The 2018-19 Budget: Analysis of the Health and Human Services Budget

The 2018-19 Budget: Analysis of the Health and Human Services Budget MAC TAYLOR LEGISLATIVE ANALYST FEBRUARY 16, 2018 analysis full gutter 2018-19 BUDGET LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET Table of Contents Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Human Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Medi-Cal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Overview of the Medi-Cal Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Caseload Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Proposition 55 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Federal Reauthorization of CHIP Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Proposition 56 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Department of State Hospitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 DSH-Coalinga Expansion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Proposals to Expand IST Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Governor’s IST Diversion Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 CalWORKs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 CalWORKs Caseload Now at Historic Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Budget Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Analysis of Governor’s Proposed Single Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Analysis of Governor’s Proposed Use of Freed-Up TANF Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Legislature Has Opportunity to Build Its Own TANF Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 In-Home Supportive Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Budget Overview and LAO Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 SSI/SSP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45 Developmental Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Overview of the Governor’s Budget Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Issues for Legislative Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Continuum of Care Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Overview of the Child Welfare System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Major Changes Under CCR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57 Status Update on CCR Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Overview of the Governor’s Budget for CCR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 LAO Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 www.lao.ca.gov analysis full gutter 2018-19 BUDGET LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET Executive Summary Overview of the Health and Human Services Budget. The Governor’s budget proposes $23 .8 billion from the General Fund for health programs—a 7 .1 percent net increase above the revised estimated 2017-18 spending total—and $13 .5 billion from the General Fund for human services programs—a net increase of 2 .9 percent above the revised estimated 2017-18 spending total . For the most part, the year-over-year budget changes reflect caseload changes, technical budget adjustments, and the implementation of previously enacted policy changes, as opposed to new policy proposals . Significantly, the budget reflects a net increase of $1 .5 billion from the General Fund for Medi-Cal local assistance, in part reflecting (1) a lower proportion of Proposition 56 (2016) tobacco tax revenues offsetting General Fund cost growth and (2) a higher state cost share for the Patient Protection and Affordable Care Act optional expansion population . Medi-Cal: Caseload Essentially Flat, No Proposition 55 Funding Assumed. The Governor’s budget projects an average monthly Medi-Cal caseload of 13 .5 million in 2018-19—virtually flat from estimated 2017-18 caseload . We find these caseload estimates to be reasonable . For the first time, the Director of Finance has made a calculation under a budget formula in Proposition 55 (2016) that determines whether a share of Proposition 55 tax revenues is to be directed to increase funding in Medi-Cal in a given fiscal year . The Governor’s budget provides no additional funding for Medi-Cal pursuant to this formula . We are currently reviewing the administration’s approach to this formula and will provide our comments to the Legislature at a later time . Recent Federal Reauthorization of Children’s Health Insurance Program (CHIP) Funding Will Result in General Fund Savings Not Assumed in the January Budget. CHIP is a joint federal-state program that provides health insurance coverage to about 1 .3 million children in low-income families, but with incomes too high to qualify for Medicaid . Due to congressional appropriations made after the administration finalized its proposed 2018-19 budget, the proposed state budget makes federal funding assumptions that differ from the recent federal action . As the recent federal action continues federal funding for CHIP at a higher federal cost share than assumed in the budget, the Governor’s May Revision budget proposal will reflect a downward adjustment of General Fund costs for CHIP totaling $900 million over 2017-18 and 2018-19 . Governor’s Proposition 56 Budget Proposal for Medi-Cal Essentially Aligns With the 2017-18 Budget Agreement; Legislature Afforded Opportunity to Target Funding Available for Additional Provider Payment Increases. Proposition 56 raised state taxes on tobacco products and dedicates the majority of associated revenues to Medi-Cal on an ongoing basis . We find that the Governor’s budget proposal essentially aligns with a two-year 2017-18 budget agreement between the Legislature and the administration on the use of Proposition 56 revenues in Medi-Cal . Of the total amount of 2017-18 and 2018-19 Proposition 56 revenues, the Governor allocates a total of about $1 .4 billion to provider payment increases, with the remaining balance of $880 million to be used to offset General Fund spending on Medi-Cal cost growth . Under the Governor’s proposal, we estimate that $523 million in total Proposition 56 funding is available for additional provider payment increases beyond those structured in the 2017-18 agreement . The Legislature will be able to determine how these new payments are structured . www.lao.ca.gov 1 analysis full gutter 2018-19 BUDGET Governor’s Incompetent-to-Stand Trial (IST) Proposals Raise Several Issues for Legislative Consideration. The Governor’s budget includes various proposals to increase IST capacity as a way to reduce the number of individuals waiting to be transferred to a treatment program . We recommend the Legislature define what it considers an appropriate IST waitlist, which would allow it to then determine how many additional beds are needed to reduce this waitlist . The budget also includes $100 million (one time) for the Department of State Hospitals to contract with counties to establish IST diversion programs that are intended to primarily treat offenders before they are declared IST . While the concept of IST diversion programs has merit, we find that the Governor’s proposal is not well structured to achieve its intended benefits . As such, we recommend the Legislature instead direct the department work with individual counties to develop proposals for specific county IST diversion programs that would include such information as the specific services that would be provided . CalWORKs Caseload at Historical Low, Freeing Up Federal Funds for Other Uses. The Governor’s budget estimates the California Work Opportunity and Responsibility to Kids (CalWORKs) caseload will be 400,000 in 2018-19—the fewest participants in the program’s 20-year history . As a result of the caseload decline, federal funds that were previously used to fund the CalWORKs program are freed up for other purposes . The Governor proposes to spend the freed-up funds to (1) offset General Fund costs outside of CalWORKs, (2) fund a new home visiting program in CalWORKs, and (3) fund a one-time early education grant program in the California Department of Education . We evaluate the Governor’s proposal for CalWORKs, highlight issues and questions for legislative consideration, and note that the freed-up funds provide the Legislature with an opportunity to create its own plan for spending the funds . Governor’s Proposals for IHSS and SSI/SSP Program Appear Reasonable. We have reviewed the administration’s 2018-19 budget proposals for the In-Home Supportive Services (IHSS) and the Supplemental Security Income/State Supplementary Payment (SSI/SSP) . While we raise a few issues for legislative consideration—mainly related to the new methodology for calculating administrative costs in IHSS—overall we find the administration’s proposals to be reasonable at this time . We will continue to monitor IHSS and SSI/SSP programs and update the Legislature if we think any updates to the caseload and budgeted funding levels should be made . Department of Developmental Services (DDS) Budget Reflects Continued Activity Leading to Closure of Developmental Centers (DCs). In 2015, the administration announced its plan to close the state’s remaining DCs by the end of 2021 . The transition of the remaining DC residents to the community appears on track for 2018-19 . Noting that the Legislature has been considering a proposal to earmark any possible savings from the closures of DCs for the DDS community services program, we discuss the benefit of the Legislature directing DDS to conduct a comprehensive assessment of service gaps and related unmet funding requirements in the community services system overall . Governor Continues to Implement Continuum of Care Reform (CCR), Some Challenges Emerge. The Governor’s budget proposes funding in 2018-19 to continue to implement CCR in the state’s foster care system . At a high level, CCR aims to reduce reliance on long-term group home placements and increase the utilization and capacity of home-based family placements for children in the foster care system . While the Governor’s proposal reflects more realistic estimates of the costs and savings associated with CCR than assumed in recent Governor’s budgets, it does not propose any major changes in CCR policy . We provide background on CCR, highlight a few implementation challenges that have emerged, describe the Governor’s funding proposal, and raise issues and questions for legislative consideration with the goal of addressing these implementation challenges . 2 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET OVERVIEW HEALTH “local assistance,” whereas funding for state employees to administer health programs at the state level and/or provide services is known as “state operations .”) Background on Major Health Programs Expenditure Proposal by California’s major health programs provide a variety of health benefits to its residents . These benefits include Major Programs purchasing health care services (such as primary Overview of General Fund Health Budget care) for qualified low-income individuals, families, and Proposal. The Governor’s budget proposes seniors and persons with disabilities (SPDs) . The state $23 .8 billion from the General Fund for health also administers programs to prevent the spread of programs . This is an increase of $1 .6 billion—or communicable diseases, prepare for and respond to 7 .1 percent—above the revised estimated 2017-18 public health emergencies, regulate health facilities, and spending level, as shown in Figure 1 . achieve other health-related goals . Summary of Major General Fund Budget The health services programs are administered Assumptions and Changes. The year-over-year at the state level by the Department of Health Care increase of $1 .6 billion General Fund over the Services (DHCS), Department of Public Health, revised estimated 2017-18 spending level is largely Department of State Hospitals (DSH), the California comprised of a net increase in expenditures in Health Benefits Exchange (known as Covered California Medi-Cal local assistance . (We note that the roughly or the Exchange), and other California Health and 15 percent increase in General Fund expenditures in Human Services Agency (CHHSA) departments . The DSH reflects in part the proposed implementation of actual delivery of many of the health care services various strategies intended to reduce the number of provided through state programs often takes place at incompetent-to-stand-trial patients awaiting placement .) the local level and is carried out by local government The net increase in Medi-Cal local assistance of entities, such as counties, and private entities, such as $1 .5 billion General Fund is due to several factors, commercial managed care plans . (Funding for these including: types of services delivered at the local level is known as Figure 1 Major Health Programs and Departments—Budget Summary General Fund (Dollars in Millions)a Change 2017‑18 2018‑19 Estimated Proposed Amount Percent Medi-Cal—Local Assistance $20,058 $21,589 $1,531 7.6% Department of State Hospitals 1,544 1,773 229 14.8 Department of Public Health 148 143 -5 -3.4 Other Department of Health Care Services programsb 235 54 -181 -76.9 Office of Statewide Health Planning and Development 33 33 — — Emergency Medical Services Authority 9 9 — — All other health programs (including state support)c 226 224 -2 -0.8 Totals $22,254 $23,826 $1,572 7.1% a Excludes general obligation bond costs. b Local assistance only. Reduction in 2018-19 reflects a $222 million reimbursement from Proposition 98 funds related to certain Medi-Cal administrative activities performed by schools. c Includes Health and Human Services Agency. www.lao.ca.gov 3 analysis full gutter 2018-19 BUDGET • Higher projected General Fund spending due to offset General Fund spending on Medi-Cal cost growth . a higher proportion of Proposition 56 tobacco tax We also note that the Governor’s budget proposal revenues in 2018-19 being budgeted to pay for reflects a downward adjustment in the estimated supplemental provider payments as opposed to costs to implement the provider payment increases as offsetting General Fund cost growth . specifically structured in the 2017-18 agreement . This • Increased costs related to the state’s in effect frees up Proposition 56 resources that the responsibility for a higher share of costs for the Legislature can target for use in Medi-Cal in 2018-19 . Patient Protection and Affordable Care Act (ACA) optional expansion population . HUMAN SERVICES • Higher projected spending related to general growth in health care costs . Background on Major Human Services Programs We note that the January Governor’s budget, which was finalized before subsequent congressional California’s major human services programs action to reauthorize funding for the Children’s Health provide a variety of benefits to its residents . These Insurance Program (CHIP) administered through include income maintenance for the aged, blind, or Medi-Cal, included $300 million of higher year-over-year disabled; cash assistance and employment services General Fund costs in 2018-19 for CHIP . These higher for low-income families with children; protecting costs reflected a full-year cost to backfill an assumed children from abuse and neglect; providing home reduction in federal funds, continuing from 2017-18, care workers who assist the aged and disabled in for CHIP . Recent federal action to reauthorize federal remaining in their own homes; providing services to the funding for CHIP initially at an enhanced rate will instead developmentally disabled; collection of child support reduce General Fund costs by a total of $900 million from noncustodial parents; and subsidized child care over 2017-18 and 2018-19 relative to what the January for low-income families . budget assumed . With the adjustment to the Medi-Cal Human services programs are administered General Fund budget, the year-over-year net increase in at the state level by the Department of Social Medi-Cal local assistance would be roughly $1 .2 billion, Services, Department of Developmental Services or 6 .2 percent . (DDS), Department of Child Support Services, and Finally, we note that the Governor’s budget does other CHHSA departments . The actual delivery of not provide any additional funding for Medi-Cal in many services takes place at the local level and is 2018-19 pursuant to a budget formula in Proposition 55 typically carried out by 58 separate county welfare (2016) that extended tax rate increases on high-income departments . A major exception is the Supplemental Californians . Security Income/State Supplementary Payment Proposition 56 Medi-Cal Proposal. Proposition 56 program, which is administered mainly by the (2016) raised state taxes on tobacco products and U .S . Social Security Administration . In the case of dedicates the majority of associated revenues to DDS, community-based services (the type of services Medi-Cal on an ongoing basis . The 2017-18 budget received by the vast majority of DDS consumers) are included a two-year budget agreement between coordinated through 21 nonprofit organizations known the Legislature and the administration on the as Regional Centers . use of Proposition 56 revenues in Medi-Cal . We Expenditure Proposal by find that the Governor’s updated Proposition 56 Medi-Cal proposal—discussed in detail in the Major Programs “Medi-Cal” section of this report—essentially aligns Overview of the General Fund Human Services with the 2017-18 budget agreement . Specifically, Budget Proposal. The Governor’s budget proposes of the total amount of 2017-18 and 2018-19 expenditures of $13 .5 billion from the General Fund Proposition 56 revenues, the Governor allocates a total for human services programs in 2018-19 . As shown in of about $1 .4 billion to provider payment increases, with Figure 2, this reflects a net increase of $375 million— the remaining balance of $880 million to be used to or 2 .9 percent—above estimated General Fund 4 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET Figure 2 Major Human Services Programs and Departments—Budget Summary General Fund (Dollars in Millions) Change 2017-18 2018-19 Program Estimated Proposed Amount Percent SSI/SSP $2,861.9 $2,827.0 -$34.9 -1.2% Department of Developmental Services 4,205.2 4,440.9 235.7 5.6 CalWORKs 454.7 551.9 97.2 21.4 In-Home Supportive Services 3,388.0 3,641.7 253.6 7.5 County Administration and Automation 772.0 766.1 -5.9 -0.8 Child Welfare Servicesa 517.4 433.1 -84.2 -16.3 Department of Child Support Services 315.6 315.6 0.1 — Department of Rehabilitation 64.6 64.6 — 0.1 Department of Aging 34.0 34.0 — — All other human services (including state support) 466.2 379.9 -86.4 -18.5 Totals $13,079.6 $13,454.8 $375.2 2.9% a This includes, among other programs, child protective services, foster care services, and kin guardian and adoption assistance. It generally reflects child welfare services spending that is not realigned to counties. expenditures in 2017-18 . The budget reflects modest broader trends in caseload and service costs in these year-over-year changes in the General Fund budget for programs . some departments and programs, while reflecting more A Closer Look at Total Human Services Funding. significant changes for others, including California Work For those programs that are demonstrating more Opportunity and Responsibility to Kids (CalWORKs), significant General Fund increases or decreases, taking In-Home Supportive Services (IHSS), and Child Welfare a closer look at the total funding proposed for their Services programs . In general, the more significant support provides a clearer picture of their overall growth year-over-year changes in General Fund support for or decline . As shown in Figure 3, after accounting for these programs are in part due to various funding shifts total funding from all sources, growth or decline in most that have occurred over the last several years . These of these programs is generally relatively modest . We funding shifts result in General Fund increases and note that growth in IHSS remains relatively high even decreases that are not necessarily representative of when looking at total funds—we describe the main Figure 3 Major Human Services Programs and Departments—Budget Summary Total Funds (Dollars in Millions) Change 2017‑18 2018‑19 Program Estimated Proposed Amount Percent SSI/SSP $9,935.7 $10,096.7 $161.0 1.6% Department of Developmental Services 6,953.8 7,305.0 351.2 5.1 CalWORKs 5,001.9 4,818.5 -183.4 -3.7 In-Home Supportive Services 10,294.8 11,241.9 947.1 9.2 County Administration and Automation 2,314.9 2,285.3 -29.6 -1.3 Child Welfare Servicesa 6,287.4 6,246.7 -40.7 -0.6 Department of Child Support Services 1,010.7 1,011.5 0.8 0.1 Department of Rehabilitation 458.5 460.1 1.6 0.3 Department of Aging 210.2 201.5 -8.8 -4.2 a This includes, among other programs, child protective services, foster care services, and kin guardian and adoption assistance. It generally reflects child welfare services spending that is not realigned to counties. www.lao.ca.gov 5 analysis full gutter 2018-19 BUDGET factors contributing to this growth in the analysis that Although the Governor’s 2018-19 budget is largely follows . related to the implementation of current law, there are Governor’s Budget Largely Reflective of Current a few exceptions . One example is a proposal to create Law and Policy. Our analysis of the Governor’s human a new home visiting program in CalWORKs . In the services budget proposal indicates that it is largely in analysis that follows, we provide an overview of the line with the implementation of current law and policy . Governor’s proposals for the major human services For example, the proposal adjusts for increases and programs, provide insight into the underlying program decreases related to changes in program caseloads trends that lead to the proposed budget levels, and and the continued implementation of existing policy raise issues for legislative consideration . changes—such as the implementation of minimum wage increases in certain programs . MEDI-CAL BACKGROUND federal government pays 88 percent of the costs for children enrolled in CHIP and the state pays 12 percent . In California, the federal-state Medicaid program (We describe recent federal actions that affect CHIP is administered by DHCS as the California Medical funding later in this write-up .) Finally, under the ACA, Assistance Program (Medi-Cal) . Medi-Cal is by far the the federal government paid 100 percent of the costs of largest state-administered health services program in providing health care services to the optional expansion terms of annual caseload and expenditures . As a joint population from 2014 through 2016 . Beginning in federal-state program, federal funds are available to 2017, the federal cost share decreased to 95 percent, the state for the provision of health care services for phasing down to 94 percent in 2018 and down further most low-income persons . Before 2014, Medi-Cal to 90 percent by 2020 and thereafter . eligibility was mainly restricted to low-income families Delivery Systems. There are two main Medi-Cal with children, SPDs, and pregnant women . As part systems for the delivery of medical services: of the ACA, beginning January 1, 2014, the state fee-for-service (FFS) and managed care . In the FFS expanded Medi-Cal eligibility to include additional system, a health care provider receives an individual low-income populations—primarily childless adults who payment from DHCS for each medical service delivered did not previously qualify for the program . This eligibility to a beneficiary . Beneficiaries in Medi-Cal FFS may expansion is sometimes referred to as the “optional generally obtain services from any provider who has expansion .” agreed to accept Medi-Cal FFS payments . In managed Financing. The costs of the Medicaid program care, DHCS contracts with managed care plans, are generally shared between states and the federal also known as health maintenance organizations, to government based on a set formula . The federal provide health care coverage for Medi-Cal beneficiaries . government’s contribution toward reimbursement for Managed care enrollees may obtain services from Medicaid expenditures is known as federal financial providers who accept payments from the managed participation . The percentage of Medicaid costs paid by care plan, also known as a plan’s “provider network .” the federal government is known as the federal medical The plans are reimbursed on a “capitated” basis assistance percentage (FMAP) . with a predetermined amount per person per month, For most families and children, SPDs, and pregnant regardless of the number of services an individual women, California generally receives a 50 percent receives . Medi-Cal managed care plans provide FMAP—meaning the federal government pays one-half enrollees with most Medi-Cal covered health care of Medi-Cal costs for these populations . However, services—including hospital, physician, and pharmacy a subset of children in families with higher incomes services—and are responsible for ensuring enrollees qualifies for Medi-Cal as part of CHIP . Currently, the are able to access covered health services in a timely 6 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET manner . (In some counties, Medi-Cal managed care terms of federal funds, the Governor’s budget revises plans also provide long-term services and supports, estimates of federal spending in Medi-Cal in 2017-18 including institutional care in skilled nursing facilities downward from previous estimates by $5 .2 billion and certain home- and community-based services .) (7 .6 percent) . The Governor’s budget further estimates Managed care enrollment is mandatory for most $63 .7 billion in federal funding for Medi-Cal in 2018-19, Medi-Cal beneficiaries, meaning these beneficiaries an increase of $3 .5 billion (5 .4 percent) over revised must access most of their Medi-Cal benefits through 2017-18 estimates . Below, we summarize the main the managed care delivery system . In 2018-19, more factors that contribute to changes in the Medi-Cal than 80 percent of Medi-Cal beneficiaries are projected budget in both the current and the upcoming fiscal to be enrolled in managed care . years . Managed Care Models. The number and types Estimated and Proposed of managed care plans available vary by county, General Fund Spending depending on the model of managed care implemented in each county . Counties can generally be grouped into Current-Year Adjustments. Increased estimated four main models of managed care: General Fund spending in Medi-Cal in 2017-18 reflects the net effect of multiple adjustments, the most • County Organized Health System (COHS). In significant of which include: the 22 COHS counties, there is one county-run managed care plan available to beneficiaries . • One-time costs of about $300 million for • Two-Plan. In the 14 Two-Plan counties, there are retrospective payments to the federal government two managed care plans available to beneficiaries . related to prescription drug rebates . Most of the One plan is run by the county and the second increased costs from these payments is the result plan is run by a commercial health plan . of a shift in timing, where some payments that • Geographic Managed Care (GMC). In GMC were planned to be made in 2016-17 have been counties, there are several commercial health delayed until 2017-18 . plans available to beneficiaries . There are two • Offsetting savings of about $270 million from a GMC counties—San Diego and Sacramento . higher estimate of prescription drug rebates in • Regional. Finally, in the Regional model, there managed care . Higher estimates for 2017-18 are are two commercial health plans available to based on actual rebate amounts coming in higher beneficiaries across 18 counties . than previously budgeted . • Costs of about $200 million to correct a Imperial and San Benito Counties have managed budgeting methodology used to construct care plans that are not run by the county and do not estimates of managed care costs that previously fit into one of these four models . In Imperial County, underestimated costs for SPDs . there are two commercial health plans available • Higher projected General Fund spending of about to beneficiaries, and in San Benito, there is one $170 million related to a reduction in hospital commercial health plan available to beneficiaries . quality assurance fee (HQAF) revenues available to offset General Fund costs in Medi-Cal . The OVERVIEW OF THE amount of HQAF revenues available to offset MEDI-CAL BUDGET General Fund costs is tied to the total amount of supplemental Medi-Cal payments made to private The Governor’s budget revises estimates of General hospitals, the nonfederal share of which are Fund spending in 2017-18 upward by $544 million financed with HQAF revenues . A technical change (2 .8 percent) relative to what was assumed in to how much federal funding is available for the 2017-18 Budget Act. The Governor’s budget these supplemental payments resulted in lower further proposes $21 .6 billion for Medi-Cal from the total payments in some years and, therefore, General Fund in 2018-19, an increase of $1 .5 billion decreased estimated HQAF revenues available to (7 .6 percent) over revised 2017-18 estimates . In offset General Fund Medi-Cal costs in 2017-18 . www.lao.ca.gov 7 analysis full gutter 2018-19 BUDGET Budget-Year Changes. Year-over-year growth in Medi-Cal eligibility under the ACA in January 2014, it General Fund Medi-Cal spending in 2018-19 largely was necessary to develop capitated rates that would reflects the net effect of the following major factors: be paid to managed care plans to provide health care services to the newly eligible population . In the absence • Higher projected spending of $540 million of experience on the cost of providing health care to to backfill Proposition 56 tobacco excise tax this new population, there was significant uncertainty revenues that, while offsetting General Fund about the appropriate level of the capitated rates . Medi-Cal costs in 2017-18, are proposed In recognition of this uncertainty, capitated rates for under the Governor’s budget to instead pay for the expansion population were initially set relatively supplemental payments to certain providers in high, with the understanding that any excess funding 2018-19 . We describe the Governor’s proposed provided to managed care plans would be recouped allocation of Proposition 56 revenues in a later retroactively if actual experience turned out to be less section . costly than initial assumptions . • Higher projected spending of $300 million to Since January 2014, the costs of providing health reflect a full year of an assumed reduction in care services to the optional expansion population federal funds, continuing from 2017-18, for have come in below expectations, creating the need CHIP . The lost federal funds are assumed to be to recoup significant funds from the managed care backfilled with an equivalent amount of General plans . Specifically, DHCS has identified $5 .3 billion in Fund . We discuss this assumption and recent recoupments for the period from July 2015 through federal actions related to CHIP funding in a later December 2016 that will be collected from managed section . care plans during 2017-18 . Since the federal • Increased costs of roughly $200 million related government paid 100 percent of capitated rates for to the state’s responsibility for a higher share of the optional expansion population during this period, costs for the ACA optional expansion . The state’s these recouped funds will be returned to the federal share of cost for newly eligible beneficiaries government . These retroactive recoupments mean that increases from an effective 5 .5 percent in net federal funding in Medi-Cal in 2017-18 is $5 .3 billion 2017-18 to an effective 6 .5 percent in 2018-19 . less than it otherwise would be, and the absence of • Increased costs of about $130 million related to recoupments related to the ACA optional expansion the planned expansion into additional counties in 2018-19 is the largest factor contributing to the of the Drug Medi-Cal Organized Delivery System year-over-year increase in federal funding budgeted for waiver, a joint federal-state-county demonstration Medi-Cal in 2018-19 . Capitated rates have since been project aimed at providing a full continuum of reduced to reflect actual experience, such that the substance use disorder services to Medi-Cal need for additional recoupments in the future should be enrollees . relatively limited . • Higher projected spending in the hundreds of Changes to Hospital Supplemental Payment millions of dollars related to general growth in Programs. The state operates various supplemental health care costs . payment programs that provide increased reimbursements to various Medi-Cal provider types, Federal Funding Changes including public and private hospitals . In 2016, the federal government finalized a sweeping set of Changes in federal funding in Medi-Cal assumed in regulations related to managed care payments in the Governor’s budget—a decrease in 2017-18 relative Medicaid that had significant implications for many of to prior estimates and an increase in 2018-19 relative the state’s supplemental payment programs . In order to revised 2017-18 estimates—are also the result of a to comply with the final regulations, the state has variety of factors . We briefly summarize the impact of restructured some aspects of key hospital supplemental two of the major factors below . payment programs . In some cases, this restructuring ACA Optional Expansion Retroactive Managed is resulting in shifts in the timing of supplemental Care Rate Recoupment. When the state expanded payments, totaling in the billions of dollars . These timing 8 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET shifts account for a significant portion of the reduced