD caseload associated assumption in estimating the impact of ACA on with the ACA and the deficiencies of the SHS, at its caseload. This appears reasonable. However, a total cost of $11.1 million ($1.8 million General given the significant uncertainty about the Fund) in 2014-15. The proposal includes two actual impact of the ACA on SHD’s caseload, it components: is appropriate for the requested additional staff • Staff Resources to Address ACA Caseload to address ACA caseload be limited-term, as has Growth. The Governor proposes 63 been proposed by the Governor. two-year limited-term positions to address New ACA Workload Cannot Be Absorbed the addition of the ACA caseload to by SHD. The SHD experienced a growth in SHD. The proposal requests a mixture of penalties assessed against it for not meeting administrative law judges (39 positions) timeliness standards over the last five years due and support staff (24 positions). to a convergence of trends—a 26 percent growth in caseload over the past five years and a loss of 50 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET experienced staff due to a high rate of retirements. consolidation of the SHS is intended to streamline Given the challenges SHD has had complying the workload that is currently highly dependent with timeliness standards for existing caseload, on inefficient manual processes. the SHD is unlikely to absorb the additional Delaying or Rejecting Request Jeopardizes ACA-related caseload without jeopardizing timely Timeliness of Adjudication and Increases State’s due process and increasing the state’s penalty Penalty Exposure. Given the safety-net nature exposure. of the programs adjudicated through the SHD, Proposed Staffing Model Fosters Efficiencies timely due process for claimants is critical for at SHD. In addition to increasing the number effective and appropriate support of children, the of administrative law judges, the proposal also aged, blind, disabled, and their families. Without depends heavily on support staff to address the the staffing resources requested and efficiencies ACA-related caseload. Support staff are critical created by ACMS development, SHD would face to reducing the number of cases that go from significant challenges addressing a claims backlog hearing requests to actual hearings by performing while simultaneously providing due process to the prehearing functions, including reviewing all new ACA-related claimants. hearing requests, preparing administrative Analyst’s Recommendation dismissals of invalid hearing requests, confirming the need for a language interpreter, contacting We recommend approval of the Governor’s claimants and authorized representatives to proposal for 74 limited-term positions and assure hearing readiness of case, assisting in the $11.1 million to address the growth in caseload transmission and exchange of hearing documents, associated with the ACA and the replacement of and preparing postponement and withdrawal SHS with ACMS. This approach better positions of cases as appropriate. Collectively, the support SHD to provide timely due process for additional positions can increase efficiencies attained from claimants as a result of ACA implementation assessing the readiness of cases, thereby reducing and reduces the state’s penalty exposure through administrative law judges’ time spent on hearing the development of a more efficient automated cases. case management system to support SHD. It Extensive SHS Deficiencies Compromise is particularly appropriate that the added staff SHD. The SHD determined that the SHS did not related to ACA-driven caseload be limited term, have the capacity to manage the added volume as proposed by the Governor, given uncertainty created by the ACA caseload. To accommodate about the extent of this new workload as well as the new caseload, SHD built a duplicative the impacts of adding the requested staff. At the skeleton SHS to process ACA-related appeals. end of the limited term, ongoing ACA-related This solution is not an efficient response and does staffing requirements can be reevaluated, by not represent a long-term solution. The SHS also considering what had been achieved in terms of has a series of deficiencies that compromise its decreased penalty exposure and compliance with ability to efficiently manage existing caseload. timeliness standards as a result of the addition of The proposed ACMS project would create a single the requested limited-term staffing. case management database that would consolidate intake, scheduling, and reporting functions. The www.lao.ca.gov Legislative Analyst’s Office 51 2014-15 BUDGET DEVELOPMENTAL SERVICES Background RCs with a budget to purchase services from vendors for an estimated 265,709 consumers in Overview of DDS. The Lanterman 2013-14. These services can include day programs, Developmental Disabilities Services Act of 1969 transportation, residential care provided by (known as the Lanterman Act) forms the basis community care facilities, and support services of the state’s commitment to provide individuals that assist individuals to live in the community. with developmental disabilities with a variety The RCs purchase more than 100 different services of services and supports, which are overseen by on behalf of consumers. As the payer of last resort, DDS. The Lanterman Act defines a developmental RCs generally only pay for services if an individual disability as a “substantial disability” that does not have private insurance or if the RC cannot starts before age 18 