The 2025-26 Budget: Department of Developmental Services

2025-26 BUDGET The 2025-26 Budget: Department of Developmental Services GABRIEL PETEK | LEGISLATIVE ANALYST | MARCH 2025 SUMMARY The Department of Developmental Services (DDS) coordinates a wide variety of services for about 450,000 Californians with intellectual or developmental disabilities or similar conditions. In this brief, we provide some basic background on DDS and a brief summary of the proposed DDS budget (there are no proposed new initiatives), before addressing ongoing oversight and implementation issues. Specifically, we provide background and issues for legislative consideration on the following four issues: (1) the full implementation of service provider rate reform, including quality incentives; (2) the development of the Master Plan for Developmental Services; (3) the department’s ongoing proposed information technology project; and (4) the phase out of an employment program authorized to pay a subminimum wage to individuals with intellectual and developmental disabilities. BACKGROUND Lanterman Act Lays Foundation for There are no income-related eligibility criteria. As of “Statutory Entitlement.” California’s Lanterman December 2024, DDS serves about 60,000 infants Developmental Disabilities Services Act (Lanterman and toddlers in the Early Start program. Act) originally was passed in 1969 and substantially Regional Centers (RCs) Coordinate and Pay revised in 1977. It amounts to a statutory entitlement for Individuals’ Services. DDS contracts with to services and supports for individuals ages three 21 nonprofit RCs, which coordinate and pay for the and older who have a qualifying developmental direct services provided to “consumers” (the term disability. Qualifying disabilities include autism, used in statute). Services are delivered by a large epilepsy, cerebral palsy, intellectual disabilities, network of private for-profit and nonprofit providers. and other conditions closely related to intellectual In addition to state General Fund and some smaller disabilities that require similar treatment, such as funding sources, these services are purchased in a traumatic brain injury. To qualify, an individual part through federal funding obtained through the must have a disability that began before the age Medicaid Home- and Community-Based Services of 18 and is substantial and expected to continue (HCBS) waiver. The HCBS waiver provides Medicaid indefinitely. There are no income-related eligibility funding for eligible individuals to receive services criteria. As of December 2024, DDS serves about and supports in home- and community-based 380,000 Lanterman-eligible individuals and another settings, rather than in institutions. 10,000 children ages zero through four who are State Began Implementing a Major Overhaul provisionally eligible. of Service Provider Rates in 2021-22. For California Early Intervention Services Act decades, the state paid DDS direct care staff Ensures Services for Eligible Infants and (also referred to as direct service professionals) Toddlers. DDS also provides services via its Early according to an outdated and overly complicated Start program to any infant or toddler under the rate structure that had not kept up with rising age of three with a qualifying developmental delay costs over time. In an attempt to modernize and or who are at risk of a developmental disability. rationalize this structure, the state commissioned www.lao.ca.gov 1 2025-26 BUDGET a study of service provider costs that was Service Provider Rates Must Include Quality published in January 2020. The 2021-22 budget Incentive Structure. Beginning January 1, 2025, began a multiyear, phased-in implementation of statute requires that provider rates consist of two a modernized rate model to pay direct service components: (1) a base rate equal to 90 percent of professionals. The 2022-23 budget accelerated the rate model, and (2) a quality incentive payment the phase-in of this plan, with full implementation equal to 10 percent of the rate model. Providers of the new rate model scheduled for July 1, 2024. must satisfy specified performance metrics in The Governor’s 2024-25 budget then proposed to order to receive the 10 percent of the rate model delay the final stage of service provider rate reform reserved for quality incentive payments. Providers implementation by one year (to July 1, 2025). The can earn the 10 percent portion of the rate model adopted 2024-25 budget modified this proposal, from January 1, 2025 through June 30, 2026 by delaying the final stage of implementation by six enrolling in DDS’s new Provider Directory. DDS months, rather than one year (to January 1, 2025). is in the process of establishing the performance The final stage of implementation has been in effect metric(s) that providers will have to satisfy after since January 1, 2025. June 30, 2026 to earn the 10 percent portion of the rate. 2025-26 BUDGET PROPOSAL OVERVIEW in the utilization of services; available data do not provide sufficient information to differentiate the Proposed Budget Reflects Significant cost impacts of these factors independently. Growth. The Governor’s budget proposal The administration projects that it will serve includes $19 billion total funds in 2025-26, about 500,000 individuals in 2025-26, an up $3.2 billion (20 percent) over the revised increase of about 40,000 individuals compared to 2024-25 level ($15.8 billion). Of the proposed 2024-25. This caseload projection appears to be 2025-26 total, $12.4 billion is from the General reasonable and, according to the administration, Fund, up $2.2 billion (21 percent) over the revised reflects growth in the Early Start population due to 2024-25 level ($10.2 billion General Fund). community outreach efforts. Significant year-over-year growth in DDS spending is a feature of DDS budgets over the past 10 years, No Significant New Spending Proposals. as shown in Figure 1. Relative to other recent budgets, the Governor’s budget contains very few proposals. The A portion of the year-over-year increase—about Governor’s budget proposes $8.3 million in ongoing $500 million ($307 million General Fund)—reflects General Fund to implement the Disability Equity, the