expansion . In the last recession, which formally federal funding in Medi-Cal in 2017-18 . (The timing lasted from December 2007 through June 2009, the shifts also affect spending from related state special families and children caseload did increase; however, funds .) In addition to changes to hospital supplemental enrollment did not decline in the years that followed payment programs resulting from the federal managed as might have been expected, with growth continuing care regulations, changes to the calculation of through 2015-16 . This departure from the traditional maximum payments allowed in these programs, such countercyclical pattern for families and children in as under the HQAF program described above, also part reflects a shift of CHIP enrollees into the families contribute to lower federal funds in 2017-18 . and children caseload in Medi-Cal in 2013-14, as well In the sections that follow, we (1) review the as the effect of the mandatory expansion described administration’s caseload estimates for the Medi-Cal above . These factors, which pushed families and program, (2) describe the administration’s calculation children enrollment higher than it otherwise would be of Medi-Cal funding available under Proposition 55, in an expanding economy, now appear to have taken (3) discuss recent federal actions related to CHIP, their course and the families and children caseload and (4) assess the administration’s proposed plan for has begun to decline . Specifically, the administration allocating Proposition 56 tobacco tax revenues . estimates that the families and children caseload declined 2 percent in 2016-17 . CASELOAD PROJECTIONS Growth in SPD Enrollment Slowed in Recent Years. Both the seniors caseload and the persons According to the Medi-Cal Eligibility Data System, with disabilities caseload have typically grown at a there were about 13 .4 million people enrolled in rate of roughly between 2 percent and 3 percent Medi-Cal in August 2017 . This count includes over annually, and are typically less affected by changes in 3 .8 million enrollees—mostly childless adults—who the state’s economy . In a departure from the historical became newly eligible for Medi-Cal under the ACA trend, annual growth in seniors enrollment spiked to optional expansion . A substantial number of individuals above 5 percent from 2013-14 through 2015-16, but who were previously eligible—sometimes referred to as has returned to the historical trend since 2016-17 . the “ACA mandatory expansion”—are also assumed In contrast, growth in enrollment of persons with to have enrolled as a result of eligibility simplification, disabilities slowed beginning in 2013-14 and the enhanced outreach, and other provisions and effects caseload actually declined in 2015-16 and 2016-17 . of the ACA . After several years of significant enrollment The overall net effect of these offsetting effects is growth largely due to the ACA, the caseload appears to growth in SPD enrollment of less than 2 percent since have stabilized . In the following sections, we describe 2015-16—slower than would have been expected recent historical trends in various components of the based on the historical trend . Medi-Cal caseload and projections in the Governor’s The exact reasons for the departure from the budget for Medi-Cal enrollment in 2017-18 and historical trend for SPDs are not clear, but they 2018-19 . likely relate to the implementation of the ACA . Unexpected faster growth in the seniors caseload Historical Trends from 2013-14 through 2015-16 could potentially have Figure 4 (see next page) displays over a decade been due to the effect of the mandatory expansion . of observed and estimated caseload for the major Alternatively, the growth in the seniors caseload might categories of enrollment in Medi-Cal: (1) families and have been the result of delays in removing enrollees children, (2) SPDs, and (3) the ACA optional expansion . from the caseload that had changes in circumstances Families and Children Caseload Typically that made them no longer eligible . Some administrative Countercyclical to State Economy. Historically, processes in Medi-Cal experienced delays during this the families and children caseload has been period because of increased workload from significant countercyclical to changes in the state’s economy— ACA-related enrollment . Unexpected declines in the meaning enrollment has tended to increase during an enrollment of persons with disabilities may be related economic downturn and decrease during an economic to some individuals enrolling in Medi-Cal as part of www.lao.ca.gov 9 analysis full gutter 2018-19 BUDGET Figure 4 Budget Assumes Flat Medi-Cal Caseload Average Monthly Enrollees (In Millions) 16 14 12 ACA Optional Expansion 10 Seniors and Persons With Disabilities 8 6 4 Families and Childrena 2 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 Estimated Projected a Includes certain refugees, undocumented immigrants, and hospital presumptive eligibility enrollees. ACA = Patient Protection and Affordable Care Act. the ACA optional expansion instead of as part of the 2016-17, the administration estimates that the optional persons with disabilities caseload . In any given year, expansion population grew by only 0 .1 percent . individuals enter and exit the persons with disabilities Governor’s Budget Caseload Projections caseload—the net growth or decline in the caseload in any given year is the difference between the entrances Governor’s Budget Projects Flat Overall and the exits . It may be that, after Medi-Cal eligibility Caseload in 2017-18 and 2018-19. The Governor’s was expanded in 2014, some individuals that previously budget projects an average monthly Medi-Cal would have entered the persons with disabilities caseload of 13 .5 million in 2017-18, a slight decrease caseload instead entered the optional expansion of 0 .5 percent relative to estimated total caseload in caseload . This would result in declines in the persons 2016-17 . The budget further projects the Medi-Cal with disabilities caseload being offset by a portion of the caseload to remain virtually flat in 2018-19 . Within the increase in the ACA optional expansion caseload . total caseload projection, the budget assumes that ACA Optional Expansion Caseload Is Stabilizing. (1) the families and children caseload will continue to The optional expansion population grew rapidly slowly decline; (2) the seniors caseload will continue to beginning in January 2014, but growth has since grow consistent with historical trends and the persons slowed significantly and appears to be stabilizing . In with disabilities caseload will be flat, resulting on net in modest growth in the SPD caseload; and (3) the 10 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET ACA optional expansion caseload will experience slow Governor’s budget provides no additional funding for growth . Medi-Cal pursuant to the Proposition 55 formula . Our Administration’s Caseload Projections Appear office is reviewing the administration’s approach to the Reasonable. We have reviewed the administration’s Proposition 55 formula and will provide our comments caseload estimates and find them to be reasonable . As to the Legislature at a later time . we have noted in recent years, substantial ACA-related changes have made it challenging to project caseload . FEDERAL REAUTHORIZATION For example, the unanticipated decline in the persons OF CHIP FUNDING with disabilities caseload makes it challenging to anticipate how this component of the caseload will Background change in the future . However, we expect that the factors leading to this decline are likely not ongoing and CHIP Provides Health Insurance to Low-Income think the administration’s assumption that this caseload Children. CHIP is a joint federal-state program that will remain flat in 2018-19 (ending the recent downward provides health insurance coverage to children in trend) is appropriate . We also expect that the families low-income families, but with incomes too high to and children caseload will continue to decline gradually qualify for Medicaid . States have the option to use as the state’s economy continues to expand, consistent federal CHIP funds to create a stand-alone CHIP or with the administration’s projections . Ultimately, we to expand their Medicaid programs to include children expect the optional expansion caseload to also follow in families with higher incomes (commonly referred to a countercyclical pattern . Given remaining uncertainty as Medicaid-expansion CHIP) . California transitioned about this newly eligible population, however, we think from providing CHIP coverage through its stand-alone it is prudent to assume the optional expansion caseload Healthy Families Program to providing CHIP coverage may continue to slowly grow . We will provide the through Medi-Cal . With this transition, completed in Legislature an updated assessment of DHCS’ caseload the fall of 2013, Medi-Cal (through CHIP) generally projections at the May Revision when additional provides coverage to children in families with incomes caseload trend data are available . up to 266 percent of the federal poverty level (FPL) . Some infants and pregnant women in families with PROPOSITION 55 incomes up to 322 percent of the FPL may also be eligible through CHIP for Medi-Cal . The administration In 2016, voters passed Proposition 55, which estimates that there will be around 1 .3 million extended tax rate increases on high-income beneficiaries enrolled in CHIP coverage in 2018-19 . Californians . Proposition 55 includes a budget formula Federal Cost Share for CHIP Is Traditionally that goes into effect in 2018-19 . This formula requires Higher Than for Medicaid. Traditionally, the federal the Director of Finance to annually calculate the government provides a higher FMAP for CHIP coverage amount by which General Fund revenues exceed in California relative to Medicaid . The historical constitutionally required spending on schools and the FMAP for the CHIP population has been 65 percent “workload budget” costs of other government programs (compared to the 50 percent FMAP traditionally for that were in place as of January 2016 . One-half of Medi-Cal), although this has been further enhanced to General Fund revenues that exceed constitutionally 88 percent by the ACA, as discussed below . required spending on schools and workload budget CHIP Funding Is Capped. Unlike Medi-Cal, CHIP costs, up to $2 billion, are directed to increase funding is not an entitlement program . States receive annual for existing health care services and programs in allotments of CHIP funding based on their CHIP FMAP Medi-Cal . The Director of Finance is given significant and historical CHIP spending . Generally, states receive discretion in making calculations under this formula . allotments that are sufficient to cover the federal share Under calculations made for the 2018-19 budget, the of CHIP expenditures for the full federal fiscal year (FFY) . Director of Finance finds that General Fund revenues (A FFY runs from October 1 through September 30 .) If a do not exceed constitutionally required spending on state does not spend its full annual allotment in a given schools and workload budget costs . As a result, the www.lao.ca.gov 11 analysis full gutter 2018-19 BUDGET year, the state may continue to draw down unspent receive the enhanced FMAP for CHIP authorized funds in the next year . by the ACA until September 2019 . As previously mentioned, under the ACA, California’s current The ACA and CHIP CHIP FMAP is 88 percent . As we will discuss ACA Authorized an Enhanced FMAP for CHIP, later, federal funding at this higher FMAP will but Congress Had Only Appropriated Funding reduce the state’s General Fund costs for CHIP Through September 2017. Beginning in FFY 2015-16, in 2017-18, 2018-19, and the first quarter of the ACA authorized an enhanced FMAP for CHIP 2019-20 . through FFY 2018-19 . Under the ACA, California’s • Begins Ratcheting Down the Enhanced CHIP FMAP increased from 65 percent to 88 percent . CHIP FMAP in FFY 2019-20 and Returns to However, at the time of congressional reauthorization Traditional CHIP FMAP in FFY 2020-21. For for an enhanced FMAP for CHIP, Congress had FFY 2019-20 (starting October 1, 2019), states appropriated funding for CHIP only through FFY will receive half of their FMAP enhancement for 2016-17 (ending September 30, 2017) . CHIP authorized by the ACA which, in California, ACA Maintenance-of-Effort (MOE) Requirements results in a 76 .5 percent FMAP instead of an for CHIP and Medicaid. Under an ACA MOE 88 percent FMAP until September 2020 . For FFY provision, states that operate CHIP through their 2020-21 (beginning October 1, 2020), states will Medicaid programs are required to maintain their return to their traditional CHIP FMAPs which, in March 23, 2010 Medicaid and CHIP eligibility levels California, is a 65 percent FMAP . for children through the end of FFY 2018-19 . The • Maintains MOE Requirement for CHIP Under implications of these MOE requirements are uncertain ACA Through FFY 2022-23. As previously for California because the state transitioned from a mentioned, the ACA required states to maintain stand-alone CHIP to a Medicaid-expansion CHIP their March 23, 2010 Medicaid and CHIP after March 2010 . The federal Centers for Medicare eligibility levels for children through the end of FFY and Medicaid Services (CMS) will need to clarify the 2018-19 . Federal reauthorization of CHIP funding implications of the ACA MOE requirement for California . generally extends the ACA’s MOE requirement for CHIP until September 2023 . Recent Federal Action • Permits States to Limit Income Eligibility Congressional appropriation of federal funding to 300 Percent of the FPL Starting in for CHIP lapsed on September 30, 2017 . However, FFY 2019-20. One exception to the extension California continued to operate CHIP at the higher of the ACA’s MOE requirement for CHIP through 88 percent FMAP using a combination of rollover September 2023 is for children in families with funding from the state’s FFY 2016-17 allotment and household incomes above 300 percent of the funding redistributed from other states to California FPL . Starting October 1, 2019, states can by CMS . On January 22, 2018, Congress passed choose to limit income eligibility for CHIP to at (and the President later signed) a reauthorization of or below 300 percent of the FPL . (Children in federal funding for CHIP, including the following major families with household incomes at or below components: 138 percent of the FPL would continue to be covered by Medicaid .) Only a small number of • Appropriates Funding for CHIP Through FFY children in families with household incomes above 2022-23. States will continue to receive annual 300 percent of the FPL are currently eligible for allotments to cover the federal share of CHIP CHIP in California . expenditures until September 2023 . Annual allotments will continue to be calculated based We note that as of the time of our finalizing this on a state’s CHIP FMAP and historical CHIP budget analysis, Congress passed (and the President spending . later signed) legislation authorizing CHIP funding (at the traditional CHIP FMAP) and the ACA’s MOE • Maintains Enhanced CHIP FMAP Under ACA Through FFY 2018-19. States will continue to 12 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET requirement for CHIP for an additional four years— 2017-18 budget enacted last June had assumed a through FFY 2026-27 . return to the traditional CHIP FMAP of 65 percent beginning on October 1, 2017 .) State Budget Implications Federal Action Reduces Estimated General Fund Due to congressional appropriations made after the Medi-Cal Costs by About $300 Million in 2017-18 administration finalized its proposed 2018-19 budget, and About $600 Million in 2018-19. Assuming current the proposed state budget makes assumptions about caseload and program spending trends continue, the reauthorization of federal funding for CHIP that differ reauthorization of federal CHIP funding at the enhanced from the recent federal action outlined above . FMAP of 88 percent will reduce estimated General 2018-19 Proposed Budget Assumed Funding Fund Medi-Cal costs by about $300 million in 2017-18 for CHIP Appropriated at Traditional CHIP FMAP, and about $600 million in 2018-19—relative to the Beginning on January 1, 2018. The proposed Governor’s proposed 2018-19 budget assumptions . 2018-19 state budget assumed federal funding for The Governor’s May Revision budget proposal will CHIP would be reauthorized, but not at California’s reflect this downward adjustment of General Fund ACA-enhanced CHIP FMAP of 88 percent . Instead, it costs totaling $900 million over 2017-18 and 2018-19 . assumed the state would receive its traditional CHIP Figure 5 reflects the reduction in the state’s cost share FMAP of 65 percent starting January 1, 2018 . (The in 2017-18 and 2018-19 . Figure 5 Recent Congressional Action on CHIP Results in Temporary Budget Savings State's Cost Share for CHIP, Federal Fiscal Yeara 40% 35 30 25 20 15 Assumed (Governor's Budget) 10 Projected (Congressional Action) 5 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23b a A federal fiscal year runs from October 1 through September 30. The state fiscal year runs from July 1 through June 30, so the first quarter of the state fiscal year overlaps with the last quarter of the federal fiscal year. b Governor's 2018-19 General Fund multiyear forecast assumed the state's cost share would be 35 percent through 2021-22. This figure assumes the forecast would have assumed the same cost share in 2022-23. CHIP = Children's Health Insurance Program. www.lao.ca.gov 13 analysis full gutter 2018-19 BUDGET Reductions in CHIP FMAP in 2019-20 to payments and (2) offsetting General Fund spending on Increase General Fund Costs Relative to 2018-19. cost growth in Medi-Cal . In this piece, we describe: However, starting in 2019-20, the scheduled (1) the 2017-18 budget agreement on how funds reduction of California’s CHIP FMAP from 88 percent were to be allocated to these two purposes in both to 76 .5 percent will increase General Fund costs by 2017-18 and 2018-19, (2) the Governor’s updated about $225 million relative to 2018-19 (based on plan for expenditures over the two-year period, (3) the current caseload and program spending) . A return specific provider payment increases included in the to California’s traditional CHIP FMAP of 65 percent 2017-18 budget agreement, and (4) the Governor’s in 2020-21 will further increase those costs by proposal to add a new service category—home health $525 million relative to 2018-19 . Figure 5 also reflects services—for provider payment increases . these increases in the state’s cost share after 2018-19 . The 2017-18 Budget Agreement (We note, however, that General Fund costs in CHIP are now projected to be lower in 2019-20, and the The 2017-18 budget package included a two-year same in 2020-21, than as assumed in the Governor’s budget agreement on Proposition 56 revenues in January budget .) As previously mentioned, federal Medi-Cal . Broadly speaking, the agreement dedicates reauthorization of CHIP funding generally extended Proposition 56 Medi-Cal between the two main uses of the ACA’s MOE requirement for CHIP until September Proposition 56 funding described above: (1) increasing 2027 . If CMS determines that California is subject to payments for certain Medi-Cal providers and (2) paying the ACA MOE requirements (as the administration for anticipated growth in state Medi-Cal costs over currently assumes), reductions in available CHIP and above 2016-17 Budget Act levels, which offsets funding could necessitate changes in state spending what otherwise would be General Fund costs . Figure 6 to maintain current CHIP eligibility levels . If California is summarizes the use of Proposition 56 funding in not subject to the ACA MOE requirements, the state Medi-Cal under the 2017-18 budget agreement would have more flexibility to change eligibility levels as between the Legislature and the administration . a means to reduce costs in the future . Specifically, it authorized up to $546 million in 2017-18 and up to $800 million in 2018-19 in provider payment PROPOSITION 56 increases, with any remaining Proposition 56 Medi-Cal funding from 2017-18 ($711 million) and 2018-19 Proposition 56 raised state taxes on tobacco ($125 million) to be used to offset General Fund products and dedicates the majority of associated spending on cost growth in the program . revenues to Medi-Cal on an ongoing basis . With For 2017-18, the 2017-18 budget agreement Proposition 56 revenues that are dedicated to came with a structure of fixed dollar amount or fixed Medi-Cal, the Legislature can use this funding for two percentage increases in provider reimbursement levels main purposes: (1) augmenting the program, such that applied to an identified set of Medi-Cal services as, for example, by increasing Medi-Cal provider ranging from physician and dental visits to certain Figure 6 The 2017‑18 Budget Agreement on the Use of Proposition 56 Funding in Medi‑Cal (In Millions) 2017‑18 2018‑19 Total Provider payment increasesa $546 $800 $1,346 Offsets to General Fund spending on Medi-Cal cost growthb 711 125 836 Total Proposition 56 Spending in Medi‑Cal $1,257c $925c $2,182 a The 2017-18 budget agreement authorized supplemental provider payment funding amounts up to the amounts listed in this figure. b Any Proposition 56 Medi-Cal funding not allocated to augment the program, such as to increase provider payments, is available to offset General Fund spending. c Amounts reflect the administration’s projection of total Proposition 56 revenue allocated to Medi-Cal as of the 2017-18 Budget Act. The Governor’s 2018-19 budget revises upward estimated Proposition 56 revenue allocated to Medi-Cal in both 2017-18 and 2018-19. 14 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET women’s health visits . Moreover, it is our understanding shows that the Governor proposes spending that the budget agreement provides that for any slightly more Proposition 56 resources from provider payment increases in 2018-19 above the total 2017-18 and 2018-19 on provider payment 2017-18 amount, 70 percent is to be dedicated to increases—$1 .378 billion—than the maximum amount physician services payment increases and 30 percent is authorized under the two-year 2017-18 budget to be dedicated to dental services payment increases . agreement . The increase is attributable to the As the 2017-18 budget agreement only goes through Governor’s proposed payment rate increase for 2018-19, future use of Proposition 56 funding for Medi-Cal home health services, which we discuss later Medi-Cal will be determined through the annual budget on in this analysis . process . Governor Does Not Provide a Detailed Spending Plan for $523 Million in Proposition 56 Funding Overview of the Governor’s That Is Available for Provider Payment Increases 2018-19 Budget Proposal in 2018-19 . . . Under the Governor’s overall Proposition 56 budget proposal, we estimate that Governor’s 2018-19 Budget Proposal Essentially $523 million in total Proposition 56 funding is available Consistent With the 2017-18 Budget Agreement. for additional provider payment increases beyond those The Governor proposes spending the maximum structured in the 2017-18 budget agreement . (We note amount authorized in the 2017-18 budget agreement that this amount represents a preliminary estimate that ($1 .346 billion) on provider payment increases within is subject to change at the May Revision .) However, the the provider and service categories designated in Governor’s budget proposal does not include a detailed the 2017-18 agreement . As such, we find that the plan for how to structure these additional provider Governor’s budget proposal essentially adheres to payment increases . the agreement . Specifically, the Governor’s budget proposal would extend the provider payment increases . . . Intentionally Leaving Details of the Allocation structured in the 2017-18 agreement into 2018-19 and to Be Worked Out With the Legislature. The allocate the remaining Proposition 56 funding dedicated Governor’s proposal to allocate this funding broadly to provider payment increases to pay for new provider for additional provider payment increases without a payment increases above 2017-18 levels . detailed plan affords the Legislature an opportunity to provide input into how these new payments are Figure 7 summarizes the Governor’s structured . For example, the Legislature could identify updated 2018-19 budget proposal on the use new categories of providers or services to which of Proposition 56 funding in Medi-Cal . The figure Figure 7 The Governor’s 2018‑19 Budget Proposal on Proposition 56 Funding in Medi‑Cal (In Millions) 2017‑18 2018‑19 Total Provider Payment Increases: Provider categories in 2017-18 agreementa $412 $412 $823 Additional funding to be committedb — 523 523 Home health services (new) — 32 32 Subtotals ($412) ($966) ($1,378) Offsets to General Fund Spending on Medi‑Cal Cost Growthc $711 $169 $880 a Amounts listed represent annual cost estimates of supplemental payments structured in the 2017-18 budget agreement by the fiscal year that the affected services are rendered. As a result, the amounts do not account for supplemental payments that are delayed into subsequent fiscal years and are not directly reflected in the Governor’s 2018-19 budget display totals. b Allocated by the Governor’s 2018-19 budget to broad provider categories included in the 2017-18 budget agreement without a planned payment structure. c Any Proposition 56 Medi-Cal funding not allocated to augment the program, such as to increase provider payments, is available to offset General Fund spending. www.lao.ca.gov 15 analysis full gutter 2018-19 BUDGET to commit this available funding . Alternatively, the Governor’s 2018-19 Budget Proposes to Spend Legislature could identify different uses for this funding . Maximum Amount Authorized for Provider Payment For example, the Legislature could commit some or Increases in 2017-18 Budget Agreement . . . As all of this amount to offset General Fund spending on discussed above, the Governor proposes spending the Medi-Cal cost growth or further augment the Medi-Cal maximum amount authorized in the 2017-18 budget program in ways other than increasing provider agreement ($1 .346 billion) on provider payment payments . increases within the provider and service categories In the sections that follow, we provide more detailed designated in the 2017-18 budget agreement . The information on the Governor’s budget proposal for agreement designated supplemental payment levels (1) the continuation into 2018-19 of provider payment for a selected set of services at an estimated annual increases included in the 2017-18 budget agreement cost to the state of $546 million . Figure 8 summarizes and (2) a new provider payment increase for home the maximum funding amounts by which the provider health services . and service categories could be increased under the 2017-18 budget agreement . Governor’s Budget Proposal: Provider . . . And Reflects Freed-Up Funding Due to Payment Increases Included in the Revised Cost Estimates. Under the Governor’s 2017-18 Budget Agreement 2018-19 budget, the estimated annual cost to the state of these designated supplemental payments has Increases Structured as Supplemental Payments. been revised downward to $412 million in 2017-18 and The provider payment increases discussed in this 2018-19 . It is our understanding that this downward section take the form of fixed supplemental payments revision is largely the result of revised assumptions paid on top of standard reimbursement rates for the related to the federal share of cost for the majority of affected services . Since the federal government will these payments being higher than previously projected . share in the cost of these supplemental payments The Governor’s 2018-19 budget proposes to spend the (at standard FMAP levels), federal approval of the funding freed up as a result of the lower updated cost payments is necessary . Certain 2017-18 supplemental estimates on additional provider payment increases payments began to be made in late 2017, while beginning in 2018-19 . Figure 9 summarizes the others are expected to be implemented in early 2018 . Governor’s 2018-19 Proposition 56 budget proposal Retroactive supplemental payments for services as it relates to the provider payment increases included rendered dating back to July 1, 2017 are generally in the 2017-18 budget agreement . This figure shows expected to be made in April and May of 2018 . (1) the amount of annual Proposition 56 funding needed Figure 8 2017‑18 Budget Agreement on Proposition 56 Provider Payment Increasesa (In Millions) 2017‑18 2018‑19 Two‑Year Total Authorized maximum increases to supplemental payments: Physician servicesb $325 $503 $828 Dental servicesb 140 216 356 Women’s healthc 50 50 100 Intermediate Care Facilities for the Developmentally Disabledc 27 27 54 AIDS Medi-Cal Waiver Programc 4 4 8 Totals $546 $800 $1,346 a The 2017-18 budget agreement authorized supplemental provider payment funding amounts up to the amounts listed in this figure. b The 2017-18 Proposition 56 budget agreement authorized physician and dental services provider payment increases to be increased by up to $254 million between 2017-18 and 2018-19 (bringing total Proposition 56 funding for increased provider payments to $800 million). After 2018-19, continuation of physician and dental services provider payment increases is expected to be reevaluated. c Payment increases are intended to be ongoing, though they might be funded with an alternative fund source following 2018-19. 