and is expected to continue refer an individual to so-called “generic” services indefinitely. The developmental disabilities for such as other state-administered health and human which an individual may be eligible to receive services programs for low-income persons or services under the Lanterman Act include: cerebral services that are generally provided at the local palsy, epilepsy, autism, intellectual disabilities, level by counties, cities, school districts, or other and other conditions closely related to intellectual agencies. We note that the majority of consumers disabilities that require similar treatment (such as receiving services through the Community a traumatic brain injury). The department works Services Program are enrolled in Medi-Cal, to ensure that individuals with developmental California’s Medicaid program. (For a description disabilities, regardless of age, have access to of the Medi-Cal Program, please see the “Medi- services and supports that sufficiently meet Cal” section in The 2014-15 Budget: Analysis of the their needs, preferences, and goals in the least Health Budget.) restrictive setting. Unlike most other public social More than 99 percent of DDS consumers services or medical services programs, services receive services under the Community Services for the developmentally disabled are generally Program. These consumers live with their provided without any requirements that recipients parents or other relatives, in their own houses or demonstrate that they or their families do not apartments, or in residential facilities or group have the financial means to pay for the services homes designed to meet their needs. Less than themselves. The department administers two main 1 percent live in Developmental Centers (DCs), programs, described in detail below. discussed below. Community Services Program. Community- During a period of recent budget deficits, based services are coordinated through 21 the Legislature enacted numerous DDS budget nonprofit organizations known as regional reductions and cost savings measures to yield centers (RCs), which provide diagnosis, assess General Fund savings, such as rate changes and eligibility, develop individual program plans for provider payment reductions for RC vendors, each consumer, and help consumers coordinate service changes, and reliance on increased federal and access the services they need. The DDS funding. The provider payment reductions provides RCs with an operations budget in order experienced by RC vendors—including the to conduct these activities. The DDS also provides 52 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET 3 percent reduction in 2009-10, the 4.25 percent Intellectual Disabilities (ICF/IID), and General reduction in both 2010-11 and 2011-12, and the Acute Care hospitals. 1.25 percent reduction in 2012-13—have expired The DCs are licensed and certified to provide with no new provider payment reductions proposed a broad array of services based on each resident’s for 2014-15. However, rates paid to providers individual program plan, such as nursing services, established by statute or by the department assistance with activities of daily living, specialized have generally been frozen since 2003-04. Rates rehabilitative services, individualized dietary negotiated by the RCs for new providers were services, and vocational or other day programs limited beginning in 2008 to no higher than outside of the residence. The DCs must be certified the median rate for that service. Certain RC in order to receive federal Medicaid funding. programs and services have experienced further The vast majority of DC residents are enrolled in ongoing reductions. In 2008-09, the Supported Medi-Cal. Generally, for Medi-Cal enrollees living Employment Program provider rates were cut in DCs, the state bears roughly half the costs of by 10 percent (after having been increased by their care and the federal government bears the 24 percent in 2006-07) and remain at that level remainder. Over the past 15 years, the DCs have with no restorations proposed for 2014-15. In faced a history of problems identified by oversight 2009-10, a number of ongoing reductions were entities, such as DPH and the United States made to the Early Start program, which provides Department of Justice, including inadequate care, services to infants and toddlers under the age of insufficient staffing, and inadequate reporting and three who have a developmental disability (and investigation of instances of abuse and neglect. prior to 2009-10, to children who were at-risk for For more background on the history of problems a developmental disability). Also in 2009-10, the identified at DCs, please refer to the DDS analysis DDS suspended the availability of certain services, in The 2013-14 Budget: Analysis of the Health and including social/recreation activities, camping Human Services Budget. services and associated travel, educational services Task Force Provides Framework for for school-aged children, and certain nonmedical Long-Term Future of DCs. While the Governor’s therapies. The Governor’s budget does not propose budget (discussed below) addresses the immediate any restorations for the Early Start program or for funding needs of the DCs, a task force convened the suspended services. by the administration during the seven-month DCs Program. The DDS operates four 24-hour period from June to December 2013 released facilities known as DCs—Fairview DC in Orange a plan on January 13, 2014, for the long-term