annualization of the first fiscal year of fully Transparency, and Accountability Act (Chapter 902 funded rate models under rate reform (in 2024-25, of 2024 [AB 1147, Addis]). The proposal does not the fully funded rate models were in effect for include any spending solutions beyond those half a fiscal year). The majority of the increase adopted in 2024. largely reflects growth in caseload and increases 2 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET Figure 1 Department of Developmental Services Spending Continues to Grow Rapidly (In Billions) $20 18 Federal and Other Fundsa 16 General Fund 14 12 10 8 6 4 2 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26 a The bulk is federal Medicaid funding, with minor other federal and state special funds. Note: 2024-25 amounts are estimated and 2025-26 amounts are proposed. OVERSIGHT ISSUES In recent years, the DDS system has undergone (A series of rate freezes and rate reductions— some significant changes that warrant continued beginning in the early 2000s as budget solutions— legislative oversight. Below, we highlight four areas meant that the rates had not kept up with rising of particular interest for the Legislature. For each, costs over time.) The funding first allocated in we provide general background and updates on the 2021-22 was intended to support a sufficient supply implementation of recent initiatives. We also raise of quality service providers by raising funding issues for legislative consideration. levels for providers via increased rates. Increased provider rates, by extension, were also intended to SERVICE PROVIDER RATE improve outcomes for consumers by improving the REFORM AND THE QUALITY availability and quality of services and supports. These services and supports include residential INCENTIVE PROGRAM services, day programs, employment support, transportation, independent and supported living, Background and personal assistance. Rate Reform Intended to Increase Access Statute Requires Focus on Quality and to Services. The rate study initiated in 2016 was Outcomes. Chapter 76 of 2021 (AB 136, undertaken, in part, because the historical rate Committee on Budget) establishes legislative structure did not result in funding levels for service intent that rate reform implementation should providers that kept pace with system growth help the developmental services system or supported an adequate supply of providers. move from a compliance-based system to an www.lao.ca.gov 3 2025-26 BUDGET outcomes-based system. This change was intended statewide. DDS required providers to complete a to put greater focus on meeting individual goals and data collection survey by October 4, 2024 and then preferences based on person-centered planning. validate the submitted data in the Provider Directory To achieve this shift, Chapter 76 specifies that in order to satisfy this performance metric. The service provider payments under rate reform should department has been engaging in technical be linked to consumer outcomes. Specifically, assistance with providers to clarify whether they statute provides that the fully-funded provider rate have completed the necessary steps to enroll in the models will be implemented using two payment Provider Directory and receive the 10 percent of components: a base rate equaling 90 percent of the rates reserved for this metric. rate model and a quality incentive payment equaling Future Quality Incentive Metrics Under up to 10 percent of the rate model, the latter of Development. After June 30, 2026, enrollment which is to be implemented through the quality in the Provider Directory will no longer suffice incentive program. This structure is intended to to qualify for the quality incentive portion of rate improve service provider performance, the quality models. Chapter 76 requires that quality measures of services, and, ultimately, consumer outcomes. must evolve to include individual-level outcome (Prior to the implementation of the quality incentive measures by the conclusion of the 2025–26 fiscal payment as 10 percent of the total rate, the state year. DDS is still determining how to define these began providing some smaller, one-time quality individual-level outcome measures for 2026-27. incentive payments on top of providers’ baseline A starting point is the department’s Quality rates in 2022-23.) Chapter 76 additionally specifies Incentive Program workgroup, which began that performance metrics should evolve from initially meeting in 2021 to help select and define outcome being more process-related, such as meeting measures for one-time incentive payments available deadlines, to eventually include outcome measures, from 2023 through 2026. The workgroup selected such as whether individual consumers are able the following measures that providers can satisfy to to achieve their goals. (The goals of individual earn one-time incentive payments through 2026: consumers can vary widely and span from short • Health checks in specified residential facilities. to long term. Such goals could include living in • DSP workforce survey participation. an apartment, getting and maintaining a job, and participating in music or art classes.) The metrics • Competitive integrated and benchmarks for individual outcomes must employment placements. be established with input from stakeholders • Employment Specialist training completion. through public meetings and 30-day public • Timely service delivery for early comment periods. intervention services. Quality Component in Rates Began on The department has stated that these one-time January 1, 2025. The final phase of rate reform has measures will help collect baseline data that will been implemented as of January 1, 2025. Beginning inform the ongoing, individual-level measures in on January 1, rate models are fully funded, with place starting July 2026. The department also the 90 percent (base rate) and 10 percent (quality stated that it intends to build upon lessons learned incentive payment) structure set out in Chapter 76. from one-time incentive payment measures In last year’s analysis, we provide more context when selecting the ongoing measures to begin in on the time line of rate reform implementation 2026-27. Additionally, DDS plans to conduct