16 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET to fully fund the provider payment increases specifically when supplemental payments across the two delivery structured in the 2017-18 budget agreement and systems are expected to begin . They are expected (2) the additional funding available ($523 million) to to expire after 2018-19, pending a new agreement be committed under the Governor’s proposal to new being reached in the budget development process on provider payment increases beyond those structured in whether and how to fund physician services payment the agreement . increases in subsequent years . Below, we discuss in greater detail the Governor’s Under the Governor’s 2018-19 budget, the 2018-19 budget proposal as it relates to the estimated state cost of the physician services supplemental payment provider categories included in supplemental payments structured in the budget the 2017-18 budget agreement . agreement has been revised downward from Supplemental Payments for Physician Services. $325 million annually to $252 million annually in The 2017-18 budget agreement designated physician 2017-18 and 2018-19 . The Governor proposes to services, such as doctors’ visits, to receive the majority use the funding freed up as a result of these lower of supplemental payments using Proposition 56 updated cost estimates to fund additional physician funding in both 2017-18 and 2018-19 . This funding services supplemental payments beginning in 2018-19 . will increase physician payments for the targeted Overall, the Governor proposes to spend $828 million types of physician services by between 20 percent from 2017-18 and 2018-19 Proposition 56 revenues and 45 percent compared to their standard FFS on physician services supplemental payments . reimbursement levels . These supplemental payments This amount is the same as the maximum amount will occur in both the FFS and managed care delivery authorized to be allocated to physician services systems . The federal government has approved the supplemental payments in the 2017-18 budget physician services supplemental payments within the agreement . Of the $828 million of total proposed FFS delivery system . Federal approval remains pending spending on physician services provider payment for these payments within the managed care delivery increases, $324 million has been only broadly allocated system but is expected to be received in early 2018, to this purpose without a detailed spending plan . For Figure 9 The Governor’s 2018‑19 Proposal for Supplemental Payments Included in the 2017‑18 Agreement (Proposition 56 Revenues, in Millions) Additional Funding 2017‑18a 2018‑19a to Be Committedb Total Physician servicesc $252 $252 $324 $828 Dental servicesc 95 95 166 356 Women’s healthd 50 50 — 100 Intermediate Care Facilities for the 12 12 — 23 Developmentally Disabledd AIDS Medi-Cal Waiver Programd 3 3 — 7 Funding expected to be reallocated among — — 32 32 provider categoriese Totals $412 $412 $523 $1,346 a Amounts listed represent annual cost estimates of supplemental payments structured in the 2017-18 budget agreement by the fiscal year that the affected services are rendered. Therefore, while corresponding to the display of amounts in the 2017-18 budget agreement table, the amounts will differ from other Governor’s budget documents displaying expenditures on a cash basis. b Allocated by the Governor’s 2018-19 budget to broad provider categories included in the 2017-18 budget agreement without a planned payment structure. c After 2018-19, continuation of the physician and dental services provider payment increases is expected to be reevaluated. d Payment increases are intended to be ongoing, though they might be funded with an alternative fund source following 2018-19. e Reflects available supplemental payment funding originally allocated to provider categories that we do not expect to be adjusted above the cost of the supplemental payments as structured in the 2017-18 budget agreement. www.lao.ca.gov 17 analysis full gutter 2018-19 BUDGET example, the Governor’s budget does not target this to be ongoing, though they might be funded with an funding toward additional physician services or specify alternative source following 2018-19 . The Governor’s higher reimbursement amounts for physician services budget proposes to spend the maximum amount that currently receive supplemental payments . (We authorized under the 2017-18 budget agreement . would note that a portion of this $324 million comprises Supplemental Payments for Intermediate funding that currently is not reflected in the Governor’s Care Facilities for the Developmentally Disabled budget’s spending totals in 2018-19, but is reserved for (ICF-DDs). ICF-DDs are health facilities that provide commitments in the budget year .) residential services to individuals with developmental Supplemental Payments for Dental Services. The disabilities . These supplemental payments are 2017-18 budget agreement dedicated Proposition 56 intended to be ongoing, though they might be funded funding to pay for dental services supplemental with an alternative fund source following 2018-19 . payments in 2017-18 and 2018-19 . These The 2017-18 budget agreement authorized up to supplemental payments are expected to expire after $27 million annually in 2017-18 and 2018-19 for 2018-19 pending a new agreement being reached on supplemental payments for ICF-DDs . Under the Proposition 56 funding for provider payment increases Governor’s budget, the estimated cost of these in subsequent years . supplemental payments has been revised downward Under the Governor’s 2018-19 budget, the by over 50 percent due to federal limits on the amount estimated state cost of the dental services by which ICF-DD reimbursement levels can be further supplemental payments structured in the augmented using federal funds . Accordingly, under 2017-18 budget agreement has been revised the Governor’s budget, the ICF-DD supplemental downward from $140 million annually to $95 million payments are estimated to cost around $12 million annually in 2017-18 and 2018-19 . The Governor annually in 2017-18 and 2018-19 . The Governor proposes to use the funding freed up as a result of proposes to use the $31 million in funding freed up these lower updated cost estimates to fund additional as a result of these lower updated cost estimates to dental services supplemental payments beginning fund additional supplemental payments beginning in 2018-19 . Overall, the Governor’s 2018-19 budget in 2018-19 . (We would note that this funding is not proposes to spend $356 million from 2017-18 and currently reflected in the Governor’s budget’s spending 2018-19 Proposition 56 revenues on dental services totals in 2018-19 .) It is uncertain to which provider supplemental payments . This amount is the same or service categories this freed-up funding would be as the maximum amount authorized to be spent on allocated since the state does not appear to be able to dental services supplemental payments under the use additional Proposition 56 funding to fund ICF-DD 2017-18 budget agreement . Of the $356 million of supplemental payments above the amount budgeted in total proposed spending on dental services provider the Governor’s 2018-19 budget proposal . payment increases, $166 million has been only broadly Supplemental Payments for AIDS Medi-Cal allocated to this purpose without a detailed spending Waiver Program. The AIDS Medi-Cal Waiver Program plan . For example, the Governor’s budget does not provides home- and community-based services (HCBS) target this funding toward additional dental services to individuals with the human immunodeficiency or specify higher reimbursement amounts for dental virus (HIV) as an alternative to nursing facility care or services that currently receive supplemental payments . hospitalization . Such HCBS services could include, for (We would note that a portion of this $166 million example, skilled nursing services . These supplemental comprises funding that currently is not reflected in the payments are intended to be ongoing, though they Governor’s budget’s spending totals in 2018-19 .) might be funded with an alternative fund source Supplemental Payments for Women’s Health. The following 2018-19 . The 2017-18 budget agreement 2017-18 budget agreement allocated up to $50 million provided up to $4 million annually in Proposition 56 annually in Proposition 56 funding in 2017-18 and funding in 2017-18 and 2018-19 for this program, 2018-19 for family planning services offered through nearly doubling reimbursement levels for many or the Family Planning, Access, Care, and Treatment most of the services provided through the program . Program . These supplemental payments are intended The Governor’s budget revised downward the annual 18 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET cost of these supplemental payments to $3 .4 million services and supports, such as home health services, due to lower updated cost projections of how much to Medicaid beneficiaries in their residences .) Proposition 56 funding is needed to bring AIDS DHCS Identified Potential Problems With Access Medi-Cal Waiver Program reimbursement levels to Certain Home Health Services in Medi-Cal. The up to the levels determined in the 2017-18 budget department monitors access to home health services agreement . The Governor proposes to spend the in Medi-Cal FFS through federally mandated access $1 million in funding freed up as a result of these lower monitoring and self-generated studies on access updated cost estimates on additional provider payment to particular services . For example, in a late 2016 increases in 2018-19 . (We would note that this funding self-generated study of access to home health services is not currently reflected in the Governor’s budget’s largely within the California Children’s Services program, spending totals in 2018-19 .) However, it is uncertain DHCS concluded there was a gap between the number whether the Governor intends this funding to be spent of hours authorized for eligible beneficiaries and the on higher supplemental payments in the AIDS Medi-Cal number of hours rendered by providers . While the study Waiver Program or whether the Governor intends to could not explain the disparity, it cited for additional reallocate this funding to other provider or service study specific barriers to access, including provider categories . rates, staffing shortages, and geographic disparities . The administration cites this study in support of its Governor’s Budget Proposal: proposal to increase certain home health service New Proposed Provider Payment provider rates in 2018-19 . Increase for Home Health Services Proposed 2018-19 Budget Would Increase Home Health Services Provider Rates by 50 Percent. The Governor’s budget dedicates a portion of Starting July 1, 2018, the administration proposes Proposition 56 Medi-Cal funding to pay for payment to increase provider rates for home health services rate increases for a health care service type—home participating in Medi-Cal FFS and four HCBS waiver health services—that was not targeted to receive programs—the Home and Community-Based payment increases in the 2017-18 budget agreement . Alternatives Waiver, the In-Home Operations Waiver, the Relative to the agreement, this proposal increases the Pediatric Palliative Care Waiver, and the AIDS Medi-Cal total amount of Proposition 56 revenue proposed to Waiver Program—by 50 percent . The administration be used to increase Medi-Cal provider payments and estimates the total cost of the provider rate increase in decreases the amount of Proposition 56 Medi-Cal 2018-19 would be $65 million—$41 million for the rate funding available to offset General Fund spending on increase, and $24 million for an anticipated increase cost growth in the program . in utilization of home health services by 15 percentage Home Health Services. Home health services are points . The Governor’s budget proposes to fund the services provided to patients in their residence instead nonfederal share in 2018-19—$32 million—using of an inpatient setting such as a hospital . Home health Proposition 56 revenues . While the administration service providers such as home health agencies proposes that these rate increases be ongoing, it hire registered nurses, licensed vocational nurses, does not identify funding for the nonfederal share after and certified home health aides to—for example— 2018-19 . administer patients’ oral medications, insert feeding Issues for Consideration. As discussed above, tubes, and treat wounds . All Medi-Cal beneficiaries the Governor’s budget proposes to use $32 million are generally eligible for home health services as long in Proposition 56 revenue that would otherwise be as the services are medically necessary . Medi-Cal available to offset General Fund spending on cost reimburses home health services at levels based growth in Medi-Cal to increase payment rates for on the type of health professional who provides the home health services . In support of its proposal, the services and the length of time needed . These services administration has provided some evidence that access are available through the two main Medi-Cal delivery to home health services could be a challenge for certain systems, FFS and managed care, as well as through Medi-Cal beneficiaries . In deciding whether to approve Medi-Cal’s various HCBS waiver programs . (HCBS waiver programs allow states to deliver long-term www.lao.ca.gov 19 analysis full gutter 2018-19 BUDGET the Governor’s proposal, however, we recommend that Should the Legislature consider these issues and the Legislature consider the following: wish to increase payment levels for home health services in the amount proposed by the Governor’s • Whether the rate increases should be ongoing budget, we would recommend the Legislature direct or limited term, given the uncertain cause of the DHCS to conduct an additional study to determine gap between the number of authorized hours and the primary cause of the gap between the number of rendered hours for home health services . authorized hours and rendered hours for home health • Whether the rate increases should assume services in Medi-Cal . We would also recommend increased utilization of roughly 15 percentage the Legislature direct DHCS to report back to the points in 2018-19 and, if not, whether the amount Legislature on changes in utilization of home health of Proposition 56 revenues allocated for these services (and associated costs) in Medi-Cal after the rate increases should be higher or lower to rate increases went into effect . reflect a different assumption about changes in utilization . DEPARTMENT OF STATE HOSPITALS OVERVIEW revised 2017-18 level . This increase is primarily due to the implementation of various strategies intended to Department Provides Inpatient and Outpatient reduce the number of IST patients awaiting transfer, Mental Health Services. The Department of State which we discuss in more detail below . Hospitals (DSH) provides inpatient mental health services at five state hospitals (Atascadero, Coalinga, DSH-COALINGA EXPANSION Metropolitan, Napa, and Patton) . In addition, DSH provides outpatient treatment services to patients in Background the community . Overall, the department is currently budgeted to treat about 6,500 patients in its facilities DSH Has Minimum Staffing Standards. In order and another 700 in the community . Patients at to meet the minimum standards for patient treatment, the state hospitals fall into one of two categories: DSH is required to provide a minimum number of staff civil commitments or forensic commitments . Civil depending on the level of care the patient has been commitments are generally referred to the state assigned to (commonly referred to as “level of care hospitals for treatment by counties . Forensic staff”) . These staff provide treatment services to DSH commitments are typically committed by the criminal patients, and include nursing staff and behavioral health justice system and include individuals classified as treatment team staff . Based on patients’ diagnoses Incompetent to Stand Trial (IST), Not Guilty by Reason and treatment plans, the department assigns patients of Insanity, Mentally Disordered Offenders (MDOs), or to one of three levels of care (commonly referred to as Sexually Violent Predators . Currently, about 90 percent acuity levels): of the patient population is forensic in nature . As • Intermediate Care Facility (ICF). ICFs provide of January 15, 2018, the department had about inpatient skilled nursing services to patients who 1,100 patients awaiting placement, including about 900 do not require continuous nursing care . IST patients . • Acute. Acute units provide 24-hour inpatient care Spending Proposed to Increase by $226 Million services, including medical, behavioral health, and in 2018-19. The Governor’s budget proposes total pharmaceutical services . expenditures of $1 .9 billion ($1 .8 billion from the General Fund) for DSH operations in 2018-19, which • Skilled Nursing Facility (SNF). SNFs provide is an increase of $226 million (13 percent) from the long-term skilled nursing care, including 24-hour 20 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET inpatient treatment and a variety of physical and determines the number of non-level of care staff at a behavioral health services . facility based on internal assessments of its operations and needs . The minimum number of staff needed for each acuity DSH Staffing Study. In 2016-17, DSH initiated level are based on the following staffing standards: a staffing study to determine whether the staffing at • Title 22 Requirements. Title 22 of the California its hospitals resulted in adequate levels of care . The Code of Regulations sets the standards study will review staffing across all state hospitals and for operating an acute psychiatric hospital . patient types in two phases . The first phase of the Specifically, Title 22 requires hospitals to be study covers level of care staff, other treatment staff, licensed by the California Department of Public and hospital police, and was originally planned to be Health and sets minimum requirements for released by fall 2017 . The second phase is planned to staffing and facilities . In particular, it requires a cover the remaining staff, including nontreatment staff certain minimum number of nursing staff based (such as custodians and food service workers), hospital on patient acuity and associated treatment needs operations, and hospital administration staff . At the time for different nursing shifts (meaning morning, of this analysis, neither phase of the staffing study has afternoon, or overnight), as shown in Figure 10 . Title Figure 10 22 nursing staff have many Title 22 Staffing Requirementsa responsibilities, including Patient Acuity patient observation, medication distribution, and patient Intermediate Skilled Nursing Nursing Shift Care Facility Acute Facility escorting . • Treatment Teams. In addition Morning 1:8 1:6 1:6 Afternoon 1:8 1:6 1:6 to the nursing staff required Overnight 1:16 1:12 1:12 by Title 22, DSH also uses a a Requirements reflect the minimum ratio of nurses to patients. behavioral health treatment team model . Under this model, clinicians work together to provide individual and been released and the department has not provided group treatment to a set number of patients . a timeline for when the two phases will be completed . Each treatment team includes five providers—a This study is intended to help the administration and psychiatrist, psychologist, social worker, the Legislature determine the extent to which staffing rehabilitation therapist, and registered nurse . beyond the minimum staffing standards is necessary . Treatment team nursing staff are distinct from Title MDOs. MDOs are parolees, who after their release 22 nursing staff in that they are responsible for from state prison, are transferred to a state hospital developing treatment plans and participating in for treatment as a condition of their parole because a treatment team meetings . They have an assigned court has determined that the individual represents a group of patients, rather than being assigned substantial danger of physical harm to others as a result to morning, afternoon, or overnight nursing of their mental illness . Around 1,300 (or 18 percent) of shifts . The number of patients assigned to each treatment team is determined by patient acuity, as detailed in Figure 11 . Figure 11 Treatment Team Staffing Ratiosa In addition to these staff, DSH also provides a variety of other staff to ensure its effective operation . Acuity Level Staffing Ratio These staff include additional level of care staff, other Intermediate Care Facility 1:35 treatment staff (such as dieticians and medical doctors), Acute 1:15 and nontreatment staff (such as administrative staff, Skilled Nursing Facility 1:15 janitors, firefighters, and hospital police) . Currently, DSH a Ratios reflect the average ratio of treatment team to patients. www.lao.ca.gov 21 analysis full gutter 2018-19 BUDGET patients in state hospitals are MDOs . An MDO patient needed remains unclear . Presumably, the staffing study spends an average of two years in a state hospital . will shed light on this matter . Governor’s Proposal LAO Recommendations The Governor’s budget proposes an $11 .5 million Provide Funding to Allow DSH to Staff Proposed General Fund augmentation and 81 additional positions Beds Similar to Other Units. We recommend that the in 2018-19 to staff 80 additional MDO beds at 8 Legislature approve the resources requested for DSH to different units at DSH-Coalinga . Under the proposal, operate the 80 additional beds at DSH-Coalinga . This these resources would increase to $13 .7 million and would allow these beds to be staffed at the same level 97 positions annually beginning in 2019-20 . The as other similar units . department plans to initially activate 40 beds beginning Require Completion of Staffing Study. In order July 1, 2018, then gradually activate additional beds to ensure that the department completes its staffing until all 80 beds are activated by July 1, 2019 . The study as planned, we also recommend that the 81 positions requested in 2018-19 include (1) 49 level Legislature approve provisional language requiring of care staff to meet minimum staffing standards that both phases of the staffing study be complete by and (2) 32 positions above these standards . The January 10, 2019 . This would provide the department 32 positions include additional level of care staff, one more year to complete the study . At that time, other treatment staff, and nontreatment staff . The the Legislature would also be able to assess the total requested positions are consistent with how the staffing needs across the entire department and make department is currently funded to staff other similar necessary budget adjustments . state hospital units . According to the administration, the 80 additional PROPOSALS TO beds are needed to house MDOs who are being EXPAND IST CAPACITY displaced from DSH-Atascadero and DSH-Patton because the units that currently house them will be Background converted into Enhanced Treatment Program (ETP) units, which are specialized units for violent and/or IST Referral and Placement Process. Individuals aggressive patients . The 2014-15 Budget Act included who are IST and face a felony charge are typically $13 .6 million for DSH to construct four ETP units at referred by a state trial court to DSH to receive these facilities . Two of the units are expected to be restoration services . Once DSH receives the referral, completed by December 2018, with the remaining two the patient is put on a pending transfer list (commonly units being completed by April 2019 . referred to by the department as the “IST waitlist”) and DSH decides whether to treat the patient in a LAO Assessment state hospital or a county-operated program under Staffing Request Based on Current Practices. contract with the department—such as a Jail Based As discussed above, the activation of the 80 additional Competency Treatment (JBCT) program . (Under the beds at 8 different units at DSH-Coalinga is necessary JBCT program, counties provide restoration treatment to accommodate the MDOs who will be displaced in county jails to patients who do not require the by the activation of the ETP units at DSH-Atascadero intensive level of inpatient treatment provided in state and DSH-Patton . Based on the department’s hospitals .) Patients are removed from the waitlist when existing staffing standards, it will need at a minimum they are physically transferred to a treatment program . 49 positions in 2018-19—increasing to 59 positions State law does not require an IST patient to be in 2019-20—to activate these beds . The positions transferred to a program within a specified number of requested above these staffing standards would be days . However, statute does require the department to consistent with how DSH staffs other similar units . report to the court on whether the patient is progressing However, as is the case at all DSH facilities, the number towards being restored to competency no more than of additional staff beyond these standards that are 90 days after he or she was referred to DSH by the court . State law allows felony IST patients to be treated 22 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET for the lesser of three years or the maximum length of DSH can be ordered to appear in court or be held in time they would have served if convicted . contempt when it fails to do so . IST Waitlist Continues to Grow Despite Construction Project at DSH-Metropolitan to Additional Capacity. Over the past several years, total Increase IST Beds. In 2015-16, as part of its efforts IST felony referrals have increased . Since DSH began to expand IST capacity, the Legislature approved reporting referral data weekly in 2013, average monthly funding to increase secure treatment area capacity felony IST referrals have increased from 232 to 425—an at DSH-Metropolitan in Norwalk . These modifications increase of 83 percent . Additional funding has been are necessary to house forensic patients—including provided to DSH in recent years to increase its IST ISTs—because these patients generally are required capacity . For example, 55 IST beds were activated at to be housed in a secure treatment area due to DSH-Atascadero in 2015-16 . These efforts, combined security concerns . Once this project is completed, the with existing IST treatment capacity, allow DSH to department plans to activate 236 new beds, which operate around 1,800 beds, which can serve around would be prioritized for IST patients . When this project 3,600 patients per year . Despite these efforts, however, was approved by the Legislature, the staffing costs for the department continues to not have enough IST the 236 new beds were estimated to be $48 million beds—whether it be in a DSH hospital or program annually, or $207,000 per bed . under contract—to treat all patients who are referred Governor’s Proposal by the courts . In fact, the number of patients on the IST waitlist continues to grow . As shown in Figure 12, The Governor’s budget for 2018-19 includes an as of February 5, 2018, there were 933 patients on $87 .4 million General Fund augmentation for various the waitlist . This is about 270 patients (or 41 percent) proposals to expand IST capacity and reduce the higher than the waitlist on August 22, 2017, when waitlist . (As we discuss later in this write-up, the the department began providing this information for Governor also proposes $100 million on a one-time both DSH hospitals and programs under contract . We basis for DSH to contract with counties to create note that this includes some patients who have only diversion programs intended to primarily treat offenders been waiting for a relatively short period of time, as DSH determines where the patient should receive treatment and they Figure 12 are transferred to the appropriate program . Incompetent to Stand Trial Waitlist Continues to Increase Patients on the waitlist are Number of Patients typically housed in county jails while 1,000 they wait to be transferred to a DSH 900 program, which is problematic for two reasons . First, due to limited 800 access to mental health treatment in 700 some jails, these patients’ condition 600 can worsen (“decompensate”) while they are in jail, potentially making 500 eventual restoration of competency 400 more difficult . Second, long waitlists 300 can result in increased court costs 200 and a higher risk of DSH being found in contempt of court orders 100 to admit patients . This is because courts in some counties have Aug 17 Sep 17 Oct 17 Nov 17 Dec 17 Jan 18 Feb 18 required DSH to admit patients within certain time frames and www.lao.ca.gov 23 analysis full gutter 2018-19 BUDGET before they are declared IST .) Specifically, the Governor ($120,000 per bed), and (3) 100 beds in unlocked proposes to: mental health facilities ($60,000 per bed) . In total, these beds are expected to serve 150 to 200 IST • Staff DSH-Metropolitan Beds. The budget patients annually . proposes $56 .8 million and 346 positions in 2018-19 (increasing to $72 .6 million annually and As shown in Figure 13, these proposals would allow 473 positions beginning in 2019-20) to staff the DSH to treat 940 additional patients annually upon full 236 beds that are part of the DSH-Metropolitan implementation . expansion . These beds are expected to serve LAO Assessment around an additional 470 IST patients annually at an average cost of around $308,000 per bed . Number of Pending Transfers Does Not The 346 positions requested in 2018-19 include Accurately Reflect Waitlist. Typically, waitlists (1) 182 level of care staff to meet minimum are used to track the number of individuals who staffing standards and (2) 164 positions above temporarily cannot be served by a program due to a these standards . The 164 positions include lack of available capacity . While the IST waitlist—as additional level of care staff (such as registered currently defined by DSH—includes patients who nurses), other treatment staff (such as dieticians), cannot be served due to a lack of capacity, it also and nontreatment staff (such as janitors) . The includes patients who are being processed by the total requested positions are consistent with how department to determine where to treat them as the department is currently funded to staff other well as those who are waiting a short period of time similar state hospital units . to be physically transferred to an available bed . The • Expand JBCT Programs. The budget proposes department reports that it should generally take three $15 .9 million in 2018-19 to add up to an to six weeks to process IST referrals to determine additional 160 JBCT beds . This would allow placement . Accordingly, a more reasonable waitlist the department to serve around an additional for IST treatment might only include individuals who 270 IST patients annually at a cost of around have been on the waitlist for more than six weeks (or $150,000 per bed . 42 days) . This would reflect the number of referrals that • Establish Los Angeles County IST Treatment DSH should have had sufficient time to process and Program. The Governor’s budget proposes transport to an IST treatment program . If the waitlist $14 .8 million to establish a community-based were defined on this basis, the actual waitlist would be IST treatment program in Los Angeles County . around 650—or about one-third lower than the current This program is expected to add an additional waitlist . If the referral rate did not increase further, the 150 IST beds . This includes (1) 5 beds in locked department could service this waitlist with around units of psychiatric hospitals ($183,000 per bed), 325 additional IST beds . However, the waitlist could be (2) 45 beds in locked mental health facilities reasonably defined in other ways which would result in that provide a somewhat lower level of care a higher or lower waitlist . Figure 13 Number of Beds and Patients Served by Governor’s Proposals 2018‑19 2019‑20 Number of Number of Number of Number of Beds Patients Beds Patients Staff DSH-Metropolitan beds 158 317 236 472 Expand JBCT programs 106 252 159 268 Establish Los Angeles County IST program 150 200 150 200 Totals 414 769 545 940 DSH = Department of State Hospitals; JBCT = Jail-Based Competency Treatment; and IST = Incompetent to Stand Trial. 24 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET All of Governor’s Proposed Beds May Not Be LAO Recommendations Necessary. As noted above, alternative methods of Define IST Waitlist. We recommend that defining the IST waitlist would significantly impact the the Legislature define what it considers to be an number of additional IST beds needed to ensure that appropriate IST waitlist, which would allow it to then patients are transferred to a treatment program within determine how many additional beds are needed to a reasonable time frame . For example, if the waitlist reduce or eliminate this waitlist . We suggest defining were established based on the 42-day time frame and the waitlist as consisting of those patients who have the referral rate did not increase, only 325 additional not been placed within six weeks of being found IST— IST beds would be required rather than the 545 beds the amount of time DSH reports it takes to process proposed by the Governor . IST referrals . This would represent how many patients Activating Beds at DSH-Metropolitan Is are waiting in county jail for treatment . In addition, we Costly Way to Address IST Needs. The annual recommend that the Legislature approve budget trailer cost of activating the beds at DSH-Metropolitan legislation requiring DSH to report weekly on the size ($308,000 per bed) is significantly higher than the JBCT of the waitlist according to the Legislature’s waitlist beds ($150,000 per bed) or the Los Angeles County definition . program beds ($83,000 per bed on average) proposed Approve Additional Capacity Based on Waitlist by the Governor . This is partly due to the intensive Definition. After the Legislature defines the IST waitlist, treatment provided in state hospitals . We also note it will be in a much better position to determine the that proposed staffing costs for the DSH-Metropolitan extent to which the additional IST beds proposed by beds are much higher than initially estimated when the the Governor are necessary . If it is shown that additional Legislature approved the expansion of secure treatment beds are needed, we recommend the Legislature first capacity at the hospital . According to the department, consider the Governor’s proposals to expand JBCT the initial estimate inadvertently did not include certain programs and establish the Los Angeles County staffing costs . While these beds are expensive, some of community-based restoration program before activating them may be necessary depending on the size of the any of the DSH-Metropolitan beds . As noted above, waitlist and the extent to which there are patients that these county-operated beds are less costly and may require relatively intensive treatment . allow patients who do not require the more intensive Proposed County-Operated Beds Have Various level of treatment provided in state hospitals to be Advantages, but Additional Information Needed. As treated closer to their families and faster than if they discussed above, both the proposed JBCT expansion waited for a state hospital bed to become available . and Los Angeles County IST program cost significantly If the Legislature defined the waitlist as not being less than activating state hospital beds on a per-bed placed within six weeks of being found IST (as we basis . While this is because the county-operated beds suggest), we estimate that around 325 additional IST would provide less intensive treatment, they have other beds would be needed . A large portion of this need advantages . For example, these beds allow patients could be met by approving the Governor’s proposed to remain relatively close to their families and the Los JBCT expansion and Los Angeles County program, Angeles County program would help address the which would collectively add an additional 256 IST significant need for IST beds in that county . However, beds . To address any potential bed need for IST the Governor’s proposal does not identify the specific patients who require the more intensive treatment counties that would receive JBCT funding or whether provided in state hospitals, the remaining 69 beds contract terms have been agreed to . We note that DSH could be provided by activating two 48-bed units at has had difficulty in recent years finding counties willing DSH-Metropolitan . This would also give the department to operate JBCT programs . In addition, while the Los some additional beds in case the waitlist increases Angeles County program represents a new approach further than expected . (We note that the remaining two that could reduce the IST waitlist, it is uncertain whether units at DSH-Metropolitan would also be available to it is a cost-effective strategy . Without the above address any future increases in the IST waitlist .) information, it is difficult to for the Legislature to assess whether or not to approve these two proposals . www.lao.ca.gov 25 analysis full gutter 2018-19 BUDGET In order to assist the Legislature in determining the does not address the rate at which patients are being extent to which it wants to approve the Governor’s referred by the courts to DSH . JBCT and Los Angeles County program proposals, Governor’s Proposal we recommend requiring the department to report at spring budget hearings on (1) which counties will The administration has set a goal of reducing annual operate the proposed JBCT programs and the status IST referrals by 20 percent to 30 percent by July 1, of the negotiations with these counties and (2) a plan 2021 . In order to help achieve this goal, the Governor’s to evaluate the cost-effectiveness of the Los Angeles budget includes a one-time $99 .5 million General County program . If the Legislature decides to approve Fund augmentation for DSH to contract with counties funding for the Los Angeles County program, we to establish IST diversion programs that are intended recommend that it do so on a limited-term basis until primarily to treat offenders before they are declared the program is evaluated . IST . The budget also includes $500,000 to support one psychologist and one health program specialist GOVERNOR’S at DSH to review county plans and manage the IST DIVERSION PROPOSAL contracts, as well as support various research-related activities . Under the Governor’s proposed budget trailer legislation, the diversion programs would target Background individuals who have (1) been arrested for a felony IST Referrals Continue to Increase. As previously offense, (2) a mental health condition that could render mentioned, the number of IST referrals has increased them IST, and (3) a low public safety risk . Courts would steadily since DSH began tracking referrals in 2013-14 . have the authority to refer individuals who meet these Specifically, as shown in Figure 14, average monthly criteria to the county IST diversion programs . If such felony IST referrals have increased by 17 percent individuals successfully complete these programs, annually . While funding has been provided to increase judges could drop or reduce their charges . capacity to treat IST referrals, this increased capacity The administration indicates that $91 million (91 percent) of the proposed funding would be allocated to the 15 counties with the highest number of felony IST Figure 14 referrals to DSH, with the remaining Average Monthly Felony IST Referrals funding available to other counties . Continue to Increase Participating counties would be required to match 20 percent of 450 the state funding received for the 400 program . Under the Governor’s proposal, counties would be 350 required to use the one-time funds 300 to provide mental health treatment 250 as well as services necessary to meet participants’ non-mental 200 health needs, such as housing and 150 transportation services . In addition, 100 counties would be required to report various information to DSH 50 on a quarterly basis, including the number of people who successfully 2013-14 2014-15 2015-16 2016-17 2017-18 completed the diversion program and whether charges were IST = Incompetent to Stand Trial. dismissed or reduced . 