County, Lanterman DC in Los Angeles County, future of DCs. The task force included consumers, Porterville DC in Tulare County, and Sonoma family members of DC residents, RC directors, DC in Sonoma County—and one smaller leased consumer rights advocates, labor union members, community facility (Canyon Springs in Riverside community service providers, and staff from DDS. County), which together provide 24-hour care and The plan released by the task force on the future of supervision to approximately 1,300 consumers in DCs recognizes the need to reevaluate the role of 2013-14. Each DC is licensed by the Department DCs in light of the historical trend of individuals of Public Health (DPH), and certified by DPH with developmental disabilities moving out of on behalf of CMS, as Skilled Nursing Facilities, institutional settings and into the community. Intermediate Care Facilities for Individuals with We note that budget-related legislation enacted in www.lao.ca.gov Legislative Analyst’s Office 53 2014-15 BUDGET 2012-13 imposed a moratorium on new admissions 2014-15 Community Services Program budget to DCs, with exceptions for individuals involved plan reflects the following year-over-year budget in the criminal justice system and consumers in changes: an acute crisis needing short-term stabilization. • Caseload Growth and Greater Utilization The plan released by the task force recognizes the of Services. Increase of $139 million varying needs of existing DC residents and makes ($83 million General Fund) because of recommendations for improving community caseload growth and greater utilization of services and supports, while retaining institutional services. facilities for individuals who are in acute crisis or involved in the criminal justice system. • State-Mandated Hourly Minimum Wage Increase From $8 to $9. Increase of The Governor’s Budget Proposal $110 million ($69 million General Fund) Overall Budget Proposal. The budget for increasing the rates paid to certain RC proposes $5.2 billion (all funds) for DDS in vendors that employ workers currently 2014-15, which is a 4.5 percent net increase over earning less than $9 per hour. Chapter 351, estimated revised expenditures in 2013-14. General Statutes of 2013 (AB 10, Alejo), will increase Fund expenditures for 2014-15 are proposed at the state-mandated hourly minimum wage $2.9 billion, a net increase of $132 million, or from $8 to $9 beginning July 1, 2014. We 4.7 percent, over estimated revised expenditures analyze this component of the Governor’s in 2013-14. This net increase in total expenditures proposal later in this section. generally reflects increases in the budget for the • Federal Labor Regulations. Increase of Community Services Program, partially offset by $8 million ($4 million General Fund) in decreasing costs in the DCs Program budget. response to recent federal labor regulations Community Services Program Budget to take effect January 1, 2015. Please refer Proposal. The budget proposes $4.7 billion (all to the “Human Services Compliance With funds) for the Community Services Program in Federal Labor Regulations” analysis in this 2014-15, which is a 5.7 percent net increase over report for more detail on, and our analysis estimated revised expenditures in 2013-14. Of this of, this proposal. total, $580 million is proposed for RC operations expenditures and the remainder of $4.1 billion • Decrease in RC Purchase of Services Due is for the purchase of services from RC vendors. to Medi-Cal Benefit Restorations. Decrease General Fund expenditures for the Community of $3 million General Fund because Services Program in 2014-15 are proposed at of the restoration of certain Medi-Cal $2.6 billion, a net increase of $162 million, benefits, including the full restoration of or 6.5 percent, above the estimated revised enteral nutrition coverage and the partial expenditures in 2013-14. This net increase mainly restoration of adult dental services. reflects caseload growth and greater utilization DCs Program Budget Proposal. The budget of services, along with rising costs for vendors proposes $526 million (all funds) for the DCs as a result of the state-mandated increase in the Program in 2014-15, which is a 5.4 percent net hourly minimum wage and recent federal labor decrease below estimated revised expenditures in regulations impacting home care workers. The 54 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET 2013-14. General Fund expenditures for 2014-15 Air Quality Management Districts. The are proposed at $275 million, a net decrease of funding is part of the Governor’s proposal to $31 million, or 10 percent, below estimated revised spend $100 million General Fund statewide expenditures in 2013-14. This net decrease in on deferred maintenance projects in the DCs Program budget reflects the following 2014-15. year-over-year budget changes. • Sonoma DC Improvement Plan. Increase • Staffing Reductions Due to Decreased of $2 million ($1 million General Fund) Resident Population. Decrease of to fund improvements needed at Sonoma $13 million ($7 million General Fund) DC to ensure compliance with federal because of staffing reductions as the certification requirements for ICF living population of the DCs declines (these units. We note that DDS requested—and the staffing reductions exclude Lanterman DC, Joint Legislative Budget Committee (JLBC) which is discussed separately below). approved—$7 million ($4 million General Fund) in 2013-14 to begin making needed • Completion of Lanterman DC Closure. Net