focus since 2021-22. groups in 2025 with RCs, providers, consumers, DDS Has Determined Initial Quality and other stakeholders to collect feedback on the Incentive Metrics. For the period spanning from outcomes important to consumers and families. January 1, 2025 through June 30, 2026, providers The department also stated that it will collect can earn the quality incentive portion of rate models feedback on ways it could update the one-time by enrolling in DDS’s new Provider Directory. The incentive measures. Provider Directory is an online portal that will store and display information about service providers 4 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET Assessment of DDS services on these outcomes. While the pilot shows promise in helping to measure individual Provider Directory Could Shed Some Light outcomes, the development of the PAVE system will on Access to Services... Previously, DDS lacked a not necessarily align with the statutory deadline to centralized mechanism to store statewide provider utilize individual-level outcome measures for quality information (including service location address, incentive payments by July 1, 2026. phone number, email address, and organization type). The state’s 21 RCs stored this information Issues for Legislative Consideration separately for their own unique service areas. What Service Gaps Are Identified by The creation of the Provider Directory will therefore Assessing Provider Directory’s Findings? An be a first step in providing a more comprehensive assessment of the findings from the Provider view of the state’s network of providers. Once the Directory could shed light on service gaps in information in the Provider Directory is linked to the developmental services system statewide. RC service areas, the department could identify Currently, there is no requirement for DDS to potential gaps in service availability throughout conduct such an assessment and report to the the state. Legislature with its findings. We think this would …But Is Only the First Step Towards be valuable information for the Legislature to have Measuring Quality. While the Provider Directory in order to prioritize efforts that improve access has the potential to provide useful information to services. We therefore recommend that the about availability of services by type and region, Legislature direct the department to complete it alone will not shift the developmental services this analysis. system from a compliance-based system to an How Does DDS Plan to Use Findings From outcomes-based system. DDS has acknowledged an Assessment of the Provider Directory? DDS that enrollment in the Provider Directory is a has stated that findings from the Provider Directory process-oriented measure, rather than a measure might inform its allocation of Community Placement of individual outcomes. The department has also Plan (CPP) and Community Resource Development stated that it intends to build out the Provider Plan (CRDP) funding. The CPP and CRDP programs Directory’s functions over time to include a portal in were originally created to support the closure of which consumers and their families can search for developmental centers by expanding the services providers based on their location and preferences and supports available to help individuals transition such as language. into the community. Each year, DDS determines the Quality Can Be Challenging to Measure. While areas of highest need for community services and quality might be relatively simple to conceptualize, supports, then develops guidelines to determine in practice it can be challenging to measure given how to allocate CPP and CRDP funding to RCs. the expansive nature of an individual’s well-being RCs submit budget requests to DDS to provide and the many outcomes involved. In concept, supplemental CPP/CRDP funding on top of their greater access to services could translate to better baseline budgets. DDS assesses CPP and CRDP outcomes for consumers. However, assessing submissions from RCs based on their alignment outcomes can be challenging given the myriad with the department’s guidelines, including ways that consumers could define their needs and each RC’s need to develop new and innovative goals across the range of services and supports service models. that they receive. In response to the absence of We recommend that the Legislature ask DDS existing quality measures in the developmental to share details on the way that findings from the services system, the 2021-22 budget included Provider Directory could inform the criteria for $10 million General Fund in one-time pilot funding CPP and CRDP project selection. The Legislature for the Person-Centered Advocacy, Vision, and could also establish its priorities and work with Education (PAVE) project. This pilot project aims the department on determining future CPP and to develop a system to measure the outcomes CRDP criteria. This could help ensure that the consumers experience and to evaluate the impact www.lao.ca.gov 5 2025-26 BUDGET Provider Directory supports the Legislature’s goal The administration has stated that these of improving consumer outcomes by expanding recommendations will be compiled into a draft access to services. Additionally, we recommend report to be released no later than March 19, 2025. that the Legislature ask DDS to explain its plans for Legislature Codified the Master Plan for other ways that findings from the Provider Directory Developmental Services as a Cross-Agency will be used to address any barriers to accessing Effort Focused on Equity. Budget-related services (aside from CPP and CRDP funding). legislation codified the Legislature’s findings Monitor Development of Future Quality and declarations establishing the foundation for Measures. Chapter 76 establishes the Legislature’s the Master Plan (Chapter 47 of 2024 [AB 162, interest in using rate reform to improve consumer Committee on Budget]). Importantly, Chapter 47 outcomes, service provider performance, and acknowledges that consumers and their families the quality of services. Given this priority, the rely on services provided through multiple state Legislature may wish to track the development of and local entities, including the State Department