26 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET LAO Assessment have to identify the necessary resources to backfill the expiration in state funds if they wanted to Concept of IST Diversion Programs Has continue the programs on an ongoing basis . As a Merit . . . If successful, diverting offenders who might result, it is unclear how many counties would be otherwise eventually be declared IST and referred by interested in contracting with DSH to establish a the courts to DSH would help reduce the number diversion program on a one-time basis, as well as of future IST referrals . As a result, such a program continue the program with their own resources . could reduce the number of IST patients waiting in • Impact of Proposal Would Likely Be Minimal. county jails for a treatment space at DSH to become Given that it would take some time for county available, potentially resulting in some savings for local diversion programs to have a meaningful governments in the near term . In addition, treating impact—particularly for those offenders who may individuals in community-based mental health programs need treatment for an extended period—and at the county-level is generally less costly than that the Governor is proposing only to provide providing competency restoration treatment through funding on a one-time basis, we find that the DSH—$50,000 annually per patient versus between impact of the proposal on IST referrals would $140,000 and $310,000 annually per patient . We note likely be minimal . Moreover, while the Governor’s that if referrals decrease to the point that there is no proposal does require counties to report specific IST waitlist, it is possible that the state could consider information to DSH, the proposal does not require reducing the number of IST treatment beds it operates, DSH to conduct a meaningful evaluation of the which would result in state savings . programs, such as which specific strategies had . . . But Governor’s Proposal Not Well Structured. the greatest impact on reducing IST referrals . While the concept of diversion programs has merit, we Such an evaluation would be important to find that the Governor’s proposal is not well structured determine whether certain diversion programs to achieve its intended benefits . This is due to the were effective at reducing IST referrals and merit following reasons: continuation . • Key Program Details Unclear. The Governor’s proposal does not include several key program LAO Recommendation details . For example, it is unclear (1) how the In view of the above concerns, we recommend that proposed funding will be allocated to specific the Legislature reject the Governor’s proposal and, counties, (2) the level of funding that will provided, instead, direct the department to work with counties (3) what specific programs and services will be to develop specific IST diversion programs that the provided, and (4) roughly how many individuals Legislature could consider funding in 2018-19 or will be served with the proposed funding . The beyond . In order to ensure that the Legislature has absence of such information makes it difficult for sufficient information to assess each specific program, the Legislature to assess whether the amount of the department should identify in its proposal the funding proposed by the Governor is appropriate specific services each county would provide, the and what impact it could have on IST referrals if number of patients the county would serve, and a approved . plan to evaluate the program’s effectiveness . If the • County Incentives to Participate Are Unclear. Legislature chooses to approve such proposals, we Since DSH is responsible for treating felony IST would recommend providing funding on a limited-term patients, the primary reason counties would want basis over a few years and not require a local funding to reduce referrals is to reduce the number of match (as proposed by the Governor) . To the extent individuals waiting in county jail to be treated by that a particular county diversion program is shown DSH . However, it is unclear whether this benefit to be effective at reducing the number of IST referrals is sufficient for counties to justify providing the from that county, we would recommend the Legislature matching funds required by the program . In consider providing ongoing funding for the program . addition, since the funding proposed by the Governor is one-time in nature, counties would www.lao.ca.gov 27 analysis full gutter 2018-19 BUDGET CALWORKS BACKGROUND funds employment services, eligibility determination and other administrative costs, and child care subsidies . The California Work Opportunity and Responsibility Outline of the CalWORKs Analysis. In the analysis to Kids (CalWORKs) program was created in 1997 in that follows, we (1) describe the program’s ongoing response to the 1996 federal welfare reform legislation caseload decline, which reduces program costs that created the federal Temporary Assistance for and consequently provides an opportunity for the Needy Families (TANF) program . CalWORKs provides Legislature to allocate new resources in CalWORKs or cash grants and employment services to low-income to other areas of the budget; (2) provide an overview of families . The CalWORKs program is administered locally the Governor’s proposed 2018-19 CalWORKs budget; by counties and overseen by the state Department of (3) assess the Governor’s proposals to spend freed-up Social Services (DSS) . TANF funds available in the budget year; and (4) lay out Cash Assistance. Grant amounts vary across the options the Legislature may wish to consider as it crafts state and are adjusted for family size, income, and other its own priorities for these freed-up funds . factors . For example, a family of three in a high-cost county that has no other income currently receives the CALWORKS CASELOAD NOW AT maximum cash grant for that family size—$714 per HISTORIC LOW month . On average, families enrolled in CalWORKs are estimated to receive an average grant of $567 per Fewest Participants in Program’s 20-Year month in 2017-18 . Families enrolled in CalWORKs History. The number of families in California receiving are generally also eligible for food assistance through cash assistance declined rapidly following federal the CalFresh program and health coverage through welfare reform in 1996, largely as a result of new time Medi-Cal . limits on receiving aid and the requirements that most Work Requirement. As a condition of receiving adults receiving aid participate in work-related activities . aid, adults are generally subject to a work requirement, Following this transition, as shown in Figure 15, meaning that they must be employed or participate in the CalWORKs caseload settled at approximately job search and readiness training intended to lead to 480,000 families during the early 2000s . Caseload employment . People who are enrolled in work-related then increased during the Great Recession, peaking activities may also receive services to help them meet at 585,000 families during 2010-11 . The caseload has this requirement, including subsidized child care and declined each year since 2010-11 . Over that time, reimbursement for transportation and certain other the number of CalWORKs families has fallen by nearly expenses . 30 percent (about 160,000 families) to 425,000 families Funding. CalWORKs is funded through a in 2017-18 . combination of California’s federal TANF block grant Low Caseload Due Primarily to Strong Economy. allocation ($3 .7 billion annually), the state General Fund, The CalWORKs caseload increases or decreases over realignment funds, and other county funds . In order time depending on how many new families enter the to receive its annual TANF allocation, the state must program each month and how many leave each month . spend a maintenance-of-effort (MOE) amount from When more families enroll each month than leave, the state and local funds (including realignment and other overall caseload increases (the opposite causes the county funds) to provide services for families eligible caseload to decrease) . During a typical month when for CalWORKs . The MOE amount is $2 .9 billion . In the caseload is steady, about 40,000 eligible families addition to funding for cash grants, counties receive enroll in CalWORKs and about 40,000 families leave various funding allocations from the state to administer the program . When economic conditions and the CalWORKs . As will be discussed in greater detail below, labor market are strong, employment opportunities are the largest of these—known as the “single allocation”— more accessible, hourly wages may rise, and a greater 28 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET share of families are able to meet their basic economic whose adult members struggle with substantial needs . During these times, somewhat fewer families barriers to long-term employment—such as mental enroll each month than depart, and the overall caseload health challenges, substance use, domestic violence, declines from month to month . In recent years, as the or other issues causing family instability . Although we state economy has recovered from the recession and believe a caseload floor exists, it is difficult to estimate the labor market has expanded, about 3,000 fewer its general level as measured in the overall caseload families have enrolled in CalWORKs each month than number . Should this number be relatively high (closer have left the program . to the current caseload level), the ongoing caseload Caseload Decline Expected to Continue in decline would likely begin to slow relatively soon . If, on Short Term, but Long-Term Floor Unknown. Both the other hand, this floor is lower, the ongoing caseload our office and the administration assume that the decline could continue for several years . caseload decline will continue for at least 2018-19 and perhaps longer . In regard to longer-term trends, BUDGET OVERVIEW however, we are less certain about this trajectory . Total Funding Trends. As shown in Figure 16 (see This is because we anticipate that some number of next page), the Governor’s budget proposes $4 .8 billion families will continue to be eligible for and benefit in total funding for the CalWORKs program in 2018-19, from the CalWORKs program even as the economic a net decrease of $183 million (4 percent) relative to the expansion continues . These cases likely would consist most recent estimate of current-year spending . The net of (1) families experiencing a temporary financial crises effect is the result of lower spending on cash assistance that enroll in CalWORKs for a short time and (2) families Figure 15 CalWORKs Caseload Now at Historic Low Average Monthly Caseload (In Thousands) 600 Projection Historic Low 500 400 300 200 100 2002-03 2004-05 2006-07 2008-09 2010-11 2012-13 2014-15 2016-17 2018-19 Note: 2017-18 and 2018-19 data reflect the administration's caseload forecast prepared as part of the 2018-19 Governor's Budget. www.lao.ca.gov 29 analysis full gutter 2018-19 BUDGET payments due to a declining caseload ($174 million Recent Shifts in Funding Sources. As shown in less than 2017-18) and a net reduction to the single Figure 17, the CalWORKs program is funded by a mix allocation ($32 million), offset somewhat by new of revenue sources—the federal TANF block grant, proposed spending on the governor’s home visiting state General Fund, and various sources of county initiative ($27 million) . The $32 million year-over-year realignment funds . Within the total funding amount for reduction in the single allocation represents a CalWORKs, the budget proposes $552 million from $55 million reduction offset by $23 million in funding to the General Fund, almost $100 million higher than implement new activities . the 2017-18 level . This increase is primarily the result Administration’s Updated Caseload Forecast of fewer available county funds overall, requiring that Appears Reasonable. The Governor’s budget updates additional state funds be spent in order for the state to previous caseload projections and assumes that an meet its MOE requirement . average of 425,855 families will receive CalWORKs State Has Broad Flexibility in the Allocation assistance each month during 2017-18 . This updated of TANF Block Grant Funds. As illustrated in projection reflects a nearly 6 percent decline relative Figure 18, the 2018-19 Governor’s Budget proposes to 2016-17 and is 5 .6 percent lower than the level to dedicate about half of the state’s TANF block grant assumed in the 2017-18 Budget Act . The Governor’s to support the CalWORKs program . The remainder budget further projects that an average of 400,777 is used to support other state programs, including families will receive CalWORKs assistance each month student financial aid, Child Welfare Services, and during 2018-19, a year-over-year decline of about community-based services for individuals with 6 percent . Although the continued rate of caseload developmental disabilities . Federal law provides states decline appears reasonable, more data will be available significant flexibility in how TANF block grant funds may for us to fully assess the estimate for the May Revision . be spent . First, TANF block grant funds may be used Figure 16 CalWORKs Budget Summary All Funds (Dollars in Millions) Change From 2017‑18 2017‑18 2018‑19 Revised Proposed Amount Percent Cash Grants $2,898 $2,724 -$174 -6% Single Allocation Employment services $828 $813 -$14 -2% Cal-Learn case management 20 19 -1 -4 Eligibility determination and administration 380 351 -29 -8 Stage 1 child care 318 324 6 2 Single Allocation augmentation 180 187 7 4 Subtotals ($1,726) ($1,694) (-$32) (-2%) Other County Allocations Mental health/substance abuse services $129 $129 — — Expanded subsidized employment 134 134 — — Housing Support Program 47 47 — — Family Stabilization Program 47 47 — — Subtotals ($356) ($356) (—) (—) Home Visiting Initiative — $27 $27 — Othera $21 $17 -$4 -19% Totals $5,002 $4,819 ‑$183 ‑4% a Primarily includes various state-level contracts. 30 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET state has significant flexibility in the Figure 17 use of TANF funds, these funds CalWORKs Funding Sources may be used to support programs (Dollars in Millions) (other than CalWORKs) that would otherwise be supported by the Change From 2017-18 2017-18 2018-19 General Fund, thereby freeing up Revised Proposed Amount Percent General Fund resources for other Federal TANF block grant funds $2,127 $1,938 -$189 -9% state priorities . For example, prior to State General Fund 455 552 97 21 2012-13, student financial aid in the Realignment and other county fundsa 2,420 2,328 -92 -4 Cal Grants program was supported Totals $5,002 $4,819 -$183 -4% almost entirely by the General Fund . a Primarily various realignment funds, but also includes county share of grant payments, about $60 million. In 2012-13, TANF funds were used to TANF = Temporary Assistance for Needy Families. replace $800 million in General Fund spending in Cal Grants on the basis to meet any of the four purposes of the TANF program, that student financial aid furthers purposes two and displayed in Figure 19 (see next page) . Second, TANF three of TANF . That year, consequently, the Legislature funds may be used to support activities that were was able to redirect a portion of these funds to other allowable under TANF’s predecessor program . And, legislative priorities . This budgetary practice has finally, the state may transfer a portion of the TANF continued each year thereafter . block grant to certain other federal block grants to be Caseload Decline Frees Up TANF Funds. When used according to the rules of the block grant receiving the CalWORKs caseload declines year to year, a the transfer . reduced amount of funding is needed to pay for the State May Use TANF Funds Flexibly to Offset program’s ongoing cash assistance, employment Existing General Fund Spending. Because the Figure 18 How Does the State Spend Its TANF Block Grant Funds? Annual TANF block granta—$3.9 billion Early Education Grant Program Early Educa$ti4on2 Mil$li4o2n million Reserve for Home DDS Stage 2 Tribal Grant Program C Ch h i i l l d d $ W $ W 3 3 e 6 e 6 l 4 l f 4 f a m a r M r e i e l i l l S i o l S i e o n e r n v rv ic i e c s es R VV e isi s s $ i $ e it 1 t 1 i r in 3 v n 32 g e 2 g m f M II o nn ii r ii ll t ll t i H i ii oo aa o nn tti m ivve e e $ D R $ C D 77 e S C 77 e g e R n mM n i e o tt i g ee il n l r i ll r o s ii a oo s n l n a n l C $ C $ 8 h 8 h S 1 1 i i t l l a d d m M g C i C e i l l l a l i a 2 i o o r r e n n e T$ $ r8 8 ib T 6 6 a A m Ml N T i i l l l F Al i i o oN n nF OOt $$ hth 11 ee 11 rr 3 3 TT m rr M aan ii n llll s i s ioo ffe nn ersrs Cal Grants Tuition Assistance CalWORKs Program $1.1 Billion $1.9 Billion Cal Grants Tuition Assistance CalWORKs Program $1.1 billion $1.9 billion a 2018-19 proposed amount. Includes $207 million in TANF carry-in from prior years. TANF = Temporary Assistance for Needy Families and DDS = Department of Developmental Services. www.lao.ca.gov 31 analysis full gutter 2018-19 BUDGET training, administrative, and child Figure 19 care costs . Generally, the decline in The Four Purposes of TANF these costs from one year to the next results in a similar amount of freed-up • (1) Provide assistance to needy families so that children can be cared for TANF funds in later years that can be in their own homes. spent in CalWORKs or on programs • (2) Reduce the dependence of needy parents by promoting job that further the TANF purposes . (We preparation, work, and marriage. use the phrase freed-up TANF funds • (3) Prevent and reduce the incidence of out-of-wedlock pregnancies. to refer to funds that were used for • (4) Encourage the formation and maintenance of two-parent families. CalWORKs program costs in the prior TANF = Temporary Assistance for Needy Families. year but are no longer needed to maintain cash assistance and services ANALYSIS OF GOVERNOR’S at their prior year levels and are therefore available now PROPOSED SINGLE ALLOCATION to be spent elsewhere .) In Recent Years, Freed-Up TANF Funds Used Background on Single Allocation to Offset General Fund Spending. As a result of the steady caseload decline in the CalWORKs program Single Allocation Provides Bulk of County since the end of the recession and the flexibility in Funding to Administer CalWORKs. As shown in the use of TANF funds to replace existing General Figure 16 earlier, the Governor’s budget provides nearly Fund spending, freed-up TANF funds have been $1 .7 billion in funding for the county single allocation used each year to increasingly offset General Fund in 2018-19 . The single allocation encompasses spending elsewhere in the state budget . In particular, three main categories of funding that are used to run TANF funds spent outside CalWORKs have grown the CalWORKs program: (1) employment training from roughly $1 billion in 2014-15 to $1 .8 billion and other services intended to help participants proposed in 2018-19 . Additional funds have been obtain employment, (2) eligibility determination and directed to program areas that offset existing General administration of the program, and (3) Stage 1 Fund spending . We note that TANF funds could be subsidized child care available to parents who are redirected back to the CalWORKs program to pay for working or participating in employment training . augmentations, but that this would require backfilling Single Allocation Categories Budgeted lost TANF funding in other areas of the budget with Separately . . . As part of the annual budget process, state General Fund dollars . the administration proposes statewide funding amounts 2018-19 CalWORKs Proposals Stem From for each category in the single allocation separately, Caseload Decline. The Governor’s two major based on established methodologies that adjust CalWORKs proposals, which we examine in the funding from prior years based on caseload projections, following sections, reflect responses to the rapid decline assumed costs per case, and adjustments for policy in the CalWORKs caseload over the past several years . changes . After the statewide amounts are determined First, the Governor proposes a one-year compromise through the budget process, funds for each category funding amount for the county single allocation . The are allocated to individual counties . Single allocation level is higher than what counties would receive funds generally must be spent by counties within the under the historical budgeting methodology due to fiscal year and unspent funds are carried forward to the concerns that counties may have difficulty adjusting to following year as part of that year’s overall TANF block lower funding while continuing to provide services to grant funds . CalWORKs families . Second, the administration includes . . . But Single Allocation May Be Spent Flexibly two new proposals to be funded with freed-up TANF Across Categories. Although single allocation funds—a home visiting initiative for young CalWORKs categories are budgeted and allocated to counties families and an early education grant program to be run separately, counties can, and do, spend their total by the California Department of Education . single allocation funds flexibly across the categories . 32 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET As a result, actual spending on Figure 20 the individual single allocation Counties Often Spend Somewhat categories often differs from the Less Than Budgeted Single Allocation amounts allocated to counties in the (In Billions) state budget . This flexibility allows counties to adapt to local factors $2.5 that may not be well reflected in the process used to determine Amount Budgeted and allocate the statewide single 2.0 allocation amount . Budgeted Amounts Do Not 1.5 Correspond Well With County Amount Spenta Spending. On the one hand, as shown in Figure 20, counties tend 1.0 to spend less than their budgeted allocation to operate CalWORKs . On 0.5 average, since 2001-02, counties have spent about $100 million (roughly 5 percent) less each year 2001-02 2003-04 2005-06 2007-08 2009-10 2011-12 2013-14 2015-16 than was allocated . In some years, this amount has been higher— a Data for most recent year, 2016-17, are preliminary spending amounts and above $200 million—as it was in therefore are subject to slight changes. 2012-13 and 2013-14, or lower, as it was in the years before the Single Allocation recent recession and as it was in 2016-17, the most recent year of data . Lower spending Reduced in Recent Years than was allocated may result from challenges counties Single Allocation Reduced in 2016-17. After face in administering the program, such as difficulty increasing from 2013-14 through 2015-16, the 2016-17 ramping up staffing, services, and facilities at the Budget Act decreased funding for the single allocation pace that additional funding is provided . Counties by $160 million that year to reflect a projected caseload also may budget the CalWORKs program with some decline . At the time, we noted that the lower amount caution because county general fund money must be would align the single allocation more closely with what used in the event that counties spend more than their counties were spending at the time to run CalWORKs . allocation . Single Allocation Reduced Again in 2017-18. At the same time that counties spend less than their The 2017-18 Governor’s Budget reduced the single overall budgeted allocation, counties spend beyond allocation by an additional $200 million (10 percent) the amount budgeted for the eligibility administration below its 2016-17 level as a result of the continued component of the single allocation while spending less decline in the CalWORKs caseload . Our office and than the amount budgeted for employment services . others noted that the additional reduction might lead These budget trends indicate that the single allocation counties to eliminate staff positions, reassign staff to may not correspond well with actual county spending other health and human services programs, reduce on CalWORKs . As we discuss below, recognition of services, or a combination of all three . In light of these these issues led the Legislature to request, as part of concerns, the 2017-18 Budget Act restored more than the 2017-18 Budget Act, that the administration and one-half of the originally proposed reduction . county officials update the budgeting methodology for Legislature Requests Review of Single Allocation the single allocation . Methodology. In recognition that counties may face challenges operating the CalWORKs program with the level of resources provided according to the existing www.lao.ca.gov 33 analysis full gutter 2018-19 BUDGET single allocation methodology, the 2017-18 budget about county costs, it should help improve the annual package directed the administration and county CalWORKs budget process by more closely aligning officials to provide “recommendations for revising the budgeted amounts for administration and employment methodology used for development of the CalWORKs services with what counties spend to provide these single allocation annual budget” to the Legislature in services each year . January 2018 . . . . But True Costs to Meet the Goals of CalWORKs Remain Unknown. Assessing how Governor’s Single Allocation Proposal much counties spend in CalWORKs is helpful in Administration Outlines Plan to Revise Budget understanding how counties operate the program but Methodology. In response to requirements in the provides policymakers little information as to whether 2017-18 Budget Act, the administration has made the program is meeting its objectives and what amount available its plan to recalculate and update the eligibility of funding might be needed to do so . It could be the administration and employment services components case that current county spending is at the “correct” of the single allocation . (Stage 1 child care and the level, providing sufficient resources for counties to Cal-Learn components of the single allocation are operate the program in a way that achieves the budgeted based on recent actual expenditures purposes of the program as the Legislature intended . and therefore the administration does not plan to Alternatively, it could be that county spending is higher revisit them .) In consultation with stakeholders, the than the correct amount and that similar outcomes administration is currently reviewing county time study could be achieved with fewer resources; or, that county data and work processes to identify county costs for spending is too low and therefore does not provide the administration component of the single allocation, administrators the necessary resources to achieve namely direct costs associated with processing initial these objectives for CalWORKs families . applications and confirming eligibility status and indirect Proposed Interim Single Allocation Higher costs related to these operations . (The employment on a Cost Per Family Basis. The Governor’s services component of the single allocation will be 2018-19 proposed allocation represents an average reviewed in the coming year .) The new methodology for statewide cost per family of $4,226, 4 percent administrative costs will be used to update the single above the amount assumed in the 2017-18 Budget allocation for the May Revision . Act ($4,053 per family), 7 percent above counties’ In the Meantime, Administration Proposes actual spending in 2016-17 ($3,960 per family), and Lower Single Allocation for 2018-19. The 2018-19 12 percent higher than the amount that would be Governor’s Budget proposes to allocate $1 .694 billion allocated according to longstanding budgetary practice to counties to operate the CalWORKs program, a ($3,762 per family) . According to the administration, decline of $32 million (about 2 percent) from the the proposed single allocation maintains stability 2017-18 Budget Act amount allocated to counties . for counties while the revised methodology is being The interim proposal, though somewhat below the developed . It does this, specifically, by budgeting prior year’s budgeted amount, remains $187 million the eligibility administration component of the above the amount estimated using the administration’s single allocation at its 2017-18 level, despite the long-standing caseload driven methodology . year-over-year caseload decline, while continuing to budget the other components using the longstanding LAO Assessment methodology . Although our office has not evaluated how much average costs per case typically increase Plan to Update Budget Methodology Likely to as the caseload declines, we would anticipate some Improve CalWORKs Budget Process . . . In our view, increase in average costs because some county the administration’s plan to update the single allocation costs, such as those for facilities, operations, and methodology would revisit important cost components administrative personnel, may be difficult to reduce as of operating the CalWORKs program and therefore is quickly as the budget declines . Thus, we acknowledge likely to be a more accurate representation of current that counties may face some challenges if required to county costs than the existing budget methodology . Insofar as the update results in better information 34 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET reduce spending, on a percentage basis, by the same Budgeting Approach. The proposed $26 .7 million amount that the caseload has declined . reflects the half-year cost to run the program—full-year Recommend Waiting for Budget Update in costs are estimated to be $52 million—because the Coming Months. It is our understanding that the initiative would begin in January 2019 . In addition, the administration intends to release an updated single Governor’s 2018-19 budget proposes to set aside allocation budget based on new caseload information additional funds ($132 million) in 2018-19 in order to and a new budgeting methodology as part of the May fund the initiative through 2020-21 . Federal law allows Revision . The amount of the single allocation could states to set aside a portion of their TANF block grant in differ substantially from the amount included in the the reserve fund to be used in future years . Governor’s proposed budget . We therefore recommend Program Details. The home visiting program would the Legislature wait until May to make a decision about be available, on a voluntary basis, to first-time mothers what amount to budget for the single allocation . and pregnant women under 25 years old who are enrolled in the CalWORKs program and whose child ANALYSIS OF GOVERNOR’S is younger than two years old . Families would receive home visits for up to two years . According to the PROPOSED USE OF administration’s statewide estimates, there are currently FREED-UP TANF FUNDS about 6,500 women in the CalWORKs program who meet these eligibility criteria . For budgeting purposes, it The 2018-19 Governor’s Budget identifies about is assumed that 90 percent of women who are eligible $226 million in freed-up TANF block grant funds that for home visiting will enroll in the program . are available to be spent on program augmentations Counties to Submit Proposals. Counties would in