improvements at Sonoma DC. We analyze decrease of $23 million ($12 million General this component of the Governor’s proposal Fund) related to the ongoing closure of later in this section. Lanterman DC. The net decrease takes into account costs for closure and post-closure Headquarters Budget Proposal. The budget activities, which are more than offset by proposes $41 million ($26 million General Fund) savings from staff reductions as the resident for headquarters operations expenditures, which is population is assumed to decline to zero by a 1.8 percent increase above the revised estimate of December 31, 2014. expenditures in 2013-14. • Restoration of Lost Federal Funds at LAO Comments on Overall Sonoma DC. Decrease of $16 million Budget Proposal General Fund (increase of $16 million in federal funds) assumed in 2014-15 because Caseload Growth of the expected restoration of previously RC Caseload Has Steadily Grown in Recent lost federal funds as a result of the Years. Between 2006-07 and 2013-14, the RC implementation of the improvement plan, caseload is projected to grow from 211,180 to an discussed below, for four decertified ICF estimated 265,709—an average annual growth living units at Sonoma DC. rate of 3.3 percent. The caseload trend is shown in • Deferred Maintenance. Increase of Figure 12 (see next page). $10 million General Fund for deferred RC Caseload Estimate Appears Reasonable. maintenance projects in the DCs budget. The Governor’s budget assumes the RC caseload It is our understanding that the funds will in 2014-15 will be 273,643, an increase of 7,934 be used to replace boilers at Sonoma DC consumers, or 3 percent, compared to the most and Porterville DC and retrofit boilers at recent estimate of the 2013-14 caseload. Based upon Fairview DC to ensure compliance with our review of recent RC caseload data, we find the emissions regulations established by local administration’s caseload estimate to be reasonable. www.lao.ca.gov Legislative Analyst’s Office 55 2014-15 BUDGET If we receive additional information that causes us to zero consumers by December 31, 2014. We note that change our overall assessment, we will provide the 22 consumers are expected to reside in Lanterman Legislature with an updated analysis. DC at the beginning of 2014-15. The ability of DC Caseload Has Steadily Declined in DDS to transition all Lanterman DC consumers to Recent Years. Between 2006-07 and 2013-14, the community-based settings by December 31, 2014 DC population has declined from 2,877 to an assumes the successful execution of transition plans estimated 1,333—an average annual decline of developed for Lanterman DC residents. Based upon 10.4 percent. This decline in the DC population our review of recent DC caseload data, we find the is mostly attributable to the closure of DCs and administration’s caseload estimate to be reasonable. the corresponding transition of consumers to If we receive additional information that causes us to community-based settings, which is consistent change our overall assessment, we will provide the with federal and state policy to provide services to Legislature with an updated analysis. developmentally disabled individuals in the least Governor’s Budget Proposes Rate Increases restrictive setting. In 2009, Agnews DC in Santa for Certain RC Vendors as a Result of Clara County was closed and Lanterman DC is Enacted Minimum Wage Increase scheduled to close by December 2014. In addition, the moratorium on new admissions to DCs Because of the structure of the Community established in 2012-13 has contributed to a decline in Services Program, in which RCs purchase services the DC caseload. from vendors on behalf of consumers, the DDS DC Caseload Estimate Appears Reasonable. does not maintain data on the number of workers The Governor’s budget assumes the DC caseload in employed by RC vendors and their wages. However, 2014-15 will be 1,110, a decrease of 223 consumers, since the state-mandated hourly minimum wage is or 16.7 percent, compared to the most recent scheduled to increase from $8 to $9 beginning July 1, estimate of the 2013-14 caseload. This caseload 2014, the Governor’s budget proposes to increase the estimate includes the population residing in rates paid to certain vendors who employ workers Lanterman DC—which is expected to decline to who currently earn less than $9 per hour. Because DDS does not have data on the workers who will be Figure 12 impacted by this increase, the Governor’s budget Regional Center includes a proposal for budget-related legislation Caseload Growth Trend that would establish a process whereby most vendors Increase From could provide documentation to either DDS or the Average Prior Year Annual RC on the number of employees earning less than Caseload Consumers Percent $9 per hour in order to receive an appropriate rate 2006-07 211,180 increase. The Governor’s budget assumes that seven 2007-08 221,069 9,889 4.7% types of RC vendors will receive rate increases— 2008-09 229,675 8,606 3.9 2009-10 236,858 7,183 3.1 these vendors include community care facilities, 2010-11 242,977 6,119 2.6 day programs, habilitation services, transportation 2011-12 249,532 6,555 2.7 services, support services, in-home respite, and 2012-13 256,224 6,692 2.7 2013-14a 265,709 9,485 3.7 out-of-home respite—at an estimated cost of Average 239,153 7,507 3.3 $110 million ($69 million General Fund) in 2014-15. a Administration’s caseload estimate. Because DDS intends to provide rate increases to 56 