CalWORKs or to offset General Fund spending participate on a voluntary basis, with those participating in other areas of the state budget . These funds are required to submit proposals for how they intend to available due to the shrinking CalWORKs caseload . use home visiting funds for approval by DSS . Counties The administration proposes to spend a small portion would not be allowed to supplant existing home visiting of freed-up TANF funds ($26 million) to offset additional funding with these new funds . General Fund spending . In a departure from the recent practice of dedicating most, if not all, freed-up TANF LAO Assessment of Home Visiting to existing programs so as to offset General Fund spending, the remaining $200 million is proposed Other Home Visiting Programs in California. Local for new initiatives that would not offset General Fund governments and community-based organizations spending . operate home visiting programs in many parts of the Below, we describe and assess the Governor’s two state . Funding for these programs is made available proposed initiatives for the use of freed-up TANF funds . from various sources . The largest of these sources are (1) locally controlled Proposition 10 (1998) tobacco Proposed Home Visiting Initiative tax revenues that fund county First 5 Commissions; (2) federal grants to local providers as part of the Three-Year Home Visiting Program for Early Head Start program; (3) federal grant funds CalWORKs Families. The 2018-19 Governor’s Budget available through the state-administered Maternal, proposes to spend $26 .7 million in freed-up TANF Infant, Early Childhood Home Visiting (MIECHV) block grant funds in 2018-19 to begin a three-year Program; and (4) various county-led initiatives . Although voluntary home visiting program for first-time mothers comprehensive data are unavailable, it appears that at in CalWORKs . Families would receive regular visits— least $120 million, and possibly more, is spent annually typically weekly or bi-weekly—from a nurse, parent on home visiting in California . Experts on home visiting educator, or early childhood specialist who works estimate that existing home visiting programs serve with the family to improve maternal health, parenting 10 percent to 20 percent of at-risk families who would skills, and child cognitive development; and to connect likely benefit from home visiting . families, as needed, with other available resources . Many Home Visiting Models Exist. Although all home visiting program models pair a trained www.lao.ca.gov 35 analysis full gutter 2018-19 BUDGET professional with new mothers or pregnant women with risk factors that are associated with poor childhood for regularly scheduled visits, existing evidence-based health and well-being . programs differ in important respects that dictate the LAO Comments on model’s cost and expected outcomes . These include (1) how often visits are made; (2) at what age visits Home Visiting Initiative begin and whether visits begin during pregnancy; Overall, Home Visiting Proposal Merits (3) which elements of childhood and maternal Consideration. The Governor’s home visiting well-being are addressed; and (4) whether a registered proposal is rooted in sound, evidence-based policy, nurse, early childhood development specialist, or social and is closely aligned with the state’s main goal for worker makes the visits . CalWORKs—reducing child poverty—and therefore Effectiveness of Home Visiting Has Been Well merits serious consideration . Though less certain and Studied. Economists and social scientists have dependent on how well home visits are integrated with completed many high-quality studies of home visiting existing services, the proposal also has the potential programs . In these studies, known as randomized to improve economic self-sufficiency for participating controlled trials, researchers collect data on child families . and family well-being for families who received home Cost and Participation Estimates, Though visiting and for otherwise similar families who did not . Uncertain in Nature, Appear Reasonable. Afterward, researchers compare the two groups and Budgeting for a new initiative is subject to considerable identify differences that can be attributed to the home uncertainty, in this case regarding how many counties visiting program . In some studies, these differences, or will volunteer to participate; which home visiting outcomes, have been used to compare the long-term models are used and therefore how costly they might fiscal benefits of the program to its short-term costs . be; how many of the eligible families will choose to Home Visiting Is an Effective Tool to Improve participate; and of those who participate, how many Childhood Outcomes. Strong empirical evidence will seek additional employment services . In general, exists that home visiting improves child development, we believe the administration has estimated these school performance, and maternal well-being and elements reasonably, but nevertheless note that the that home visiting programs decrease the prevalence number of families who receive home visiting could vary of substantiated child maltreatment and teenage significantly from the estimated amount (6,522) due to involvement with the criminal justice system . these uncertainties . Some Home Visiting Models May Also Help Key Implementation Questions. Below, we Promote Family Self-Sufficiency. In addition to outline some additional questions for the Legislature to improving child and maternal well-being, some studies consider as it evaluates the Governor’s initiative . show that home visits help parents obtain employment, enroll in high school coursework, and stabilize family • What Role Should Various State Departments relationships . Play? As mentioned earlier, the federal government provides MIECHV grants to the Long-Term Fiscal Benefits Typically Outweigh states to fund home visiting programs . In Costs, Especially for Low-Income Mothers. California, the state Department of Public Health One method researchers use to evaluate policies (DPH) manages these grant funds . In this role, is to compare the policy’s benefits for participants, DPH funds two evidence-based home visiting government, and society with the policy’s costs . Most models (Healthy Families America and the studies of home visiting programs have found that, over Nurse-Family Partnership), provides technical the long term, the monetary benefits to participants and assistance to service providers, collects governments exceed the programs’ costs . In thinking industry-standard data, and evaluates program about home visiting within the CalWORKs program, in performance . (We note that DPH collects several particular, we note that benefits tend to most outweigh indicators of family economic self-sufficiency .) In costs—by as much as $5 in benefits to $1 in program order to minimize new requirements for service costs—when staff are paired with low-income women providers and to take advantage of DPH’s existing 36 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET administrative infrastructure and experience LAO Assessment. Federal regulations generally managing home visiting grants, the Legislature prohibit the use of TANF funds for infrastructure . may wish to consider a system where DSS leads Therefore, it appears unlikely that federal TANF funds programmatic management via their longstanding could be used for facility renovations as proposed by partnership with county human services agencies the Governor . Due to this restriction and additional while DPH remains the primary state contact for concerns about the proposal that we raise in our service providers, managing data collection and analysis of K-12 education proposals, we recommend program evaluation as it does now for the federal that the Legislature reject this proposal . MIECHV program . This data could be shared with DSS for county oversight purposes . LEGISLATURE HAS OPPORTUNITY • How Will Initiative Work Alongside Existing TO BUILD ITS OWN TANF PLAN Local Programs? County human services agencies that participate in the home visiting Legislature Has Opportunity Now to Choose initiative would submit plans for approval by Best Use of Excess TANF Funds. The existence of DSS . The Legislature may wish to consider freed-up TANF in 2018-19 provides the Legislature with whether there are certain elements it expects an opportunity to build its own TANF plan in a way that to be included in these plans . For example, the balances its priorities for the CalWORKs program with Legislature may wish to require county plans to priorities in other areas of the state budget . Below, we document how the county intends to: (1) combine discuss the options that are available to the Legislature . its home visiting funds with other available funds Governor’s TANF Budget Plan Is One Approach. so that providers have diversified funding sources, Figure 21 details the Governor’s proposed use of (2) collaborate with county public health and early freed-up TANF funds that are available primarily due education departments to coordinate referrals, to declining caseload within the CalWORKs program . and (3) track home visiting programs to confirm A small portion of freed-up TANF block grant funds that new funds do not supplant existing county are proposed to be used to further offset General funding . Fund spending, whereas the majority are directed toward new, short-term initiatives . Consequently, the Proposed Grant Program for Governor’s proposal places less emphasis on using Early Education TANF funds to offset existing General Fund costs, as has been the consistent practice in recent years . Provides One-Time Funding for Early Education Legislature Should Develop Its Own TANF Expansion. The Governor’s budget transfers Budget Plan. The Legislature may wish to consider $42 million in new freed-up TANF funds to the California Department Figure 21 of Education (as well as $125 million in Proposition 98 funding) for a Governor’s Plan to Spend Freed‑Up TANF Funds competitive grant program to increase TANF Funds Available Relative to Enacted 2017-18 Budget (In Millions) the availability of early education for New Augmentations children under age five who have Transfer to CDE for early education grants $42 special needs . Freed-up TANF funds Home visiting initiative 27 would be used to provide one-time Home visiting initiative reserve 132 grants to child care providers (the Total $201 Proposition 98 funds would be Additional TANF Used to Offset General Funda $26 directed to school districts and Total Freed‑Up TANF Funds $226 county offices of education) and a Includes the net effect of the TANF transfer to California Student Aid Comission for tuition are proposed to be used for a assistance, and other transfers. variety of purposes, including facility Total does not add due to rounding. TANF = Temporary Assistance for Needy Families; CDE = California Department of Education; renovations, training, and equipment . and MOE = maintenance-of-effort. www.lao.ca.gov 37 analysis full gutter 2018-19 BUDGET uses for freed-up TANF funds other than those the ongoing TANF commitments cautiously because Governor has proposed . It could use these funds to General Fund resources would be needed in future (1) augment the CalWORKs program, (2) augment years to maintain those spending levels should the non-CalWORKs programs that further the TANF CalWORKs caseload increase . In general, one-time objectives (but would not offset current General Fund or temporary commitments carry fewer budgetary spending), or (3) backfill existing non-CalWORKs risks than using freed-up TANF funds for ongoing programs that further the TANF objectives to achieve programmatic commitments . Potential one-time uses General Fund savings . Below, we describe each of might include a one-year augmentation to existing these potential uses: CalWORKs programs, such as the family stabilization or housing support programs, in order to provide • New CalWORKs Spending. In thinking about temporary services to a greater number of CalWORKs its TANF budget plan, the Legislature could families . make changes to the Governor’s proposals for Multiyear Approach to Program Goals That CalWORKs spending or fund different priorities Also Addresses Long-Term Budget Pressure. Both within CalWORKs . For instance, the Legislature our office and the administration anticipate that the may wish to consider whether to fund the home CalWORKs caseload will continue to decline for the visiting initiative on an annual basis, rather than next year and potentially longer . As a result, we expect funding the full three-year costs in 2018-19, that freed-up TANF funds will become available— to make additional TANF funds available to be above the amount identified this year—in coming spent in 2018-19 . (In this case, additional TANF budget cycles . As with all forecasts, however, these funding would need to be identified in 2019-20 expectations are subject to considerable uncertainty and 2020-21 to fund the home visiting initiative .) and could change if the condition of the state’s Alternatively, on an ongoing basis, the Legislature economy were to deteriorate . As a point of reference, could also consider increasing CalWORKs grant each 5 percent decline in the annual CalWORKs amounts . caseload frees up about $200 million in TANF funds • New Spending Outside CalWORKs. The to be spent in CalWORKs or elsewhere in the state Legislature could allocate freed-up TANF funds to budget . The opposite is also true . A 5 percent increase new initiatives outside CalWORKs that further the in the caseload would cost the state $200 million in TANF objectives . This spending would not offset General Fund dollars (either directly through increased General Fund spending . The Governor’s early spending in CalWORKs or indirectly because fewer education grant proposal falls in this category . TANF funds would be free to offset General Fund • General Fund Savings Outside CalWORKs. spending elsewhere) or require the Legislature to If the Legislature is interested in continuing past reduce CalWORKs grants or services . practice for the use of freed-up TANF funds, In light of these dynamics, the Legislature may it may wish to consider whether to use these wish to plan its major CalWORKs policy goals using funds to backfill existing General Fund spending, a framework that balances (1) how it expects the thereby freeing up additional General Fund dollars caseload to change in the short term with (2) what for other priorities . To do so, programs that are amount of spending it is willing to commit to currently supported by the General Fund but meet CalWORKs on an ongoing basis, acknowledging that the purposes of the TANF program would have the caseload might rise again over the long term . The to be identified . Although there do not appear Legislature could, for instance, balance any ongoing to be many additional options, we believe one spending it makes in the CalWORKs program by option could be the expansion of the annual TANF setting aside (in the TANF reserve) a portion of the transfer to the California Student Aid Commission freed-up TANF funds each year . These reserves would for Cal Grant financial aid . be available in later years, should the caseload rise, to Consider Ongoing Commitments With Some help pay for increased costs related to those ongoing Caution. In crafting its priorities for the use of freed-up commitments, thereby reducing budgetary pressure on TANF funds, we recommend the Legislature budget the General Fund in those years . 38 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET Budget Picture Likely to Change in the Coming Mindful of these forthcoming changes, we encourage Months. While we strongly encourage the Legislature the Legislature to consider its goals and priorities for to begin crafting its own proposals for the CalWORKs the program broadly and to not focus too closely on program and for the use of freed-up TANF funds, the specific budgeted amounts because these are likely to current estimates will change when the administration fluctuate between now and when the Legislature enacts releases its updated May Revision caseload forecast . its 2018-19 budget package . IN-HOME SUPPORTIVE SERVICES BACKGROUND remaining costs of the IHSS program are paid for by counties and the state . Overview of the In-Home Supportive Services Counties’ Share of IHSS Costs Is Set in (IHSS) Program. The IHSS program provides personal Statute. Historically, counties paid 35 percent of the care and domestic services to low-income individuals nonfederal—state and county—share of IHSS service to help them remain safely in their own homes and costs and 30 percent of the nonfederal share of IHSS communities . In order to qualify for IHSS, a recipient administrative costs . Between 2012-13 and 2016-17, must be aged, blind, or disabled and in most cases the historical county contribution rates were replaced have income below the level necessary to qualify for the with an IHSS county MOE . Budget-related legislation Supplemental Security Income/State Supplementary adopted in 2017-18 eliminated and replaced the initial Payment cash assistance program . IHSS recipients IHSS county MOE with a new county MOE financing are eligible to receive up to 283 hours per month structure . Under the new MOE, the counties’ share of of assistance with tasks such as bathing, dressing, IHSS costs was reset to roughly reflect the counties’ housework, and meal preparation . Social workers share of estimated 2017-18 IHSS costs based on employed by county welfare departments conduct an historical county cost-sharing levels (35 percent of the in-home IHSS assessment of an individual’s needs nonfederal share of IHSS service costs and 30 percent in order to determine the amount and type of service of the nonfederal share of IHSS administrative costs) . hours to be provided . In most cases, the recipient The new MOE will increase annually by (1) the counties’ is responsible for hiring and supervising a paid IHSS share of costs from locally negotiated wage increases, provider—oftentimes a family member or relative . The and (2) an annual adjustment factor . (We provide average number of service hours that will be provided updates on the implementation of the new IHSS county to IHSS recipients is projected to be about 108 hours MOE later in this chapter .) per month in 2018-19 . Treatment of IHSS Services Versus IHSS Receives Federal Funds as a Medi-Cal Administrative Costs Under New MOE. The state Benefit. The IHSS program is predominately delivered General Fund is expected to pay all nonfederal IHSS as a benefit of the state-federal Medicaid health service costs above the counties’ MOE expenditure services program (known as Medi-Cal in California) level . However, as part of the 2017-18 budget package, for low-income populations . The IHSS program the amount of General Fund that can be used for is subject to federal Medicaid rules, including the county IHSS administrative costs is capped . This federal reimbursement rate of 50 percent of costs for means that counties will pay the full nonfederal IHSS most Medi-Cal recipients . Additionally, about 40 percent administrative costs above the General Fund cap . (We of IHSS recipients, based on their assessed level of discuss in detail the state and county cost-sharing need, qualify for an enhanced federal reimbursement arrangement under the IHSS county MOE later in this rate of 56 percent, referred to as Community First chapter .) Choice Option . As a result, the effective federal reimbursement rate for IHSS is about 54 percent . The www.lao.ca.gov 39 analysis full gutter 2018-19 BUDGET BUDGET OVERVIEW AND Increasing Paid Hours Per Case. Over the past ten years, the average amount of paid monthly hours LAO ASSESSMENT per case for IHSS has increased by 25 percent, from The Governor’s budget proposes a total of about 86 in 2007-08 to an estimated 107 in 2017-18 . $11 .2 billion (all funds) for IHSS in 2018-19, which Between 2007-08 and 2012-13, average paid hours is about $950 million (9 percent) above estimated per case remained relatively flat—at around 86 hours . expenditures in 2017-18 . The budget includes about However, between 2013-14 and 2016-17, average paid $3 .6 billion from the General Fund for support of the hours per case has increased annually by an average of IHSS program in 2018-19 . This is a net increase of 6 percent . $254 million (7 .5 percent) above estimated General Fund costs in 2017-18 . The year-over-year net increase Figure 22 in IHSS General Fund expenditures is primarily due to Growth in Key Cost caseload growth and increased state minimum wage Drivers for IHSS Program costs, which are partially offset by the decrease in General Fund assistance given to counties to assist with the transition to the new MOE . Below, we discuss Average Caseload 2018-19a some of the main components of the Governor’s 545,180 budget for IHSS and note any issues with them . 518,511 Primary Divers of 2017-18a Increased Costs in IHSS 400,156 Caseload growth, rise in paid hours per case, and 2007-08 wage increases for IHSS providers are key drivers of increasing IHSS costs . Figure 22 shows how these factors have increased over the past ten years . Below, we describe these trends and how these cost drivers Average Paid Hours Per Case affect the Governor’s 2018-19 budget proposal for 2018-19a IHSS . 108hrs Increasing Caseload. Average monthly caseload 107hrs for IHSS has increased by 30 percent over the past 2017-18a ten years, from 400,000 in 2007-08 to an estimated 86hrs 520,000 in 2017-18 . IHSS caseload has historically 2007-08 fluctuated, increasing at most by 8 percent in 2007-08 and decreasing by 4 percent in 2013-14 . More recently, year-to-year IHSS caseload growth has remained at about 5 percent and is expected to continue growing Average Hourly Wage at this rate in 2018-19 . The reasons for the steady 2018-19a caseload growth in recent years are not completely $11.87 understood, but could be related to the growth in California’s senior population (adults aged 65 and $11.37 2017-18 older) . The 2018-19 budget projects that the average IHSS caseload will increase to 545,000 in 2018-19— $9.34 2007-08 about 5 percent above 2017-18 estimates . We have reviewed the caseload projections in light of actual caseload data available to date and do not recommend any adjustments at this time . a Reflect 2018-19 Governor's Budget estimates. IHSS = In-Home Supportive Services. 40 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET The growth in average paid hours per case reflects, (37 counties) or the increase to $10 .50 in 2017 in part, a series of policy changes . For example, one (35 counties) . (A county is impacted by the state reason for the recent increase in paid hours per case minimum wage increase when the current local wage is includes the implementation of the federal requirement below the new state minimum wage level .) We note that that IHSS providers be compensated for previously in future years, as the state minimum wage continues unpaid work tasks, such as time spent waiting during to increase, more counties will be impacted, resulting in their recipient’s medical appointments . Additionally, higher IHSS costs . similar to the increase in the caseload, as the IHSS Update on Federal Labor Regulation population ages there may be an increasing number of more complex IHSS cases that typically require more Compliance Costs service hours—for example, recipients who are severely In accordance with federal labor regulations that impaired . We note that the administration is requesting became effective in 2015-16 and affect home care additional positions to, in part, assess recent growth workers, the state is required to (1) pay overtime trends in paid hours per case . Although we are still compensation—at one-and-a-half times the regular analyzing the details of the proposal, given the recent rate of pay—to IHSS providers for all hours worked increase in paid hours per case, we believe that it that exceed 40 in a week, and (2) compensate IHSS merits consideration . providers for authorized time spent waiting during their The Governor’s budget estimates that average hours recipient’s medical appointments and traveling between per case will be the same in 2017-18 as they were in the homes of IHSS recipients . The average number 2016-17 and will then increase slightly to about 108 of IHSS providers is projected to be about 513,000 in hours in 2018-19 . We have reviewed the average hours 2018-19 . per case estimates in light of actual hours per case data In preparation for IHSS compliance with the overtime available to date and do not raise any major concerns rule, the Legislature adopted statutory workweek caps at this time . generally limiting the number of hours an IHSS provider State and Local Wage Increases. In addition to can work to 66 hours per week—up to 26 hours of increasing caseload and paid hours per case, provider overtime per week . When multiplied by roughly four wage increases at the county and state level have weeks per month, this weekly limit is almost equal to contributed to increasing IHSS costs . Since 2007-08, the maximum number of service hours that may be the average hourly wage for IHSS providers increased allotted to IHSS recipients per month (283) . In addition, by 27 percent, from $9 .34 to an estimated $11 .87 in providers serving multiple IHSS recipients can be 2017-18 . (We note that this average IHSS wage reflects paid up to 7 hours per week for time spent traveling the base hourly wages for IHSS providers averaged between the homes of the IHSS recipients . Allowable across all counties .) IHSS provider wages generally travel time hours do not count towards the statutory increase in two ways—(1) increases that are collectively workweek caps or a recipient’s authorized monthly bargained at the local level and (2) increases that are hours . in response to IHSS-related state minimum wage Additionally, in 2016 DSS administratively established increases . The Governor’s budget includes $170 million two types of exemptions in response to federal General Fund ($372 million total funds) for the guidance asking states implementing workweek combined impact of the recent state minimum wage caps for IHSS to consider provider exemptions in increase from $10 .50 to $11 .00 per hour on January 1, situations where the caps could lead to increased risk 2018 and the scheduled increase from $11 .00 to of institutionalization for the consumer . Budget-related $12 .00 per hour on January 1, 2019 . The General Fund legislation in 2017-18 largely codified these two costs associated with state minimum wage in 2018-19 exemptions . Below, we provide an update to the costs are roughly three times more than 2017-18 costs . associated with overtime pay, newly compensable This is primarily due to the fact that a greater number work, and provider exemptions, and discuss differences of counties are expected to be impacted by the in the 2018-19 Governor’s Budget relative to prior state minimum wage increase to $12 .00 in 2019 budget assumptions . (46 counties) than the increase to $11 .00 in 2018 www.lao.ca.gov 41 analysis full gutter 2018-19 BUDGET Lower-Than-Expected 2017-18 Overtime and from 66 hours per workweek to 90 hours per workweek Travel Time Costs. As illustrated in Figure 23, the (not to exceed 360 hours per month) . revised 2017-18 General Fund cost estimate to comply The first exemption, referred to as the family with federal labor regulations ($274 million) is about exemption, applies to IHSS providers who are related $70 million less than the 2017-18 budget appropriation to, live with, and work for two or more IHSS recipients ($346 million) . This is primarily due to fewer providers on or before January 31, 2016 . Eligible recipients working overtime hours than assumed in initial budget were notified of the exemption and mailed application estimates . In addition, of those IHSS providers forms by DSS . The second exemption, referred to as expected to work overtime, it is now estimated that the extraordinary circumstances exemption, applies they will claim fewer overtime hours . Figure 23 also to IHSS providers who work for two or more IHSS provides rough cost estimates for revised 2017-18 and recipients whose extraordinary circumstances place 2018-19 medical wait time in order to capture the full them in imminent risk of out-of-home institutionalized state cost to comply with federal labor regulations . care . Qualifying extraordinary circumstances include Estimated Increase in IHSS Overtime Costs (1) complex medical or behavioral needs that require Between 2017-18 and 2018-19. The 2018-19 budget a live-in provider, (2) residence in a rural and remote includes $297 million in General Fund for compliance area where available providers are limited and as a and administration of the federal labor regulations, result the recipient is unable to hire another provider, an increase of $23 million (8 percent) over revised or (3) an inability to hire a provider who speaks his/her estimates for 2017-18 . This is primarily due to an same language in order to direct his/her own care . It is increase in the number of providers expected to work our understanding that IHSS providers and recipients overtime hours as a result of the estimated increase in potentially eligible for an extraordinary circumstances the IHSS caseload . exemption will be notified and mailed application forms Estimated Increase in Issued Exemptions to by DSS in Spring 2018 . Overtime Limits for Certain Providers. As previously Budget-related legislation in 2017-18 requires that, mentioned, in 2016 DSS issued guidance to counties as a part of initial IHSS assessment and subsequent establishing two exemptions to the 66-hour workweek reassessments, county social workers evaluate IHSS cap for certain providers with multiple recipients, which recipients to determine if their provider is eligible for were largely codified in 2017-18 . For both exemptions, either exemption . In addition, recipients or providers the weekly maximum allowable hours are extended may contact their IHSS county social worker to determine whether they meet the eligibility criteria for an exemption . To Figure 23 be considered for the extraordinary Updated IHSS General Fund Costs to Comply With circumstances exemption, it first must Federal Labor Regulationsa be determined that the recipient, with county assistance, has explored and (In Millions) exhausted all other options to meet 2017‑18 2018‑19 their additional service needs, such Governor’s as hiring another provider . If denied, Appropriation Revised Budget the IHSS provider or recipient may Overtime pay $283 $220 $240 request a second review by DSS . Travel time pay 18 14 15 Between January 2017 and Medical wait time payb 35 30 30 Provider exemptions 7 7 8 January 2018, the number of Administration 4 4 4 providers issued a family exemption Totals $346 $274 $297 remained roughly the same, a Under the IHSS county maintenance-of-effort, the nonfederal costs are assumed to be about 1,500, while the number of 100 percent General Fund. providers issued an extraordinary b Reflects our rough estimates of costs associated with compensating IHSS providers for time spent waiting during their recipient’s medical appointments. circumstances exemption increased, IHSS = In-Home Supportive Services. on average, by 11 percent per 42 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET month, from about 50 providers to 120 providers . annually when the state minimum wage increases The Governor’s budget estimates that the average to $15 per hour (scheduled for January 1, 2022) . In number of family exemptions will remain relatively general, providers must first work a certain amount of flat in 2018-19 . However, the budget projects hours to receive and use their paid sick leave hours . that the average number of issued extraordinary The 2018-19 budget includes $30 million General circumstances exemptions will increase at a faster rate Fund to provide 8 hours of paid sick leave to IHSS in 2018-19 than 2017-18—to about 700 in 2018-19 . providers . The estimated costs are primarily driven by Based on past growth trends, it is likely that the number the assumption that all IHSS providers will become of issued extraordinary circumstances exemptions eligible for and use the full 8 hours of paid sick leave in and associated General Fund costs may be less than 2018-19 . We note General Fund costs would be lower estimated in the 2018-19 budget . For example, if if fewer than estimated providers utilize paid sick leave the number of issued extraordinary circumstances in 2018-19 . exemptions continued to increase at its recent rate Update on the IHSS County MOE (11 percent per month), the estimated number of providers with this exemption in 2018-19 would be 240, As previously mentioned, budget-related legislation rather than 700, resulting in about a $4 million decrease enacted in 2017-18 established a new MOE for in General Fund costs . counties’ share of IHSS costs . The new MOE increased IHSS Providers Continue to Receive Time Sheet county IHSS costs to reflect estimated 2017-18 Violations. Starting July 1, 2016, DSS began issuing IHSS costs . The county MOE is expected to increase time sheet violations to providers for exceeding their annually by an adjustment factor and the counties’ authorized monthly work caps or permitted travel share of costs associated with locally negotiated wage time . Violations are administered based on a four-level increases . The annual adjustment factor varies based violation system, with providers receiving a three-month on the year-to-year growth in realignment sales tax suspension from the IHSS program after the third revenue, which generally reflects overall economic violation and a one-year