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET vendors that are impacted by the minimum wage four ICF living units at Sonoma DC from federal increase and because there is no existing data certification, leading to the loss of federal Medicaid available on impacted workers, the exact cost of funds in the amount of $16 million in 2013-14 funding the minimum wage increase is uncertain. (partial-year effect for 2012-13 was $7 million). We note that Supported Employment Program The lost federal funds have been backfilled by an providers would not receive a rate increase, nor have equivalent amount of General Fund to ensure that the ability to apply for a rate adjustment, based on DC residents continue to receive services. the administration’s current approach, and we are During annual recertification surveys conducted still evaluating whether this is appropriate. by DPH in 2013, ICF units at Fairview, Porterville, Analyst’s Recommendation. We recommend and Lanterman DCs were also found to be out of the Legislature approve the Governor’s budget compliance with various federal requirements. proposal to provide $110 million for DDS to comply The facilities were found to have some common with new minimum wage requirements, as we deficiencies, including inconsistent treatment plans, find it to be a reasonable approach for addressing residents who were not adequately protected from the need to increase rates for certain vendors that abuse or harm, and inconsistent implementation of employ workers who currently earn less than policies generally related to clients’ health and safety $9 per hour. We also agree that, in the absence of and client rights. Fairview and Porterville DCs were data demonstrating the exact number of impacted found to have additional deficiencies unique to each workers, the administration’s flexible approach facility. of allowing impacted vendors to seek a rate Generally, when a DC is found to be out of adjustment is appropriate. However, because we are compliance with federal certification requirements, unsure of the exact cost of funding the minimum it must implement a program improvement plan wage increase, we further recommend that the that involves several steps—(1) an independent Legislature create a separate appropriation to fund review conducted by outside experts who develop this expenditure. The separate appropriation would an action plan that identifies the “root cause” of ensure that the funds are used for the intended deficiencies and proposes action items to prevent purpose of vendors’ payroll costs associated with the the deficiencies, (2) DPH approval of the action new minimum wage. plan and implementation by the facility, and (3) a recertification survey by DPH. Administration Proposes to Address Current-Year Funding Augmentations for Federal Compliance Issues at DCs Sonoma DC Approved by Legislature. In order to The state’s DCs undergo annual recertification attain federal certification for the four decertified surveys conducted by DPH to ensure that the ICF living units, Sonoma DC must undertake the facilities meet federal requirements for receipt of three-step program improvement plan process federal Medicaid funds. A July 2012 recertification described above. In January 2014, the DDS survey conducted by DPH identified problems requested—and the JLBC approved—$7 million impacting residents’ health and safety at Sonoma ($4 million General Fund) for the unanticipated DC. In December 2012, DPH announced it was costs of implementing the action plan for Sonoma taking significant action to protect Sonoma DC DC beginning in 2013-14. The funding approved by residents due to the identified deficient practices at the JLBC for the remainder of 2013-14 will enable the DC. In January 2013, DDS voluntarily withdrew Sonoma DC to make the following improvements. www.lao.ca.gov Legislative Analyst’s Office 57 2014-15 BUDGET • Augment Staffing Levels for Licensed Governor’s Budget Proposes to Continue Medical Professionals and Other Staff Funding Improvements at Sonoma DC to Ensure Positions at Sonoma DC. Increase of Restoration of Federal Funds. The Governor’s $4 million ($2.1 million General Fund) to 2014-15 budget proposal requests $9 million augment staffing levels for licensed medical ($5 million General Fund) for the full-year, professionals and other staff including: ongoing cost of implementing the action plan for psychiatrists; direct care staff, such as regis- Sonoma DC. This full-year, ongoing cost mostly tered nurses, licensed vocational nurses, funds staffing at the augmented level approved and psychiatric technicians; rehabilitation, by the Legislature as a current-year adjustment. occupational, and physical therapists; The Governor’s budget indicates that the earliest speech pathologists; office technicians; possible date for the four decertified ICF living and independent program coordinators. units at Sonoma DC to attain certification is The augmentation provides for 112 new March 30, 2014. Given this date, the Governor’s positions (which includes 8 positions budget assumes that lost federal funds in the secured through contracts). amount of $16 million will be restored beginning July 1, 2014. • Provide Training for All ICF Staff at Analyst’s Recommendation. Based upon our Sonoma DC. Increase of $2.7 million review of the proposal to make improvements at ($1.5 million General Fund) to provide a Sonoma DC, it appears reasonable for the budget one-time enhanced training to all ICF staff to assume that the federal funding will be restored and to pay overtime costs to backfill direct beginning July 1, 2014. We find the 2014-15 budget care staff attending training. request to be reasonable and appropriate, as the funding will enable DDS to make improvements • Open New ICF Unit at Sonoma DC. at Sonoma DC that are needed to restore federal Increase of $400,000 ($200,000 General funding and comply with federal certification Fund) to open a new ICF living unit to requirements. decrease the population in existing ICF To ensure legislative oversight of the units and reduce aggressive incidents implementation of the action plan, we recommend between clients. The opening of a new the Legislature require the department to report at ICF unit does not require a capital outlay budget hearings on its progress in implementing expenditure. Some of the additional direct the changes at Sonoma DC, with particular care staff positions will staff the new ICF attention to the status of filling needed positions for unit. licensed medical professionals and other staff. • Purchase Three Additional Wheelchair- Fairview, Porterville, and Lanterman DCs Accessible Vehicles. Increase of $100,000 Will Retain Federal Funding During Improvement General Fund to purchase three additional Process. The DPH and DDS have reached wheelchair-accessible vehicles so each ICF agreements as of January 16, 2014, that will enable living unit at Sonoma DC has access to the Fairview, Porterville, and Lanterman DCs to transportation for community outings or retain federal Medicaid funding while the facilities on-campus transport. make improvements to meet federal standards. Like Sonoma DC, the Fairview and Porterville DCs will 58 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET implement improvements based on an action plan consumers. The specific plan for each of the three specific to the DC—to be developed through an DCs will dictate the amount of state funding, if independent review by outside experts on the root any, needed to make improvements to avoid federal cause of deficiencies and action items to prevent decertification and the loss of federal Medicaid the deficiencies. For Lanterman DC, which DDS funds. Based on our conversations with DDS, the plans to close by December 2014, an independent timing for the completion of a specific plan for monitor will oversee the facility’s closure to each of the three DCs is uncertain. Additional state ensure the health and safety of the remaining resources may be required to make improvements at each of the three DCs. HEALTH AND HUMAN SERVICES AGENCY IT STRATEGIC PLANNING PROPOSAL Background and (3) developing an “enterprise architecture”— the organization of IT infrastructure to reflect The CHHSA—headed by the office of the integration, consolidation, and standardization Secretary of CHHSA—is the largest state agency, of requirements. Historically, the OAIO has with direct oversight of 13 departments and other not had dedicated staff; instead, its functions entities. With an estimated cost of $1.8 billion to have been performed primarily through the complete projects in progress, the CHHSA also sporadic redirection of staff from various CHHSA has one of the largest and most complex IT project departments. portfolios in the state. Some of the largest projects The OSI. The OSI—also an office of the include (1) the Los Angeles Eligibility, Automated Secretary—was established in 2005 to provide— Determination, Evaluation, and Reporting under contract with CHHSA departments—project Replacement System—which replaces an existing management, oversight, procurement, and support automated welfare system, (2) California Medicaid services to a portfolio of large, complex, and high Management Information System—which criticality health and human services IT projects. processes payments to Medi-Cal fee-for-service (Outside CHHSA, departments are responsible providers, and (3) Child Welfare Services-New for their own project management, unless project System—which modernizes Child Welfare Services’ management services are contracted out to a third- case management system. party vendor.) Although there is collaboration The Office of the Agency Information between OAIO and OSI, typically OSI begins Officer (OAIO). Legislation enacted in 2007 its project management role once the strategic vested broad responsibilities to improve the planning is competed by OAIO. Since its inception, governance and strategic planning of IT with an OSI has developed a track record of successfully agency Chief Information Officer. The CHHSA’s managing and deploying mission critical IT Chief Information Officer was established as the systems that support health and human services OAIO—an office of the Secretary. It is charged programs at the state, federal, and local level. Given with (1) overseeing the IT portfolio of CHHSA OSI expertise, departments inside and outside departments, (2) ensuring that all CHHSA CHHSA have requested OSI’s technical assistance departments are in compliance with state IT policy, www.lao.ca.gov Legislative Analyst’s Office 59 2014-15 BUDGET for their IT projects. In other cases, at-risk projects system. The committee would encourage have been referred to OSI by CHHSA or the collaboration and partnership across Department of Technology. The OSI’s funding and departments to facilitate data sharing staffing is project-specific. Therefore, OSI does not and adoption of common standards and have the ability to redirect staff resources to provide solutions across CHHSA. technical assistance