suspension after the fourth conditions . Below, we provide an update on the violation . In 2017, the average number of providers implementation of the new IHSS county MOE . that received a violation per month was about 3,000 . Estimated IHSS County MOE Costs in 2017-18 The number of providers with third and fourth violations and 2018-19. As illustrated in Figure 24, the revised is slightly increasing, but remains a significantly small 2017-18 IHSS county MOE cost estimate ($1 .74 billion) portion of the overall IHSS provider population . is about $28 million less than the initial 2017-18 budget appropriation ($1 .77 billion) . Budget-related legislation Implementation of Paid Sick Leave enacted in 2017-18 authorized the administration Pursuant to state legislation, beginning on to adjust the 2017-18 IHSS MOE downward on a July 1, 2018, IHSS providers will be eligible to receive one-time basis if total IHSS costs were lower than initial 8 hours of paid sick leave, ramping up to 24 hours estimates . The resulting decrease to the IHSS MOE is Figure 24 Increase in IHSS County MOE Costs (In Millions) 2017‑18 2018‑19 Change From Appropriation Revised Governor’s Budget Revised 2017‑18 Total IHSS County MOE Costsa $1,768 $1,740 $1,835 $95 Share of IHSS service costs 1,672 1,630 1,720 90 Share of IHSS administrative costs 96 110 115 5 a Total IHSS county MOE costs are partially offset by General Fund assistance provided to counties to assist them in meeting their increased IHSS MOE costs in 2017-18 ($400 million) and 2018-19 ($330 million). IHSS = In-Home Supportive Services and MOE = maintenance-of-effort. www.lao.ca.gov 43 analysis full gutter 2018-19 BUDGET partially offset by increasing county costs associated the available state General Fund (about $330 million with locally negotiated wages that occurred after in 2017-18 and $323 million in 2018-19, combined), the budget was enacted . In addition, it is projected counties are responsible to pay the difference . (We that the IHSS MOE costs will increase by $95 million note that the federal government will share these costs in 2018-19 . This increase reflects the impact of the with the counties .) It is our understanding that in future estimated annual adjustment factor (5 percent) to the years, the county MOE administrative cost limit will IHSS MOE and the counties’ share of costs associated be adjusted by the annual MOE adjustment factor, with locally negotiated wage increases . while the General Fund cap will be adjusted by the Revised Budget Assumptions to Calculate year-to-year rate of growth in the IHSS caseload . State and County IHSS Administrative Costs. Determine What Data Are Needed in Preparation Historically, state and county IHSS administrative for the Proposed Reexamination of Budget costs were budgeted using 2001 county worker costs Assumptions. The Governor’s budget includes a and workload estimates . Budget-related legislation reexamination of the revised administrative cost budget enacted in 2017-18 required the Department of assumptions as a part of the 2020-21 budget process . Finance (DOF), in consultation with counties, to update It is our understanding that the reexamination will the budgeting assumptions used to estimate IHSS focus on whether the revised budgeting assumptions administrative costs . The Governor’s budget includes reasonably reflect county administrative expenditures, about $640 million total funds for IHSS administrative as documented by county administrative claims data . costs in 2018-19, which includes IHSS automation In addition to the county claims data, the Legislature costs, IHSS public authority costs (a local entity that, in should consider if there are other cost measures or part, provides training to recipients and providers), and data that should be collected to better inform the direct service-related and fixed administrative costs . The reexamination and potential need to modify the revised revised administrative cost estimates are primarily based budget assumptions in 2020-21 . One example of this on updated assumptions about average county wages may be tracking changes to county salary and benefit and the average number of county workers needed costs to determine if an annual cost-of-doing-business to fulfill statutorily required activities at current IHSS inflator for IHSS administrative costs is necessary . caseload levels . It is our understanding that in future Decrease in General Fund Assistance Provided years, total nonfederal IHSS administrative costs will be to Offset IHSS County Costs. Beginning in 2017-18, increased by the year-to-year rate of growth in the IHSS additional General Fund support was provided to caseload . counties to assist them in meeting their increased IHSS State’s Share of IHSS Administrative Costs Is MOE costs . The General Fund support to counties is Capped. Under the IHSS MOE financing structure, expected to decrease from $400 million in 2017-18 to counties continue to receive federal funds for a portion $330 million in 2018-19, and eventually to $150 million of county administrative costs . However, the portion in 2020-21 and future years . of the county MOE obligation that can be met by Update to County Loans and Appeals to Public county administrative costs is limited . Additionally, the Employment Relations Board (PERB). In addition to amount of General Fund that is available for county establishing a new IHSS county MOE, budget-related administrative costs in IHSS is capped . As shown in legislation enacted in 2017-18 authorized DOF to Figure 24, the Governor’s budget estimates that only provide loans to counties experiencing significant $110 million of the total IHSS county MOE obligation financial hardship as a result of the new MOE . It is our in 2017-18 ($1 .7 billion) and $115 million of the understanding that currently no county has applied for 2018-19 obligation ($1 .8 billion) can be met by county a loan to assist in paying its IHSS costs . Additionally, administrative costs . In addition to the county MOE counties and unions were provided with the ability to obligation, it is assumed that the General Fund will appeal to PERB if a bargaining agreement over IHSS provide up to $220 million of county administrative provider wages and benefits had not been reached costs in 2017-18 and $208 million in 2018-19 . To by January 1, 2018 . It is our understanding that as of the extent that actual county administrative costs today, no appeal has been made to PERB concerning exceed the county MOE administrative cost limit and an IHSS bargaining agreement . 44 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET SSI/SSP The Supplemental Security Income/State the first since 2005 . The Governor’s 2018-19 budget Supplementary Payment (SSI/SSP) program provides proposal does not include an increase to the SSP cash grants to low-income aged, blind, and disabled portion of the grant . individuals . The state’s General Fund provides the SSP During Constrained Budget Environment, SSP portion of the grant while federal funds pay for the SSI Grants for Individuals and Couples Reduced to portion of the grant . Total spending for SSI/SSP grants Federally Required Minimum. The state is required increased by about $160 million—or 1 .6 percent—from to maintain SSP monthly grant levels at or above $9 .9 billion in 2017-18 to $10 .1 billion in 2018-19 . the levels in place in March 1983 ($156 .40 for SSP This is primarily due to increased federal expenditures individual grants and $396 .20 for SSP couple grants) as a result of an increase to the federal SSI grant in order to receive federal Medicaid funding . During levels in 2018-19 . Of this total, the Governor’s budget the most recent recession, the state incrementally proposes about $2 .8 billion from the General Fund, decreased SSP grants for individuals and couples until an amount relatively equal to revised estimates they reached these minimum levels in June 2011 and of 2017-18 expenditures . November 2009, respectively . Beginning January 1, Caseload Slightly Decreasing. The SSI/SSP 2017, SSP grants for individuals and couples slightly caseload grew at a rate of less than 1 percent each increased above the minimum level due to the COLA on year between 2011-12 and 2014-15 . More recently, the state’s SSP portion . the caseload has slightly decreased—by 0 .8 percent Total Grants Have Been Gradually Increasing in 2015-16, 1 .2 percent in 2016-17, and an estimated Largely Due to Federal COLAs, but Remain 0 .5 percent in 2017-18 . The budget projects that Below FPL for Individuals. As shown in Figure 25 caseload will be about 1 .3 million individual and (see next page), the maximum SSI/SSP monthly couple SSI/SSP recipients in 2018-19, a decrease of grant amount for individuals (the bulk of the SSI/SSP 0 .1 percent below estimated 2017-18 caseload levels . caseload) and couples have been increasing gradually since 2010-11—predominantly due to the provision Background on SSI/SSP Grants of federal COLAs . However, despite these increases, Both the State and Federal Government current maximum SSI/SSP grant levels for individuals Contribute to SSI/SSP Grants. Grant levels remain below the federal poverty level (FPL), while grant for SSI/SSP are determined by both the federal levels for couples remain above the FPL . We note that government and the state . The federal government, during some difficult budget times prior to 2010-11, the which funds the SSI portion of the grant, is statutorily state negated the impact of federal COLAs by reducing required to provide an annual cost-of-living-adjustment the SSP portion of the grant by the amount of the (COLA) each January . This COLA increases the SSI federal increase, thereby holding total SSI/SSP grant portion of the grant by the Consumer Price Index for levels flat . After the state reduced SSP grants to the Urban Wage Earners and Clerical Workers (CPI-W) . federally required minimum levels, the state could no In years that the CPI-W is negative (as was the case longer do this . in 2010, 2011, and 2016), the federal government Governor’s Budget Estimates does not decrease SSI grants, but instead holds them flat . The federal government gives the state full Federal SSI Grant Increase May Be Slightly discretion over whether and how to provide increases Less Than Governor’s Budget Estimate. As shown to the SSP portion of the grant . Until 2011, the state in Figure 26 (see next page), the Governor’s budget had a statutory COLA . Although this statutory COLA estimates that the CPI-W that the federal government existed, there were many years when, due to budget will use to adjust the SSI portion of the grant in 2019 constraints, the COLA was not provided . As part of the will be 2 .6 percent, increasing the maximum monthly 2016-17 budget package, the Legislature provided a SSI/SSP grant by $20 for individuals and $30 for COLA of 2 .76 percent on the SSP portion of the grant, couples . However, our estimate of the CPI-W is lower, www.lao.ca.gov 45 analysis full gutter 2018-19 BUDGET Figure 25 Maximum SSI/SSP Grants for Individuals and Couplesa Compared to Federal Poverty Levelb $1,800 b Federal Poverty Level 1,600 SSP 1,400 SSI 1,200 1,000 800 600 400 200 10-11 11-12 12-13 13-14 14-15 15-16 16-17 17-18 18-19 10-11 11-12 12-13 13-14 14-15 15-16 16-17 17-18 18-19 Individuals Couples a The maximum monthly grants displayed refer to those for aged and disabled individuals and couples living in their own households, effective as of January 1 of the respective budget year. b Federal poverty level established by U.S. Department of Health and Human Services, effective as of January 1 of the respective budget year. at 1 .8 percent . (The actual CPI-W will not be known until the fall .) Figure 26 As a result, we estimate that total maximum monthly SSI/SSP grants SSI/SSP Monthly Maximum Grant Levelsa would increase by $13 for individuals Governor’s Proposal and $20 for couples in 2018-19 . 2018-19 Governor’s Change Issue for 2017-18 Estimatesb From 2017-18 Legislative Consideration Maximum Grant—Individuals Potential Effects of Ending SSI $750.00 $770.00 $20.00 the SSI Cash-Out. Due to a SSP 160.72 160.72 — long-standing state policy known as Totals $910.72 $930.72 $20.00 Percent of federal poverty levelc 90% 92% the SSI cash-out, SSI/SSP recipients receive an extra $10 payment in Maximum Grant—Couples lieu of their being eligible to receive SSI $1,125.00 $1,155.00 $30.00 SSP 407.14 407.14 — federal food benefits (CalFresh Totals $1,532.14 $1,562.14 $30.00 benefits) in California . There has Percent of federal poverty levelc 112% 114% been legislative interest in the fiscal a and policy implications of ending the The maximum monthly grants displayed refer to those for aged and disabled individuals and couples living in their own households, effective as of January 1 of the respective budget year. SSI cash-out policy . The decision b Reflects Governor’s budget estimate of the January 2019 federal cost-of-living adjustment—2.6 percent—for the of whether to end the SSI cash-out SSI portion of the grant. c Compares grant level to federal poverty guidelines from the U.S. Department of Health and Human Services for 2018. involves trade-offs, which we discuss 46 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET in our legislatively requested report The Potential Effects negatively affected households generally have limited of Ending the SSI Cash-Out (January 2018) . financial means, they tend to have more income Estimates developed by Mathematica, a national than households that would benefit from ending the research organization, and DSS indicate that the SSI cash-out . If the Legislature wishes to end the SSI majority of households with SSI/SSP recipients would cash-out, it could consider establishing a state food benefit from the elimination of the SSI cash-out . benefit program that would replace some or all of the However, some households currently receiving CalFresh lost food benefits . There are many ways a state food benefits would either experience a decrease in food benefit program could be structured, each with its own benefits or become ineligible for CalFresh . While trade-offs . DEVELOPMENTAL SERVICES BACKGROUND RCs only pay for services if they are not covered and paid for through another government program, such Overview of the Department of Developmental as Medi-Cal or public education, or through a third Services (DDS). Under the Lanterman Developmental party, such as private health insurance . RCs contract Disabilities Services Act of 1969 (known as the with tens of thousands of vendors around the state to Lanterman Act), the state provides individuals who purchase services and supports for consumers . DDS have developmental disabilities with services and provides RCs with a budget for both their administrative supports to meet their needs, preferences, and goals operations and the purchase of services (POS) from in the least restrictive environment possible . These vendors . services and supports are overseen by DDS . The State-Operated Residential and Community Lanterman Act defines a developmental disability as a Facilities. At the start of 2017-18, DDS served about “substantial disability” that starts before the age of 18 800 individuals in three Developmental Centers (DCs), and is expected to continue indefinitely . This definition which are licensed and certified as general acute includes cerebral palsy, epilepsy, autism, intellectual care hospitals, and one state-run community facility . disabilities, and other conditions closely related to It is also in the process of developing a state-run intellectual disabilities that require similar treatment community-based “safety net,” which includes smaller (such as traumatic brain injury) . Unlike most other public five-person homes and mobile crises teams . We human services or health services programs, individuals describe each element of DDS’ state-run services receiving services through DDS need not meet any below . income or qualification criteria other than a diagnosis of a developmental disability . The department administers • Closure DCs. In 2015, the administration both community-based services and state-run services . announced its plan—which the Legislature These are each described below . approved—to close the state’s remaining DCs (which we refer to as “closure DCs”)—Sonoma Community Services Program. DDS currently DC in Sonoma County by the end of 2018, serves an estimated 318,000 individuals with Fairview DC in Orange County by the end of developmental disabilities (“consumers” in statutory 2021, and the general treatment area of Porterville language) in 2017-18 through its community services DC in Tulare County by the end of 2021 . At the program . Twenty-one independent nonprofit Regional start of 2017-18, 534 residents lived at closure Center (RC) agencies coordinate services for DCs . consumers, which includes assessing eligibility and developing individual program plans . RCs coordinate • Nonclosure Facilities. DDS will continue residential, health, day program, employment, to operate a secure treatment program at transportation, and respite services, among others, Porterville DC, which, by statute, can serve up for consumers . As the mandated payer of last resort, to 211 people, all of whom have been deemed a www.lao.ca.gov 47 analysis full gutter 2018-19 BUDGET safety risk and/or incompetent to stand trial . DDS provide an estimated $2 .7 billion . The Governor’s also runs Canyon Springs Community Facility budget reflects a $25 million ($21 million General in Riverside County, which can house up to Fund) downward adjustment in POS expenditures in 63 people at a time . 2017-18, in large part due to lower actual expenditures • Safety Net Facilities and Crisis Services. than previously estimated related to state minimum DDS currently operates two five-bed acute crisis wage increases implemented in 2017 . In 2018-19, units—one at Sonoma DC and one at Fairview the Governor’s budget proposes an increase of DC—which serve anyone in the DDS system $451 million ($285 million General Fund) in POS undergoing an acute crisis . Because these expenditures over revised 2017-18 estimates . Of this facilities will no longer be available once the DCs amount, $179 million ($98 million General Fund) is due close, DDS is developing two five-bed homes in to state minimum wage increases that took effect on the Napa area and two five-bed homes on the January 1, 2018 and the subsequent increase that will Fairview DC property (a fifth home will open in take effect on January 1, 2019 . In 2018-19, the DDS 2019-20 in Northern California) to address crisis RC budget will lose about $11 million in federal funding needs . The state will also operate two mobile from the “Money Follows the Person” grant . This federal crisis units to respond to consumers in crisis at grant was a limited-term source of funding for services their current residence . provided for consumers transitioning from institutional settings . The General Fund will backfill this loss . The DDS system is preparing itself for some OVERVIEW OF THE fundamental changes in the way services are GOVERNOR’S BUDGET PROPOSAL delivered, which affects the DDS POS budget . New federal home- and community-based service (HCBS) The Governor’s budget proposes $7 .3 billion (all regulations that take effect in March 2022 and affect the funds) for DDS in 2018-19, a 5 .1 percent increase state’s ability to receive federal Medicaid HCBS Waiver over estimated 2017-18 expenditures . General Fund funding require programs that are more integrated, expenditures comprise $4 .4 billion of this amount, a promote personal choice, and foster consumer 5 .6 percent increase over estimated 2017-18 General independence . Some shifts may already be evident in Fund spending . Given that the declining cost to the proposed POS budget . Work activity programs, run closure DCs has lowered the overall budget for also known as sheltered workshops, are non-integrated state-run facilities and services, the year-over-year programs that include large groups of DDS consumers increases are nearly all due to increasing costs in the conducting work for subminimum wage . Between community services program . Growth in the number 2017-18 and 2018-19, the Governor’s budget reflects of people served in the community services program a decline of nearly $4 million General Fund for work and growing costs associated with implementing state activity programs and a nearly commensurate increase minimum wage increases are the primary drivers of of about $3 million General Fund in individual supported these year-over-year increases . Federal funding makes employment . up about 40 percent of the DDS budget . Finally, we note that under recently enacted Community Services Program law, behavioral health treatment for children that is considered medically necessary has been approved Budget Summary as a covered Medi-Cal benefit and the cost for this The community services program is estimated to treatment is shifting from the DDS POS budget to grow 7 .6 percent in 2018-19 to $6 .9 billion (all funds) . the Medi-Cal budget . This transition, which began The General Fund comprises $4 .1 billion of the total among children who have an autism diagnosis and budget, up 8 .4 percent from 2017-18, while federal now includes children without an autism diagnosis, is reimbursements, primarily through Medicaid Waiver reflected as a further reduction of nearly $49 million programs and Title XX social services funding will General Fund in DDS’ 2018-19 budget . 48 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET State-Operated Residential and ISSUES FOR Community Facilities Program LEGISLATIVE CONSIDERATION Budget Summary Caseload Projections While DDS previously referred to all its state-run programs as DCs, its new nomenclature— Caseload Growth Outpaces General Population State-Operated Residential and Community Facilities— Growth. Caseload in the DDS system continues to reflects the changing role of the state in developmental grow at a steady, but rapid, pace . While DDS serves services—from delivering its state-staffed services nearly 318,000 consumers in 2017-18, it is estimated primarily in institutional DC settings to delivering to serve about 333,000 in 2018-19, a 4 .8 percent services in more varied ways . This still includes increase . Overall caseload growth has been increasing operating two state-run facilities (Canyon Springs by about the same rate each year since 2014-15, when Community Facility and the secure treatment expanded eligibility for DDS’ Early Start program for program at Porterville DC), but also includes providing infants and toddlers was restored (eligibility was more community-based, but state-operated, safety net and limited during the recession from 2009 through 2014) . crisis services . By comparison, the state’s total population has been The budget for these state-run programs is growing at a rate of less than 1 percent in recent years . expected to decline nearly 25 percent—from about Growth in Early Start Caseload Continues $500 million (all funds) in 2017-18 to about $375 million to Outpace Growth in Lifelong DDS Consumer in 2018-19 . General Fund expenditures will decline Caseload. The Early Start program serves infants and approximately 20 percent—from about $365 million to toddlers under age 3 who exhibit developmental delays about $290 million over this period . The year-over-year in speech, cognitive, social or emotional, adaptive, or reductions are primarily due to DC closure activities . physical and motor development, or have a known The budget reflects a substantial reduction in DC staff risk factor for developmental delay . The number of from 2017-18 to 2018-19—about 830 positions— Early Start infants and toddlers is projected to grow by as more and more DC residents transition to the almost 10 percent—from about 43,000 in 2017-18 to community . about 47,000 in 2018-19 . By comparison, the caseload for those age 3 and older is growing at a slower rate DDS Headquarters Budget Summary of 4 percent . According to DDS, about 20 percent of The Governor’s budget proposes $68 million for Early Start participants go on to become lifelong DDS DDS headquarters operations in 2018-19, an increase consumers at age 3 . The rate of growth among the of $4 million . The General Fund will provide $40 million, Early Start Program has been similar in recent years up $3 million from 2017-18 . The Governor’s budget (about 9 percent to 10 percent), as has the rate of proposes $2 million ($1 .4 million General Fund) and growth among those 3 and older (about 4 percent) . nine positions for clinical oversight and monitoring of Caseload Projections Reflect Historical Trends. the new models of homes that were recently developed Caseload growth assumptions in the Governor’s budget for consumers moving from DCs . These homes and are in line with recent caseload trends and our own associated services specialize in intensive medical projections, for caseload overall as well as for caseload care, behavioral treatment, and crisis intervention . The in the Early Start program . We will continue to monitor Governor’s budget also proposes to create an internal caseload growth trends and recommend adjustments audit unit, which includes two positions and $295,000 to the Governor’s caseload assumptions, if necessary, ($178,000 General Fund) . Currently, headquarters staff following our review of the May Revision . that conduct and oversee audits of RCs and service Reasons for Growth Not Well Understood. providers step in when needed to conduct audits of Although the Governor’s caseload projections are internal DDS activities . in line with recent trends, we note that it is not well understood why DDS caseload is growing at a rate that far outpaces overall state population growth . While the broader eligibility criteria in the Early Start program may www.lao.ca.gov 49 analysis full gutter 2018-19 BUDGET help explain why caseload in this program outpaces Governor’s budget does not reflect any assumptions growth in caseload among those age 3 and older, it about this issue .) The Legislature’s options include, does not explain why caseload would increase so much for example, transferring the land to another state on an annual basis, particularly since the number of department; selling the land to a local government, infants and toddlers overall in California has held steady affordable housing developers, or to a private entity; or or even declined in recent years . It is not clear the retaining the property and leasing out various parcels . extent to which the rapid growth reflects an increasing (Please see our recent report, Sequestering Savings incidence of developmental delays and disabilities in the From the Closure of Developmental Centers for a general population versus improved identification and/ more in-depth discussion of these options and the or diagnoses of these conditions . associated trade-offs .) Federal Funding Extended at Fairview DC and DC Closures the General Treatment Area of Porterville DC. The Community Placements on Track, Despite Minor state receives federal funding for DCs from Medicaid . Setback in 2017-18. The transition of DC residents Several years ago, the California Department of Public from closure DCs to the community appear on track Health—the state department responsible for licensing for 2018-19 . The Governor’s budget has revised and certification at DCs—found the intermediate care downward its estimate for the number of placements facilities for the developmentally disabled (ICF/DD) units in 2017-18, primarily due to 20 fewer residents moving at all three DCs to be out of compliance with federal from Fairview DC than previously estimated . The certification requirements . While the ICF/DD units at consumers who currently live at closure DCs, especially Sonoma DC were decertified and lost federal funding Fairview DC, tend to be more medically fragile or have in 2016, ICF/DD units at Fairview DC and the general more intensive behavioral treatment needs, on average, treatment area at Porterville DC remain certified through than residents who moved in previous years . DC and a settlement agreement with the federal government . RC staff work closely with the consumers, their families, Per the terms of the agreement, the units must be and with community-based service providers to ensure recertified each year and certification can be revoked at successful community placements . Sometimes this any time . The units at both DCs were recently recertified means changing the planned date of transition . Despite for 2018 and will thus continue to receive federal this current-year setback, DDS remains on track with funding through December 2018 . (The Governor’s scheduled DC closure dates . At Sonoma DC, it plans budget assumes the ICF/DD units will be recertified in to place 173 residents in 2017-18 (as of December 2019 and federal funding will continue for the balance 2017, it had placed more than 80 consumers) and the of 2018-19 .) DDS intends to have moved most of the final 83 in the first half of 2018-19 . Fairview DC and the ICF/DD residents into the community by the end of general treatment area of Porterville DC are scheduled 2019, the time at which federal funding for these units to close at the end of 2021, but the Governor’s budget is scheduled to end . estimates the populations will be below 100 at each DDS Is Reducing the Number of DC Staff. by the end of 2017-18 and down to 26 and 48, As DDS continues to place DC residents in the respectively, by the end of 2018-19 . community, it is also reducing the number of DC staff . Sonoma DC Set to Close in December, Requiring This happens in several ways . First, the Legislature Final Decisions About Disposition of Property. authorized a “community state staff program (CSSP),” The last resident will move from Sonoma DC, which which allows DDS to contract with a community-based first opened in 1891, in December 2018 . DDS will service provider to hire a DC employee for work continue to incur what are called “warm shutdown” in the community . The employee remains a state costs through at least the end of 2018-19 . These costs employee and the service provider covers the full include maintenance of the buildings and grounds, cost of state employee compensation and benefits . basic heating and electrical, record archival, disposal The benefit of CSSP is that experienced employees of assets, and site security . The Legislature will soon continue to work with DDS consumers, sometimes be faced with the decision of what to do with the the individual consumers they served at the DCs . This state-owned property that houses Sonoma DC . (The helps smooth the transition to the community for the 50 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET former DC residents . The incentive for the employee safety net and crisis services are adequate for the is retaining state employee status and benefits . CSSP needs of DDS consumers . For example, the Legislature contracts currently last for one year (new contracts could seek information on: will last for two years beginning July 2018), but can • How often DDS’ mobile crisis units are engaged, be renewed . Currently, 49 former DC employees are the average length of time they are needed, and employed under CSSP contracts . DDS is authorized whether they are able to respond to all calls . to contract for another 220 positions through this • How often the safety net homes reach capacity program . Second, some DC employees transfer to and remain at capacity . another state department (for example, in the final three months of 2017, 130 employees transferred to other • Whether each RC provides crisis intervention state departments, such as the Department of State services and how these services are coordinated Hospitals and the California Department of Corrections with DDS-operated services . and Rehabilitation) . Third, some DC employees retire . • The number of consumers who end up getting Fourth, others elect to resign from state service and placed in a more restrictive setting, such as an pursue employment opportunities elsewhere, which Institution for Mental Disease (IMD), how long could include working directly for a community service they remain in the more restrictive setting, and provider . For employees who retire or resign from state how many lose their community-based residential service, the Governor’s budget requests $4 .7 million placement as a result of their placement in a more General Fund in 2017-18 and $5 .5 million General restrictive setting . (We note that recently collected Fund in 2018-19 to compensate them for unused leave DDS data indicate that more than 75 percent of balances . the 59 consumers recently placed at IMDs have Development of Safety Net Facilities and been there longer than the legal limit of 180 days .) Crisis Services. As noted in the background, DDS is developing community-based safety net and crisis Minimum Wage Issues services to replace and expand upon crisis services State Minimum Wage Increases. The Legislature currently available at Sonoma DC and Fairview DC . has increased the state minimum wage several times One-time development costs totaled $21 .2 million in over the past decade . Currently, the state minimum 2017-18 (most of this from the General Fund) . The wage is $10 .50 for businesses with 25 or fewer Governor’s budget proposes $13 .2 million General employees and $11 for businesses with 26 or more Fund to operate four acute crisis homes and two employees . The state minimum wage is statutorily mobile crises teams in 2018-19, an increase of scheduled to increase each year until it reaches $15— $5 .5 million over revised 2017-18 spending, when only in 2022 for the larger businesses and in 2023 for the two crisis units operated out of Sonoma and Fairview smaller