to projects not under contract • Project Assessment Program. The project with OSI. Rather, it needs to obtain reimbursement assessment program would advise and and position authority on a project-by-project basis. collaborate with CHHSA departments The OSI indicates that given barriers to securing during the early initiation and planning reimbursement authority, discussed further below, phases of a project to ensure that best OSI has not accommodated requests or referrals for practices are incorporated into project technical assistance in the past. plans. The OAIO would also assess if Governor’s Budget Proposal projects are appropriately resourced and if timelines and cost projections are The Governor’s budget proposes various accurate. programs intended to bolster CHHSA’s ability to strategically plan IT projects under the Collectively, these programs are intended to agency. Specifically, the proposal requests enhance CHHSA’s ability to provide oversight and three permanent positions and $431,000 in advisory services to CHHSA departments so that reimbursement authority to establish three projects are best positioned to succeed. While one agency-wide programs located in OAIO. of the requested permanent positions would focus on strategic enterprise architecture, the remaining • Strategic Enterprise Architecture two positions would share responsibility for Program. The strategic enterprise governance and program assessment, with one architecture program would set the IT position taking a management role while the other strategic vision for CHHSA and ensure position taking a staff analyst role. The requested proposed IT projects under the agency positions would replace the redirected staff used align with CHHSA’s strategic vision. sporadically in the past. The program would also foster the Provisional Language to Strengthen OSI’s development of flexible technologies that Ability to Share Timely Expertise With IT facilitate information sharing across Projects Statewide. The Governor’s budget also CHHSA departments. In other words, proposes provisional budget language that is the building of systems with similar intended to expedite OSI’s ability to provide structures so they can communicate with as-needed technical assistance to departments each other is encouraged. inside and outside CHHSA. Specifically, the • Governance Program. A committee provisional language would exempt augmentations established through the governance to reimbursements for OSI from Section 28.50 program would be responsible for of the annual budget act—which provides reviewing IT projects to identify a legislative review process for authorizing opportunities for multiple departments mid-fiscal year increases in reimbursement with similar IT needs to leverage a single authority above $200,000—and instead only 60 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET require the Director of Finance to provide written Strategic Planning Could Eliminate notice to the Legislature within 30 days when the Duplicative Projects, Improve System increase to reimbursements exceeds $200,000. Interoperability, and Lead to Enhanced This would allow OSI to receive reimbursements “Customer” Service. Once implemented, and administratively establish the positions duplicative technology systems often do not align necessary to provide the technical assistance to well and introduce program inefficiencies and the requesting or referred department as soon as interoperability issues, including systems being the request or referral for its assistance is initiated. unable to share data. Collectively, the strategic If ongoing reimbursement and position authority enterprise architecture and governance programs were necessary, it would be requested through the proposed by the Governor’s budget could help annual budget process. eliminate duplicative projects by coordinating IT investments and aligning projects towards LAO Findings a CHHSA strategic vision. The enhanced Limited Capacity for IT Strategic Planning interoperability of technology systems would Currently Exists. The OAIO’s historical reliance create more flexible architecture that enables on staff sporadically redirected from other information sharing. A flexible architecture in CHHSA departments to address its staffing turn could significantly improve the experience requirements has resulted in it having limited of Californians serviced by the programs success in ensuring CHHSA-wide coordination administered through CHHSA departments. For and strategic planning of IT projects. The OAIO example, in a fully interoperable environment, a currently lacks the structure for comprehensive recipient of multiple CHHSA administered benefits evaluation and prioritization of its IT investments. could provide a change of address notice to a single There is also no formal governance structure program that would then be shared with the other in place to review and assess whether multiple programs, instead of providing the change of departments are pursuing duplicative solutions— address notice to multiple programs. such as when multiple departments each develop Guidance During Planning Phase Could their own case management system rather than Improve Project Success. The state takes on leveraging a single case management system. additional risk when strategic planning of Pursuing duplicative solutions does not support IT investments is absent. High-quality and the most cost-effective or efficient approach to thorough planning best positions projects for technology