businesses . DCs . In addition, the Governor’s 2018-19 budget Statutory Policy Guides Rate Adjustments to assumes about $7 million General Fund in the RC DDS Service Providers When the Minimum Wage POS budget to pay for services provided in six new Increases. To a large extent, allowable rates paid vendor-operated safety net homes . Four of these to DDS service providers (“vendors”) are subject to homes will provide transitional services for DDS parameters set in statute . Currently, statute allows consumers with mental health diagnoses and two DDS to adjust the rates paid to vendors when the will provide transitional services for people leaving the adjustment is needed to bring their lowest wage staff secure treatment program at Porterville DC . up to the state minimum wage . However, statute and Chapter 18 of 2017 (AB 107, Committee on Budget) administrative practice generally do not provide for requires DDS to provide quarterly updates about the vendor rate adjustments in response to local minimum development of community-based safety net and wage increases . Currently, about 20 cities and counties crisis services . The Legislature may wish to request have minimum wages that are higher than the state some specific additional information from DDS in these minimum wage . Two cities in the Silicon Valley already updates (beyond what DDS has thus far provided) have a $15 dollar minimum wage and San Francisco to help it more fully understand whether the planned will reach this level in July . Only in rare cases when a www.lao.ca.gov 51 analysis full gutter 2018-19 BUDGET vendor demonstrates that the health and safety of an the $1 increase in the state minimum wage to partially individual consumer is at risk and both the RC and DDS offset its costs, as it allows a vendor in Modesto (paying agree with the vendor’s assessment, will DDS make the state minimum wage) to do? If so, we recommend an exception (as it is authorized to do) and adjust rates statutory clean up to clarify that vendors in areas for the vendor as a result of local minimum wage cost with a local minimum wage that is higher than the pressures . state minimum wage can seek an adjustment related The Way DDS Has Interpreted Statute Has specifically to the increase in the state minimum wage . Perhaps Led to Unintended Consequences. Vendors In addition, we recommend the Legislature direct in areas with a local minimum wage that is higher than DDS to report at budget hearings about the estimated the state minimum wage appear to be more adversely General Fund cost of this statutory clean up . affected by the statutory policy on rate adjustments Uniform Holiday Schedule Proposal for state minimum wage increases than likely was intended . This is because these vendors, in addition Traditional Treatment of Holiday Schedule for to generally being ineligible for rate adjustments due Service Providers. Traditionally, each RC has required to local minimum wage increases, are also considered service providers in its catchment area to observe a ineligible for any of the rate adjustments due to state certain number of holidays each year, meaning service minimum wage increases . They are considered providers cannot bill for services on those days (in ineligible for the state increases because they already practice, most do not provide services on those days, pay their minimum wage workers a wage that is higher and if they do, they go uncompensated) . The holiday than the state minimum wage . In contrast, vendors policy typically would apply to providers of services providing the same service in another part of the state, such as day program, transportation, work activity but who are not subject to a local minimum wage programs, and early intervention services for infants and requirement, can seek an adjustment per state policy toddlers, rather than services such as residential care . for their minimum wage workers . To see how this plays Traditionally, RCs have required service providers to out, consider a vendor in San Francisco (which has had observe an average of ten holidays per year . a local minimum wage above the state minimum wage State Policy Dictating a Uniform Holiday since 2014) . This vendor cannot request an adjustment Schedule Initiated as a Budget Solution. As part when the state minimum wage goes up because it of a package of budget solutions passed in 2009 in already has to pay its lowest wage staff more than the response to the significant state budget deficit, the state minimum wage . This means it may still operate state enacted a policy prohibiting RCs from paying with the rate it had before 2014, whereas a vendor in service providers on 14 holidays per year (rather than Modesto (which does not have a local minimum wage) the typical ten) and requiring that all service providers would have been able to request an adjustment each of statewide uniformly observe the same 14 holidays . This the four times the state minimum wage has increased was called the “uniform holiday schedule .” Prohibiting since 2014 . Not only does the vendor in San Francisco billing on four additional days per year was estimated have to pay higher wages to its minimum wage staff to save $22 million in POS expenditures ($16 .3 million (currently $14 per hour), but it cannot benefit from any General Fund) at the time of enactment of this policy . of the adjustments, due to changes in state policy, that The Policy Was in Effect for More Than Five are afforded vendors in other areas of the state without Years While Litigated. While legal action was brought local minimum wages . against the state by service provider associations in Analyst’s Recommendation. Given the information 2011 in an effort to have the state policy repealed, presented above, the Legislature may wish to clarify the policy remained in effect for more than five years . what it intended when it authorized DDS vendors to Despite an initial ruling in favor of service providers seek rate adjustments . For example, when the state in 2015, a subsequent court ruling in 2016 upheld minimum wage increases from $11 per hour to $12 per the state’s policy . Since the initial ruling in 2015, the hour, does the Legislature want to allow a vendor state has not enforced the policy . RCs went back to in San Francisco paying the local minimum wage of the traditional practice of setting their own holiday $14 per hour to seek a rate adjustment to account for schedules for vendors, which included on average 52 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET about ten days per year . Service providers were able to 2017-18, since RCs currently typically observe and pay bill again for the four extra days, meaning that although their vendors according to a ten-day holiday schedule . the DDS budget was not directly adjusted to reverse Assessing Gaps in the savings assumed in 2009, the funding required for the four additional days was occurring through POS Community Services Program billing on the natural . In other words, the 2017-18 POS Community Service Gaps Need to Be Better budget likely reflects the cost for services provided on Understood. Although the DDS system is structured the four additional days . through the individual program plan (IPP) process Governor’s Budget Proposes Reinstating ideally to account for and fund each individual’s needs, Enforcement of the Policy. Because the 14-day it is a commonly held view that RCs struggle to help uniform schedule remains in statute and the court consumers find certain services, such as affordable, upheld it, the Governor’s budget proposes enforcing accessible, and safe housing; regular dental care; it again starting in 2018-19, with an estimated employment opportunities; and transportation . It is incremental savings of $10 .2 million ($3 .2 million currently difficult to quantify the full extent of any service General Fund) on top of the previously estimated gaps since DDS lacks a standardized method for savings . understanding these gaps on a systemwide basis . At Options for Legislative Consideration. The best, DDS may know anecdotally that certain services Legislature has several options in response to the are hard to find or that certain providers are going out Governor’s plan . First, it could approve the Governor’s of business . plan—enforcement of the 14-day uniform holiday DDS Granted New Authority for Use of schedule in current law . The Governor’s budget Community Placement Plan (CPP) Funds. assumes General Fund savings of about $3 million . Chapter 18 authorized DDS to expand the use of CPP (However, since the policy has not been enforced funding to the entire community services program . since 2015 and vendors began billing for services on Previously, CPP funding was designed specifically to four additional days, there would likely be even more address the community service needs of people moving savings than what the Governor’s budget assumes .) out of DCs . It has funded the development of new Second, the Legislature could reject the proposal homes and programs and paid for the transition costs outright and repeal the state policy . This would reinstate to place these formerly institutionalized consumers the traditional (and current) practice of allowing RCs in the community . Now DDS has the authority to to set their own holiday schedules and would not—in use this funding to address unfunded needs of other effect—cost the state any more in POS than what is community-based consumers in the DDS system . in the 2017-18 budget . However, compared to what Legislature Is Considering a Proposal to Shift the Governor’s budget proposes for 2018-19, it would Savings From DC Closures to Community Services. increase costs . Finally, the Legislature could approve The Legislature has been discussing a proposal to a compromise solution, requiring a uniform holiday earmark any possible savings from the closures of DCs schedule, but one that includes ten days rather than 14 . for the DDS community services program . (For more This would reinstate the benefit of a coordinated information on this proposal, please see our recent schedule among service providers across RCs (this report, Sequestering Savings From the Closure of is mostly a benefit when RCs are in close geographic Developmental Centers .) proximity and consumers receive services from service Analyst’s Recommendation. We continue to providers in more than one RC catchment area) . It suggest, as we did in our 2017-18 budget analysis would allow consumers to continue receiving services and our recent report, that the Legislature may benefit on the four days eliminated from the holiday schedule . from directing DDS to conduct periodic comprehensive Although rejecting the Governor’s proposal or approving assessments of service gaps and related unmet funding the offered compromise solution would increase costs requirements in the community services system . Such compared to what the Governor’s budget proposes for assessments would help guide the use of additional 2018-19, it would likely not increase costs compared to resources provided for this system . The current lack of such assessments constrains the Legislature’s www.lao.ca.gov 53 analysis full gutter 2018-19 BUDGET and DDS’ ability to prioritize and effectively target the individualized way as part of the person-centered use of CPP or other additional resources provided planning process, other information could be easily to the community services system . As one example, standardized, such as whether a consumer needs the Legislature could consider requiring DDS to a particular service and how many providers are revamp its IPP process to allow for standardization of currently available to provide this service . Standardizing information collected . This would allow information to such information would also allow DDS to see which be aggregated at a systemwide level . Although some geographic areas or demographic groups lack choice collection of information must be done in a highly or service coverage . CONTINUUM OF CARE REFORM California’s child welfare system serves to protect This analysis provides a brief overview of the existing the state’s children from abuse and neglect, often foster care system, summarizes the major policy by providing temporary out-of-home placements for changes under CCR, provides a status update on CCR children who cannot safely remain in their home, and implementation to date, and assesses the Governor’s services to safely reunify children with their families . CCR budget proposal for 2018-19 in light of the reform Beginning in 2012, the Legislature passed a series effort’s current successes and challenges . of legislation implementing the Continuum of Care Reform (CCR) . This Legislative package—which OVERVIEW OF THE includes Chapter 35 of 2012 (SB 1013, Committee CHILD WELFARE SYSTEM on Budget and Fiscal Review), Chapter 773 of 2015 (AB 403, Stone), Chapter 612 of 2016 (AB 1997, California’s child welfare system provides an array Stone), and Chapter 732 of 2017 (AB 404, Stone)— of services for children who have experienced, or are makes fundamental changes to the way the state cares at risk of experiencing, abuse or neglect . These child for children in the foster care system . CCR aims to welfare services (CWS) include responding to and increase the foster care system’s reliance on family-like investigating allegations of abuse and neglect, providing settings rather than institutional settings such as group family preservation services to help families remain homes . Additionally, CCR makes changes to ensure intact, removing children who cannot safely remain that the state’s foster children receive mental health and in their home, and providing temporary out-of-home other supportive services regardless of their placement placements until (1) the family can be successfully setting . reunified or (2) an alternative permanent placement To facilitate these reforms, the Legislature has can be found . After family reunification, adoption and provided annual General Fund support for CCR guardianship are the two most common permanent since 2015-16 . In 2017-18, the Governor’s budget placement options . estimates spending on CCR at $198 million General Child Welfare Programs Are State Supervised, Fund . In 2018-19, the Governor’s budget proposes County-Administered. DSS oversees CWS, while $139 million in General Fund to support continued county welfare departments carry out day-to-day CCR implementation efforts . Estimated CCR operations and services . DSS is responsible for spending in 2017-18 and proposed CCR spending in statewide policy development and enforcing state and 2018-19 represent significant increases over previous federal regulations . Counties have flexibility around administration projections for these same fiscal years . the design of their operations and to some extent the (For this section of the report, we restrict our CCR range of services they provide . All counties investigate funding estimates and projections to what is provided allegations of abuse, engage with families to help for county child welfare and probation services, where them remain intact, and provide foster care payments most CCR spending is occurring . We therefore exclude to foster caregivers and providers . Services that may from these estimates CCR spending on county mental vary at the discretion of counties include, for example, health services and state operations .) child care made available to certain children in care . 54 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET Assisting the counties are several hundred private CWS Funding Foster Family Agencies (FFAs) and congregate care Total funding for CWS is projected to be $6 .3 billion providers that provide services ranging from basic for 2018-19 . Below, we describe the major sources of care and supervision to foster parent recruitment to this funding . mental health treatment . (We provide a basic overview 2011 Realignment Revenues Are a Major Source of FFAs and congregate care—the latter of which is of CWS Funding. Until 2011-12 the state General comprised of both group homes and CCR’s recently Fund and counties shared significant portions of the created “Short-Term Residential Therapeutic Programs nonfederal costs of administering CWS . In 2011, the (STRTPs)”—in the sections that follow .) state enacted legislation known as 2011 realignment, The Role of County Probation Departments in the which dedicated a portion of the state’s sales tax to Child Welfare System. County probation departments counties to administer CWS . The 2018-19 budget carry out many of the same services provided by projects that nearly $2 .5 billion will be available from county welfare departments but for children who realignment revenues to fund CWS programs in have been declared wards of the court through a 2018-19 . delinquency hearing . Unlike the majority of children who As a result of Proposition 30 (2012), under enter the child welfare system, children in out-of-home 2011 realignment, counties are either not responsible care due to probation decisions have not necessarily or only partially responsible for CWS programmatic been subject to abuse or neglect . Instead, probation cost increases resulting from federal, state, and departments often utilize foster care placements with judicial policy changes . Counties are responsible for the aim of rehabilitating the child following a criminal all other increases in CWS costs—for example, those offense . associated with rising caseloads . (Conversely, if overall Foster Care Payments. A significant component of CWS costs fall, counties get to retain those savings .) CWS is the making of per child per month payments Proposition 30 protects the state from having to to foster caregivers and providers to cover costs reimburse counties for increasing costs of child welfare associated with the care, supervision, and service policies that were in place prior to 2011 realignment . needs of a foster child . We refer to these as foster Conversely, Proposition 30 protects counties by care payments . The state sets base-level foster care establishing that counties only need to implement new payments that can vary from under $1,000 to over state policies that increase overall program costs to the $12,000 depending on the type of placement setting extent that the state provides the funding . a foster child is in as well as by other factors . (Below, Federal Funding for CWS. Federal funding for we discuss the various foster care placement settings .) CWS stems from several sources and is projected to be In addition to state-mandated, base-level foster care around $2 .9 billion in 2018-19 . payments, most counties—at their own discretion and with flexible county funding—pay foster caregivers State General Fund Supports Non-Realigned caring for children with high needs supplemental Components of Child Welfare and State Oversight payments known as “specialized care increments Functions. The 2018-19 budget proposes around (SCIs) .” SCI levels vary from county to county, generally $433 million General Fund for county welfare and ranging from under $100 per child per month with probation departments to implement components slightly elevated needs to over $1,000 per child per of the child welfare program that were not part of month for foster children with the highest needs . 2011 realignment . CCR implementation spending Counties design their own assessments to determine constitutes a significant portion of total General Fund whether a foster child qualifies for an SCI and what the spending on CWS . In addition to this $433 million, SCI level should be . As a result, there is great variance the General Fund supports the state’s CWS oversight in the level of SCIs throughout the state . function at DSS . Out-of-Home Placement Options Counties have historically relied on four primary placement options for foster children—kinship care, www.lao.ca.gov 55 analysis full gutter 2018-19 BUDGET foster family homes (FFHs), FFAs, and congregate care . overlapping needs, provide different kinds of specialized (For this report we refer to kinship care, FFHs, and FFAs services, and receive varying foster care payment rates as home-based family care [HBFC] .) In recent years, from the state . Supervised Independent Living Placements (SILPs) Kinship Care. Established child welfare policy and transitional housing placements have become and practice in the state prioritizes placement with a increasingly utilized as placement options for older noncustodial parent or relative . Kinship care comprises foster youth . care from relatives and nonrelative extended family As of October 2017, there were around members and is the state’s most utilized placement 60,000 children in foster care in California . Federal option at 36 percent of foster placements as of October and state law mandate that children be placed in the 2017 . Kinship care is a unique foster care placement least restrictive placement setting, which state law type in multiple respects . For example, unlike other describes as a setting that promotes normal childhood placement types, kin caregivers can take in foster experiences and the day-to-day needs of the child . children on an emergency basis before having been Figure 27 shows the number of foster children in fully approved by counties as foster caregivers . Instead, each of the above mentioned placement settings over kin caregivers only must meet basic health and safety time . The selected placement types vary in their level standards before an emergency placement is made . of restrictiveness, serve children with different though As a result of not meeting full foster caregiver approval Figure 27 Number of Children in Foster Care by Placement Type October 2017 30,000 25,000 2007 20,000 2012 2017 15,000 10,000 5,000 Kinship Care Foster Family Foster Family SILP/Transitional Congregate Care Othera Agency Homes Homes Housing a Includes, for example, children in pre-adoptive homes and temporary shelters. SILP = Supervised Independent Living Placement. Source: University of California, Berkeley—California Child Welfare Indicators Project. 56 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET standards prior to taking in a foster child, kin caregivers (We discuss the differences between group homes and are generally not eligible to receive full monthly foster STRTPs in the “Major Changes Under CCR” section of care payments until they have received full foster this analysis .) Operated as private, nonprofit agencies, caregiver approval . Instead, they typically receive the group homes and STRTPs provide 24-hour care, CalWORKs child-only grant of almost $400 per month . supervision, and services to foster children with the Once fully approved, in 2017-18, kin caregivers receive highest levels of need, often children whose significant a minimum foster care payment of at least $923 per emotional or behavioral challenges can make it difficult month for the care and supervision of each foster child for them to successfully remain in home-based family in their home . foster care settings . Professional staff, as opposed FFHs. County-licensed foster homes, known as to a parent-like foster caregiver, provide care and FFHs, are often the preferred placement option when supervision to children in group homes and STRTPs . a suitable kin caregiver cannot be found and the child Group homes and STRTPs are considered the most does not have needs requiring a higher level of services . restrictive, least family-like foster care setting, and are Counties recruit FFH caregivers and provide basic generally the least preferred placement option . Group social work services to the approximately 13 percent homes and STRTPs are compensated at significantly of foster children statewide residing in an FFH as of higher rates than the other placement types—in October 2017 . In 2017-18, FFH caregivers receive the 2017-18, ranging from just under $3,000 to over same minimum foster care payment as kin caregivers of $12,000 per child per month . As of October 2017, at least $923 per month for the care and supervision of approximately 9 percent of California’s foster children each foster child in their home . were living in group homes or STRTPs . FFA Homes. FFAs do not directly house the children SILPs and Transitional Housing. In recent years, under their care . Instead, FFAs are private nonprofit counties have increasingly relied upon SILPs and agencies that recruit and approve foster caregivers, transitional housing placements instead of home-based place children into FFA-supervised foster homes, and family placements and congregate care settings provide supportive services to the children in their care, for older, relatively more self-sufficient youth . SILPs typically children with elevated needs compared to are independent settings, such as apartments or those placed in FFHs . Because they offer a relatively shared residences, where nonminors who remain in high level of services and often serve children with the foster care system past their 18th birthday may elevated needs, counties reimburse FFAs at a higher live independently and continue to receive monthly rate than either kin caregivers or FFHs . In 2017-18, foster care payments . Nonminor foster youth residing FFAs receive a minimum payment of $2,139 per in SILPs receive a monthly foster care payment month for each foster child under their supervision . Of of $923 . Transitional housing placements provide this amount, $923 is passed directly onto the foster foster youth ages 16 to 21 supervised housing as child’s caregiver, while the remaining amount funds the well as supportive services, such as counseling and FFA’s administrative and supportive services activities . employment services, that are designed to help foster FFA-supervised foster caregivers have not historically youth achieve independence . The monthly foster care been eligible to receive county-funded SCIs . Instead, payment rate for foster youth in transitional housing FFA-supervised foster caregivers historically received placements ranges between $2,000 and $3,000 . As a fixed supplemental per child per month payment on of October 2017, 9 percent of all foster youth were top of the standard foster care payment mandated by residing in either SILPs or transitional housing . This is the state for all HBFC placements . As of October 2017, slightly greater than the number living in group homes 26 percent of the state’s foster children were placed or STRTPs . through an FFA . Congregate Care. Congregate care includes group MAJOR CHANGES UNDER CCR homes and STRTPs, the latter of which are expected CCR aims to achieve a number of complementary to replace group homes under CCR as the permissible goals including: (1) ending long-term congregate congregate care placement setting for CWS-supervised care home placements; (2) increasing reliance on foster children unable to be placed in an HBFC home . www.lao.ca.gov 57 analysis full gutter 2018-19 BUDGET home-based family placements; (3) improving access homes as a placement option for CWS-supervised to supportive services regardless of the kind of foster foster children by January 2019 . (Probation care placement a child is in; and (4) utilizing universal departments may continue to utilize group home child and family assessments to improve placement, placements indefinitely . Nevertheless, CCR aims to service, and payment rate decisions . In this section, encourage probation departments to make similar we first highlight some of the key problems CCR changes regarding their use of congregate care as is intended to address and then discuss some of child welfare departments .) STRTPs are expected to the major changes underway as a result of CCR . replace group homes as the permissible placement (We note that the changes we highlight are not a setting for children who cannot safely and stably be comprehensive accounting of all CCR changes, but are placed in home-based family settings, providing a those most relevant in understanding the Governor’s similar level of supervision as group homes, but with 2018-19 budget proposal for CCR .) expanded services and supports . In contrast to group Congregate Care Placements Are Costly and homes sometimes serving as long-term placements Associated With Poor Outcomes for Children. for children for whom home-based family placements Congregate care placements can cost over cannot be found, STRTPs are intended to exclusively $12,000 per child per month depending on the level provide short-term, intensive treatment and other of care provided . In contrast, foster care payments services to allow children to transition to a family for home-based family settings generally range from setting as quickly and successfully as possible . CCR around $1,000 per child per month for relative and FFH restricts STRTP placements to children who have placements to somewhat more than $2,000 per child been assessed as requiring the high level of behavioral per month for FFA placements . Moreover, long-term and therapeutic services that STRTPs will be required stays in congregate care are associated with elevated to provide . Children whose level of need may qualify rates of reentry into foster care, lower educational them for STRTP placement include, among others, achievement, and higher rates of involvement in those assessed as having a serious mental illness and the juvenile justice system . (We note that given victims of commercial sexual exploitation . To ensure the potentially higher needs of children placed in the ongoing appropriateness of all STRTP placements, congregate care, it is difficult to determine whether resident children’s case plans are subject to review congregate care placements themselves directly lead every six months by the director or deputy director to these poor outcomes .) Recognizing the above of the supervising county child welfare or probation shortcomings associated with congregate care, CCR department . The case plans specify the reasons for aims to end long-term congregate care placements . the child’s placement, the expected duration of stay, and the transition plan for moving the child to a less Concerns About the Availability and Capacity restrictive environment . As a result of the shorter of Home-Based Family Placements. Reducing expected durations of stay in STRTPs, as well as the reliance on congregate care placements has been a restrictions around which foster children may be placed priority for the state for some time . A major challenge in STRTPs compared to group homes, it is anticipated to achieving this goal has been an inadequate supply that statewide STRTP capacity (number of beds) will be of home-based family placements which are capable considerably lower than existing statewide group home of caring for children with elevated needs . Additionally, placement capacity . the mental health and other supportive services to help home-based family caregivers care for children New CCR Foster Care with elevated needs have not historically been readily Payment Rate Structure accessible at all home-based family placement types . Improving the capacity and availability of home-based CCR Foster Care Payment Rates to Generally family placements is a principal goal under CCR . Vary Based on Children’s Needs. Until January 2017, the state’s foster care payment rates primarily varied CCR Creates a New Placement Type by age for children in HBFC . For example, a foster STRTPs Replace Group Homes for caregiver caring for a child below age 5 would receive CWS-Supervised Foster Children. CCR ends group a monthly foster care payment of around $700 while 58 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET a foster caregiver caring for a child over age 14 would 2017-18, STRTPs are paid a per child per month foster receive a monthly payment of around $900 . Under the care payment rate of $12,498 . foster care payment rate structure being implemented CCR Aims to Expand Access to Mental under CCR, foster care payment rates vary by children’s level of need as determined by a statewide “level of Health and Other Supportive Services care” (LOC) assessment tool, which we describe below . Improving foster children’s access to mental health There are five payment rates under CCR’s “HBFC services has been a longstanding goal of the state . payment rate” structure, each with a corresponding CCR builds on these efforts by requiring STRTPs—and LOC . LOC 1 represents the lowest level of care and therefore all CWS congregate care providers beginning corresponds with the lowest payment rate . LOC 5— in January 2019—to directly provide specialty mental also referred to as the Intensive Services Foster Care health services to resident foster children . In addition, level of care—represents the highest level of care and FFAs are required to ensure access to mental health comes with the highest payment rate . In addition to services for the foster children they supervise by either changing the basic structure of foster care payment providing the services themselves or contracting with rates, the new HBFC base foster care payment rates mental health service providers to do so on their behalf . are generally higher than they were prior to CCR . On top of aiming to improve access to mental health Some form of county-optional SCIs is expected to services, CCR mandates that certain other “core continue under the new HBFC foster care payment rate services” be made available to foster children . These structure . However, counties may make adjustments to core services include permanency services to help their SCI rate structures in order to harmonize their SCI foster children reunify with their parents or, alternatively, rate structures with the HBFC rate structure . Figure 28 secure permanency through guardianship or adoption . summarizes the HBFC payment rates under CCR . LOC Assessment Tool. The DSS developed CCR Changes to the Caregiver an LOC assessment tool to determine the foster Approval and Placement Processes care payment rate that caregivers will receive . The Resource Family Approval (RFA) Replaced assessment is designed to identify the care needs of a the Previous Multiple Approval, Licensing, and foster child and to translate those care needs into an Certification Processes for Home-Based Family appropriate foster care payment rate . Caregivers. Before foster caregivers may receive Single STRTP Payment Rate. Unlike the rate full foster care payments, they must be approved structure that governed group home payment rates— to provide care . Prior to CCR, the approval process which differentiated group home payment rates by the differed by placement type—for example, non-relative level of care and supervision different group homes caregivers were licensed according to one set of provided—under CCR, there is a single monthly criteria while relative caregivers were approved under payment rate paid for all STRTP-placed children . In a different set of criteria . CCR replaced the multiple Figure 28 2017‑18 Home‑Based Family Care Foster Care Payment Rates Under CCR Per Child Per Month Payment Rates Level of Care (LOC) 1 2 3 4 5 County-supervised foster caregivers $923 $1,027 $1,131 $1,235 $2,410 FFA payments: Foster caregivers $923 $1,027 $1,131 $1,235 $2,410 Services and administration 1,216 1,260 1,304 1,383 3,682 Totals $2,139 $2,287 $2,435 $2,618 $6,092 a In addition to this amount, counties receive $3,682 per child per month for service costs for the LOC 5 foster children that they directly supervise. CCR = Continuum of Care Reform and FFA = Foster Family Agency. www.lao.ca.gov 59 analysis full gutter 2018-19 BUDGET approval standards with a single, more comprehensive CCR Creates Some Immediate New Costs for approval process that incorporates features included Counties. CCR increases certain costs for counties . in assessments for prospective adoptive parents (such For example, county administrative costs are higher as a psychosocial assessment) . Because it is a more as a result of the new RFA and CFT processes, which comprehensive approval process, completing the RFA result in greater time commitments on county social process is intended generally to automatically qualify workers . CCR’s relatively higher foster care payment a foster caregiver for guardianship and adoption . rates also increase county costs . CCR legislation requires all new prospective foster CCR Expected to Result in Savings Due to caregivers to complete the RFA process beginning in CCR-Related Caseload Movement. In addition to January 2017 . Obtaining RFA is required of all existing generating higher county costs, CCR is expected to foster caregivers by January 2019 in order for them to result in offsetting savings for counties . As previously continue to serve as foster caregivers . discussed, CCR aims to shorten foster children’s More Collaborative Placement and Service lengths of stay in congregate care, reduce the number Decisions Through the Use of Child and Family of children ever placed in congregate care, and provide Teaming. To increase child and family involvement greater resources to home-based family placements in in decisions relating to foster children’s care, CCR order to improve their stability . To the extent that CCR mandates the use of child and family “teaming” through succeeds in reducing the number of foster children in every stage of the case planning and service delivery more costly placements, such as congregate care, in process . The child and family team (CFT) may include, favor of less costly placement settings, such as HBFC as deemed appropriate, the affected child, her or his settings, counties are expected to experience savings . custodial and noncustodial parents, extended family State Provides Funding for CCR’s Net Costs. members, the county caseworker, representatives from As previously discussed, counties are responsible for the child’s out-of-home placement, the child’s mental the costs of administering CWS that were included health clinician, and other persons with a connection in 2011 realignment . Counties are only required to to the child . The CFT will meet as needed to discuss implement new state CWS policies to the extent that and agree on the child’s placement and service plan the state provides funding to cover the new policies’ whenever an important foster care decision is made . costs . CCR creates new costs on counties, for Functional Assessment Tool to Inform Placement example, in the form of higher administrative costs, and Services Decisions. CCR calls for children while also potentially generating savings for counties as to receive a comprehensive strengths and needs the proportion of foster children in costly placements assessment upon entering the child welfare system such as congregate care placements decreases . The in order to improve placement decisions and ensure state has agreed with counties to fund CCR’s net access to necessary supportive services . In late 2017, costs on a county-by-county basis . That is, the state the Child and Adolescent Needs and Strengths (CANS) will fund the difference between (1) the new costs that tool was chosen by DSS as the state’s functional CCR creates on a county and (2) any savings that assessment tool . The CANS assessment tool will be CCR generates for that same county . The state will used to inform the decisions of the CFT and will be continue to fund counties’ CCR activities until each administered separately from the LOC assessment tool county’s CCR-related savings equal or exceed its CCR discussed above . costs . The state will not recoup from counties any CCR-related savings that exceed counties’ CCR-related CCR Funding costs . It is our understanding that the state and The budget contains funding for most of the major counties have agreed on a methodology to track CCR’s programmatic components identified above, including, ongoing net costs for counties in order to identify the for example, CCR’s new foster care payment rates amount of state funding needed, if any, to pay for CCR and the new costs associated with the RFA and CFT on an ongoing basis . processes . This section briefly summarizes how the CCR Previously Anticipated to Be Largely Governor’s CCR budget is structured . Cost Neutral to the State Beginning in 2019-20. In developing previous years’ budgets for CCR, DSS 60 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET created a multiyear projection of CCR’s state costs . rather than along a linear timeline . Moreover, we The previous multiyear CCR projection released in May understand that DSS is working with the counties to 2017 projected county CCR-related savings to exceed reduce the overall administrative burden that the more county CCR costs beginning in 2019-20, resulting in comprehensive RFA process places on counties by the end of state CCR funding for counties beginning in clarifying what is and is not required under RFA . For that fiscal year . example, updated DSS guidance is expected to clarify what steps in the RFA process must be completed STATUS UPDATE ON before RFA is granted and what steps may be completed after RFA is granted . CCR IMPLEMENTATION Prolonged RFA Delaying the Payment of State and county implementation of CCR’s various Standard Foster Care Assistance Payments for components has been spread out over several years, Affected Kin Caregivers. As previously discussed, with most of CCR’s major components implemented children are allowed to be placed with kin caregivers beginning in January 2017 . Some elements of CCR on emergency placements before the kin caregivers implementation have gone relatively smoothly . Other are fully approved as foster caregivers . However, under components of CCR implementation have been met CCR, kin caregivers are generally not eligible to receive with delays and challenges . Our analysis that follows full foster care payments of $923 per month until RFA focuses on some of the major challenges of CCR is complete . Instead, they often receive the CalWORKs implementation . child-only grant of almost $400 per month during the time between the emergency placement and the RFA completion of RFA—up to nine months in some cases . RFA Taking Significantly More Time Than Due to the prolonged RFA process, therefore, kin Envisioned in Law. CCR legislation generally directs caregivers may be caring for foster children for months RFA to be completed within 90 days of application . In at a time without receiving a full foster care payment . practice, RFA is taking between 90 days (3 months) It is our understanding that under the kin caregiver and 270 days (9 months) before completion for a approval process that preceded RFA, it typically took typical case . It is our understanding that there is one month to two months to receive kin caregiver variation among counties in how long the RFA process approval and initiate full foster care payments . Certain is taking—with early RFA implementer counties, for counties have elected to use flexible county CWS example, completing the process relatively faster . It has funding to increase certain kin caregivers’ payments also been reported that FFAs, which complete RFA for beyond the CalWORKs child-only grant and closer foster caregivers of children who are placed through to or at the full foster care payment rate while the FFAs, have to a greater extent been able to meet the RFA application is pending . We note that certain kin 90 days for approval standard compared to counties . caregivers—specifically non-relative extended family While the reasons behind the prolonged RFA process members—are ineligible for the CalWORKs child-only are not entirely known, the relatively intensive set of grant and, as a result, may in certain cases receive no social worker activities related to the psychosocial payment while the RFA application is pending . assessment—which was not a part of the foster HBFC Rate Structure caregiver approval process prior to RFA—appears to be a significant factor behind the slower than previously LOC Assessment Tool Not Currently Being Used. anticipated RFA process . The LOC assessment tool developed by DSS is not DSS Issuing New County Guidance to Streamline currently being used to determine foster care payment RFA Process. In early 2018, DSS is expected to rates . This is largely due to systems delays related to release revised guidance to counties on ways to the programming of the HBFC payment rate structure . streamline the RFA process . This guidance is expected The tool has undergone testing by DSS over the last to, for example, encourage counties to initiate all year or more . steps of the RFA process, such as the background LOC-Based Rates Set to Implement in Stages checks and the psychosocial assessment, concurrently Beginning in March 2018. Although no foster children www.lao.ca.gov 61 analysis full gutter 2018-19 BUDGET are being assessed using the LOC assessment tool, the • Potential Bias Toward Lower LOC Levels. state has begun to implement the new HBFC payment Stakeholders contend that the LOC assessment rate structure . Rather than implementing the new tool assigns foster children with elevated needs LOC-based HBFC payment rate structure at a single into inappropriately low LOC levels, resulting in time, the state has elected to implement the new CCR lower foster care payment rates for their foster rate structure in phases . During Phase 1, which began caregivers . During testing of the LOC assessment in January 2017, the state implemented the new HBFC tool, the highest proportion of foster children LOC 1 rate (the foster care payment rate for children received an LOC 1 determination, with decreasing with the lowest level of need) and the STRTP payment proportions receiving higher LOC determinations rate . (A relatively small number of foster children with until LOC 5, where there was an increase in the highly elevated needs in HBFC placements began to number of foster children receiving the highest receive LOC 5 foster care payment rates based on LOC determination . existing case information that does not involve the • Potential Lack of “Inter-Rater Reliability.” LOC assessment tool .) This means that most foster Stakeholders are concerned about the objectivity caregivers of newly placed foster children began of the LOC assessment tool insofar as different receiving the LOC 1 payment rate without regard to the social workers using the tool may make different actual LOC of the foster children . Because even the LOC determinations for the same foster child (a LOC 1 rate is generally higher than the prior age-based challenge referred to as inter-rater reliability) . rates, foster caregivers of newly placed foster children • Uncertain Compatibility With Existing are receiving higher foster care payments with the County SCI Determination Processes. As implementation of Phase 1 of the HBFC payment rate discussed earlier, certain counties provide SCIs structure than they would have under the pre-CCR for foster caregivers of children with elevated payment rate structure . In Phase 2, the state will start needs and have their own need-based SCI using the LOC assessment tool to implement the full assessment processes that do not necessarily LOC-based HBFC foster care payment rate structure correspond to the state’s new LOC assessment for all foster children . This will make the full range of tool . Stakeholders are concerned that certain LOCs available for foster children . caregivers could see reductions in their overall Phase 2 itself will be split into two stages . The first foster care payment rates due to inconsistencies stage of Phase 2 will be implemented in March 2018 between the LOC and SCI assessment for FFA-supervised foster children only (both new and processes . Reductions in certain foster caregivers existing FFA-supervised youth) . The second stage of SCIs could potentially come about if counties Phase 2 is then scheduled to be implemented in May begin using the LOC assessment tool to 2018 for the rest of the HBFC placement types (kin determine SCI levels and the LOC assessment caregivers and FFHs) . The reason behind the two-stage tool results in a lower SCI determination than the implementation of Phase 2 relates at least in part to previous, county-operated assessment process . stakeholder concerns about the LOC assessment tool DSS Will Test LOC Assessment Tool During developed by DSS, which we discuss immediately First Stage of Phase 2 HBFC Payment Rate below . Implementation. It is the intent of DSS to test the Stakeholder Concerns About LOC Assessment reliability of the LOC assessment tool as it is being Tool. Stakeholders have reported concerns around implemented for FFA-supervised children during whether the LOC assessment tool developed by DSS stage one of the LOC-based HBFC payment rate to determine the foster care payment rates that foster implementation beginning in March and ending in May . caregivers are paid is reliable . These concerns arose Lessons learned from this testing will inform whether after initial testing of the LOC assessment tool was changes need to be made to the LOC assessment tool done on a sample of foster children in selected counties and potentially, if so, whether wider implementation of throughout the state . Stakeholders’ concerns are at the LOC assessment tool should be delayed . least threefold: 62 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET Group Homes and STRTPs do not appear to be appreciably faster since CCR implementation largely began in 2017 than they were in Phase Down of Group Homes and Replacement 2016 . by STRTPs Are in Their Early Stages. Group homes must end operations as congregate care providers or OVERVIEW OF THE GOVERNOR’S convert into STRTPs by January 1, 2019 . (To maintain operations past January 1, 2017, group homes have BUDGET FOR CCR had to apply to DSS for temporary license extensions, The Governor’s 2018-19 budget increases estimated which the department has so far generally granted .) As General Fund spending on CCR in 2017-18 and of November 2017, there were 62 STRTPs that had 2018-19 compared to previous projections . Higher received licensure from DSS (a requirement to begin estimated 2017-18 and 2018-19 CCR spending STRTP operations and receive STRTP payments) . All does not result from any major proposed changes in of these 62 operating STRTPs converted from group CCR policy . Rather, this higher CCR spending reflects homes . These 62 operational STRTPs have a total updated cost projections of the various components license capacity of nearly 1,000 beds . of CCR implementation . We describe the changes in Minimal Caseload Movement as of estimated spending below . January 2018 Upward Revision in Estimated 2017-18 CCR State Spending. Figure 29 breaks down the Movement From Higher-Level Placements changes in estimated and projected CCR General Into Lower-Level Placements Has Been Slower Fund spending by CCR component for 2017-18 Than Previously Anticipated. As of October 2017, and 2018-19 .The Governor’s 2018-19 budget around 5,000 foster children in both the CWS and increases estimated General Fund spending on CCR probation systems remained in congregate care . The in 2017-18 compared to the 2017-18 budget . The number of children residing in congregate care has General Fund provided $134 million in 2017-18 to been declining without interruption since 2003—long counties through DSS to implement CCR . (We solely before the implementation of CCR . It is uncertain focus on state CCR funding for counties through what portion of the decline in congregate care DSS as this comprises the bulk of total CCR-related placements, if any, is attributable to CCR efforts . Rates spending .) The Governor’s 2018-19 budget revises of caseload movement out of congregate care settings Figure 29 Differences in Projected CCR Spending Between the 2017 Budget Act and the a Governor’s 2018-19 Budget General Fund (In Thousands) 2017-18 2018-19 2017-18 Governor’s 2017-18 Governor’s Budget 2018-19 Budget 2018-19 Act Budget Difference Act Budget Difference CCR foster care paymentsb $11,273 $74,408 $63,135 -$88,081 $34,084 $122,165 Child and family teams 51,177 51,177 — 51,177 51,943 766 Foster parent recruitment, retention, and support 43,260 43,260 — 21,631 21,630 -1 Resource family approval 18,556 18,556 — 23,145 23,145 — Other administrative and automation components 9,940 10,134 194 7,895 8,101 206 Totals $134,206 $197,535 $63,329 $15,767 $138,903 $123,136 a Only includes local assistance funding through the Department of Social Services. It therefore excludes all state operations spending as well as CCR-related mental health expenditures. b This line includes the net costs of the following (1) the costs associated with the new higher CCR payment rate structure and (2) the offsetting savings generated by children moving out of more costly foster care placements to less costly placements. CCR = Continuum of Care Reform. www.lao.ca.gov 63 analysis full gutter 2018-19 BUDGET estimated 2017-18 General Fund spending on CCR In the figure, we show the number of foster children upward by $63 million to $198 million . projected to reside in congregate care settings under Higher Than Previously Anticipated Proposed the Governor’s 2018-19 proposal (both traditional State Spending on CCR in 2018-19. Previous group homes and STRTPs) compared to prior CCR multiyear CCR spending projections anticipated projections . The latest caseload movement projections $16 million in General Fund spending on CCR assume approximately 2,500 foster children remain in 2018-19 . As Figure 29 shows, the Governor’s in congregate care through 2020-21, whereas the 2018-19 budget now proposes $139 million in General previous projection in January 2017 assumed around Fund spending on CCR in 2018-19, a $123 million 1,000 foster children would remain in congregate care . increase over previous projections . 2018-19 Proposed Budget Reflects a Higher CCR Spending Largely the Result of Year-Over-Year Decline in Costs for CCR. While Updated Caseload Movement Projections. The overall CCR costs in 2017-18 and 2018-19 are higher main driver of higher than previously anticipated and than under the administration’s previous projections, proposed state spending on CCR is the projected the Governor’s 2018-19 budget proposal reflects a net slower speed at which foster children are moving year-over-year reduction in state General Fund costs for out of congregate care into HBFC settings . As CCR of almost $60 million . Three factors largely explain previously discussed, projected spending on CCR the net decrease: from 2016-17 through 2021-22 depends significantly • Greater Projected Caseload Movement in on the number of children transitioning out of costly 2018-19. The Governor’s 2018-19 budget placements such as congregate care placements and projects that CCR-related caseload movement into lower cost placements such as HBFC settings, out of congregate care and into HBFC settings which generates savings for counties that the state will pick up speed and result in greater county uses to offset its CCR-related costs . Previous CCR savings in 2018-19 compared to 2017-18 . These spending projections included significant movement county savings are available to offset more state out of congregate care as a result of CCR efforts General Fund spending on CCR in 2018-19 . beginning as early as 2016-17 . The net costs associated with now slower projected caseload Figure 30 movement are reflected in the DSS Multiyear Congregate Care Caseload Projections “CCR Foster Care Payments” line of Figures 29 (and Figure 31 below) . 6,000 This line combines (1) the costs associated with the new higher HBFC payment rate structure 5,000 and (2) the offsetting savings generated by children moving out 4,000 of more costly placements such as congregate care settings to less 3,000 costly placements such as HBFC 2018 Multiyear Projection settings . 2,000 2016 Multiyear Because the expected speed Projection at which children exit congregate 2017 Multiyear 1,000 Projection care is a major a factor in understanding CCR’s net costs, Figure 30 compares the Governor’s 2016-17 2017-18 2018-19 2019-20 2020-21 updated caseload movement projections with previous budgets’ DSS = Department of Social Services. caseload movement projections . 64 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET • A Planned Reduction in Funding for Foster multiyear time horizon, which extends through 2021-22 . Caregiver Recruitment and Retention. Based on information from the administration, we Consistent with previous multiyear CCR spending project the net state costs directly attributable to CCR plans, the Governor’s budget proposes a to be between around $20 million and $30 million 50 percent reduction in General Fund for counties annually from 2019-20 to 2021-22 . (We note that these for their foster caregiver recruitment and retention spending projections exclude $30 million to $40 million efforts in 2018-19 compared to 2017-18 . The in projected spending on a program enacted around Governor’s budget proposes almost $22 million in the same time as CCR to increase foster care payments General Fund funding for this purpose in 2018-19 . for certain kin caregivers who previously were ineligible • Increase in RFA Funding. The Governor for full foster care payments .) proposes a nearly $5 million increase in General Fund for counties to approve existing foster LAO ASSESSMENT caregivers under the new RFA process . Previous Below, we provide a brief assessment of the funding primarily covered the costs of completing Governor’s 2018-19 CCR budget and raise several RFA for new foster caregivers . Current law issues for legislative consideration . This assessment requires all existing foster caregivers to complete is based on our initial review of the Governor’s CCR full RFA by January 1, 2019 . budget . We will provide an update to the Legislature Figure 31 summarizes the change in year-over-year as needed as we continue to analyze the Governor’s General Fund spending on CCR between 2017-18 and budget and how CCR implementation is going . 2018-19 . Governor’s Upward Revision of CCR Expected to Result in Net State Costs for Foreseeable Future. In the administration’s prior Estimated and Projected multiyear CCR spending projection, released at the CCR Spending Appropriate 2017-18 May Revision, the administration projected The Governor’s 2018-19 budget revises upward CCR to be cost neutral to the state by 2019-20 . estimated General Fund spending on CCR in 2017-18 These projected savings were the result of projected and General Fund costs for CCR in 2018-19 . We find CCR-related caseload movement savings exceeding these upward adjustments in estimated and projected the total projected costs of CCR’s other components . CCR spending to be reasonable . The administration no longer expects caseload Slower Projected Caseload Movement movement-related savings to exceed the costs of Reasonable in Light of Slower CCR Implementation. CCR’s other components within the administration’s The administration’s previous projections of Figure 31 Year‑Over‑Year CCR Spending Under the Governor’s 2018‑19 Budgeta General Fund (In Thousands) 2017‑18 2018‑19 Difference CCR foster care paymentsb $74,408 $34,084 -$40,324 Child and family teams 51,177 51,943 766 Foster parent recruitment, retention, and support 43,260 21,630 -21,630 Resource Family Approval 18,556 23,145 4,589 Other administrative and automation components 10,134 8,101 -2,033 Totals $197,535 $138,903 ‑$58,632 a Only includes local assistance funding through the Department of Social Services. It therefore excludes all state operations spending as well as CCR-related mental health expenditures. b This line includes the net costs of the following (1) the costs associated with the new higher CCR payment rate structure and (2) the offsetting savings generated by children moving out of more costly foster care placements to less costly placements. CCR = Continuum of Care Reform. www.lao.ca.gov 65 analysis full gutter 2018-19 BUDGET CCR-related caseload movement were relatively the full monthly foster care payment can represent a ambitious, assuming that the changes under CCR significant economic burden that has potential to impair would quickly translate into movement of children these kin caregiver placements’ stability . away from more costly placement settings such Recommend the Legislature Closely Monitor as congregate care to less costly placements such How Long the RFA Process Is Taking and Consider as HBFC settings . Certain components of CCR Legislative and/or Budgetary Fixes if There Is implementation have taken longer to implement than Limited Improvement. DSS is in the process of originally intended . The principal example is the delayed releasing new county directives aimed at shortening rollout of the full LOC-based HBFC payment rate the time it takes to complete the RFA process . At this structure, originally intended to start in January 2017 time, the administration is not proposing that additional and now not expected to be fully operational until May funding resources are needed to shorten the RFA 2018 . Given this and other CCR implementation delays, process . We recommend that, between now and the it is reasonable to expect that certain goals of CCR May Revision, the Legislature closely monitor whether will take longer to be realized, including CCR-related the RFA process does begin to speed up as a result of caseload movement and the associated savings . (1) increasing county experience implementing the new From the initial data available, it doesn’t appear that CCR-mandated caregiver approval process and (2) the movement out of congregate care placements, for new DSS directives aimed at streamlining the process . example, has increased appreciably between 2016 Should little improvement be shown in the speed of the (pre-CCR implementation) and 2017 (post-initial CCR RFA process between now and the May Revision, the implementation) . As such, we believe it is prudent Legislature should consider whether legislative policy to assume slower caseload movement as the changes around RFA and/or augmentations to state administration has proposed in the 2018-19 budget . funding for counties to complete RFA are necessary . Consider Funding for Kin Caregivers at the Time Speeding Up RFA Process of Placement. The prolonged RFA process is resulting Critical to CCR’s Success in delays in the payment of full foster care payments CCR’s success in part depends on the state and for certain kin caregivers . The Legislature might counties’ ability to increase the number of HBFC consider ways to provide full foster care payments to caregivers . kin caregivers at or close to the time they take in kin foster children as emergency placements . It is our Prolonged RFA Process Has Potential Negative understanding that the administration is exploring Impact on the Supply of HBFC Settings. A critical ways to fund full foster care payments at or close to first step in increasing the supply and capacity of HBFC the time of the emergency placement . One potential caregivers is to complete the foster caregiver approval funding source being considered, for example, is process, RFA, in a timely manner . The prolonged RFA federal funding from Temporary Assistance for Needy approval process described earlier impedes the state’s Families . We recommend that the Legislature ask the ability to increase the number of foster caregivers and, administration during upcoming budget proceedings to accordingly, prevents the state from moving foster (1) report on the potential for the state to utilize these or children out of congregate care settings and into HBFC other funding sources to fund full foster care payments settings as fast as it otherwise could . for kin caregivers at or close to the time of emergency Prolonged RFA Process May Impair the Stability placement, (2) the potential trade-offs associated with of Certain Kin Caregiver Placements. In addition, the various funding sources being considered, and the prolonged RFA process may impair the stability (3) the estimated cost . of some emergency placements with kin caregivers . As previously discussed, the prolonged RFA process Implementation of increases the amount of time in which kin caregivers LOC-Based HBFC Rates providing emergency placements for kin foster children do not receive the full foster care payment and instead Implementation of CCR’s full HBFC payment receive a payment potentially up to half of the full foster rate structure requires the use of an assessment to care payment . Caring for a kin foster child without determine foster children’s general level of need and, 66 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET accordingly, determine an appropriate foster care to report at budget hearings on how the earlier payment rate . DSS developed the LOC assessment implementation of the LOC-based HBFC payment rate tool to perform this function . structure will be used to inform the implementation Issues to Consider Related to the Planned of the LOC rate structure for non-FFA supervised Implementation of the Full LOC-Based HBFC foster children . Specifically, the administration should Payment Rate Structure. As noted above, there are report on how it will be assessing the tool’s ability to stakeholder concerns related to the LOC assessment accurately assess level of care and how the consistent tool’s reliability . As such, the administration plans to application of the tool will be assessed and assured . implement the full LOC-based payment rate structure Additional State Funding Likely Needed to in stages beginning with FFA-placed foster children in Fund Counties to Perform LOC Assessment. The March 2018 and then for all foster children in HBFC Governor’s 2018-19 budget for CCR generally appears settings in May 2018 . On the one hand, because reasonable . One component that appears missing FFA-supervised children are not eligible for the SCI, from the Governor’s CCR budget is funding for county the concerns raised about the new rate structure’s social workers to carry out the LOC assessment compatibility with the SCIs do not apply . In addition, with the LOC assessment tool . Since this is a new implementation of the LOC-based HBFC payment rate requirement placed on counties by a new state policy, structure for FFAs would give the state and counties Proposition 30 likely requires that the state provide experience administering the LOC assessment tool funding . We recommend that the Legislature ask the and present the state with an opportunity to refine its administration for its rationale for not including funding guidance and training on using the tool . On the other for this component in its 2018-19 CCR budget proposal hand, we recognize stakeholders’ concerns about and to provide an estimate of this component’s cost if it the LOC assessment tool’s reliability . As a result, we in fact warrants state funding . recommend that the Legislature ask the administration www.lao.ca.gov 67 analysis full gutter 2018-19 BUDGET Contact Information Chas Alamo CalWORKs 319-8357 Chas.Alamo@lao.ca.gov Jackie Barocio IHSS and SSI/SSP 319-8333 Jackie.Barocio@lao.ca.gov Ben Johnson Medi-Cal and Continuum of Care Reform 319-8336 Ben.Johnson@lao.ca.gov Brian Metzker Medi-Cal 319-8354 Brian.Metzker@lao.ca.gov Lourdes Morales Information Technology 319-8320 Lourdes.Morales@lao.ca.gov Sonja Petek Developmental Services 319-8340 Sonja.Petek@lao.ca.gov Jonathan Peterson Department of State Hospitals 319-8324 Jonathan.Peterson@lao.ca.gov Ryan Woolsey Medi-Cal 319-8356 Ryan.Woolsey@lao.ca.gov LAO PUBLICATIONS This report was reviewed by Ginni Bella Navarre and Mark C. Newton. 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. 68 LEGISLATIVE ANALYST’S OFFICE