development. Ultimately, undedicated success. The best practices shared by the OAIO and unstable sources of funding results in little and incorporated into project plans of CHHSA ability to ensure IT investments are maximized so departments during the early stages of a project that systems are interoperable (can communicate could have a critical impact on the success of with each other) and easily leveraged across the project. Guidance provided by the project multiple CHHSA departments with common assessment program that is part of the Governor’s technology needs. The ability of OAIO to fulfill its budget proposal could be the difference between a mission would be strengthened through dedicated successful project and a failed project. full-time staff—a component of the Governor’s Potentially Significant Cost Avoidance. The budget proposal. proposal could lead to potentially significant cost savings. First, the proposed project assessment www.lao.ca.gov Legislative Analyst’s Office 61 2014-15 BUDGET program could produce better-planned projects, Analyst’s Recommendation which could avoid costly rework commonly We agree that the strategic enterprise associated with inadequate planning. Second, architecture, governance, and project assessment the proposal’s focus on coordination and programs included in the Governor’s budget interoperability of CHHSA IT systems would allow proposal could better position the state for the agency to identify opportunities where a single successful deployments of CHHSA technology system could be leveraged—representing a more systems and, therefore, support the crux of the cost-effective approach to system development. Governor’s proposal in concept. However, it is Ambitious Proposal With Limited Resources. uncertain what level of resources will be necessary The proposal requests modest resources to achieve to meet the proposal’s ambitious goals. Therefore, ambitious policy objectives. It is the first time we recommend that the three requested positions OAIO would be allocated dedicated staff towards be approved on a three-year limited-term basis, fulfilling its mission. The historic use of redirected along with approval of $431,000 in reimbursement staff creates uncertainty regarding the amount authority, to be followed by a status report to of resources necessary to adequately achieve the the Legislature from the Secretary of CHHSA objectives of the OAIO. on the effects of the proposal and the extent to Proposed Provisional Language Does Not which it met its statutory charge at the budgeted Appear to Facilitate Desired Outcome. We agree level of resources. The three-year duration and that requests and referrals for technical assistance subsequent evaluation would also provide OAIO from OSI likely often require timely attention with an opportunity to assess workload demands in order for the assistance to be valuable. The and propose staffing adjustments to maximize the administration has stated that OSI would be better impact of strategic IT planning across CHHSA. positioned to provide timely assistance if it were This approach would strengthen OAIO’s ability to granted an exemption from the Section 28.50 better meet its responsibilities in the near term, process, and it has proposed provisional budget while allowing OAIO staffing levels to be revaluated language to this effect. It has stated that the review and adjusted as needed in the long term. process for these requests (which includes the At this time, we do not recommend approval review of the DOF) can take three months or more. of the proposed budget provisional language that Since Section 28.50 allows for a waiver of what would exempt augmentations to reimbursements is at most a 30-day legislative review period, and for OSI from Section 28.50 of the annual budget given that most requests to increase reimbursement act given that this exemption would not address authority to accommodate requests for technical what appear to be delays in the administration’s assistance have been below the cost threshold own internal review processes. In this regard, requiring legislative review under Section 28.50, it we recommend that the administration report does not appear that Section 28.50 is the root cause at budget hearings on the steps that it can take of the problem identified by the administration. to provide more efficient review to facilitate the Rather, it appears that it is the administration’s own provision of timely assistance by OSI to projects internal review processes that are impeding the requesting such assistance. provision by OSI of timely technical assistance to requesting projects. 62 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET www.lao.ca.gov Legislative Analyst’s Office 63 2014-15 BUDGET Contact Information Mark C. Newton Deputy Legislative Analyst 319-8323 Mark.Newton@lao.ca.gov Shawn Martin Managing Principal Analyst 319-8362 Shawn.Martin@lao.ca.gov Ginni Bella Navarre Child Welfare and Support 319-8342 Ginni.Bella@lao.ca.gov Community Care Licensing Rashi Kesarwani In-Home Supportive Services 319-8354 Rashi.Kesarwani@lao.ca.gov Developmental Services Lourdes Morales Information Technology 319-8320 Lourdes.Morales@lao.ca.gov Ryan Woolsey CalWORKs 319-8356 Ryan.Woolsey@lao.ca.gov CalFresh LAO Publications The Legislative Analyst’s Office (LAO) is a nonpartisan office that 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 website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, CA 95814. 64 Legislative Analyst’s Office www.lao.ca.gov