individual-level outcome measures over the next of Health Care Services (DHCS), the California several years. Questions to ask the administration Department of Aging, the California Department of could include: How will the data collected from Social Services, the Department of Rehabilitation the one-time quality incentive payments inform (DOR), and the State Department of Education. the ongoing quality incentive payments that will be Because individuals receive services from put in place as of 2026? What data are necessary these various entities, Chapter 47 states that to measure individual-level outcomes, and how CalHHS should work across state agencies and will the department collect this data? How will the departments to identify policies, efficiencies, and department ensure that quality measures do not strategies necessary to implement the Master Plan. incentive providers to prioritize “easier to serve” Additionally, Chapter 47 states the Legislature’s consumers with relatively fewer support needs at intent that the Master Plan should serve all the expense of consumers with more significant consumers and their families regardless of their support needs? What steps will the department language spoken, demographic group, geographic take to assist providers that fail to fully satisfy region, or socioeconomic status. Finally, the quality metrics? legislation establishes that any funding needed to support program enhancements proposed in MASTER PLAN FOR the Master Plan is subject to an appropriation by DEVELOPMENTAL SERVICES the Legislature. Assessment and Issues for Background Legislative Consideration Master Plan Will Provide Recommendations Has the Master Plan Development Process to Improve Experiences of Individuals Receiving Developmental Services. The Governor’s Reflected Legislative Intent? We recommend that the Legislature ask the administration to 2024-25 budget proposed that DDS develop a provide detailed information on the extent to which Master Plan for Developmental Services with the the development of the Master Plan has aligned intent to improve the experience of individuals and with legislative intent as set out in the provisions families receiving developmental services. (We of Chapter 47. The Master Plan process as addressed this proposal in last year’s analysis.) envisioned by Chapter 47 is a multi-departmental, Subsequently, the Secretary of California Health multi-agency effort, with CalHHS serving in a key and Human Services (CalHHS) appointed members coordinating and leadership role. Questions to ask to the Master Plan for Developmental Services the administration could include: How did CalHHS Committee. These members were assigned exercise its oversight authority to lead the Master to one of five workgroups; each workgroup Plan development process? What specific steps developed recommendations pursuant to a specific has CalHHS taken to fulfill its cross-departmental, goal for the developmental services system. 6 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET cross-agency coordination role? Which state when developing future budget and policy agencies and departments have been directly proposals, as well as the administration’s plans involved in the development of the Master Plan, and for the timing for these proposals (for example, what have their unique contributions been? To what will any proposals be submitted at May Revision extent have Master Plan committee members in 2025?). Questions to ask the administration been given the opportunity to receive technical could include: How does the administration plan assistance from multiple state departments when to weigh recommendations from the Master Plan developing recommendations? How has CalHHS that might require new spending in comparison to ensured that Master Plan committee members have DDS’s existing spending commitments? How will access to input provided by a broad crossection the administration differentiate recommendations of consumers and their families, given the intent of that could be implemented in the near term Chapter 47 that all consumers and their families be compared to recommendations that will take served equitably? longer to implement? How will the administration What Is the Administration’s Vision for the reconcile the community’s recommendations with Master Plan Going Forward? Given that the its own priorities? Master Plan development process set out in Legislature Could Delineate a Process Chapter 47 prioritizes community involvement and on How to Move Forward. At the time this public feedback, the final product submitted to analysis was prepared, the administration has the Legislature and Governor in March will not be not clearly articulated a roadmap to implement (and was not intended to be) a plan of action from the community’s recommendations that will be the administration. The administration has stated presented in the Master Plan. This presents an that the final product will be solely comprised of opportunity for the Legislature to help establish recommendations generated by the community. next steps after the Master Plan is published. While these recommendations form a key starting This will give the Legislature a chance to provide point, the Master Plan cannot be put into action direction before the administration potentially without initiative from the administration. A critical submits future budget proposals resulting from missing piece, therefore, is a roadmap for how to the Master Plan. To this end, we recommend that translate the community’s recommendations into the Legislature consider introducing trailer bill a workable set of policy and budget proposals for legislation, similar to that introduced in Chapter 47, legislative consideration. to ensure that the Master Plan implementation The administration has stated that it will process reflects legislative priorities. This legislation consider the Master Plan’s recommendations could include requirements for additional analysis in future policy and fiscal planning. The details and reporting to the Legislature on topics such of this process, however, have not been shared as the feasibility or the costs and benefits of the publicly. For example, the administration has not Master Plan’s recommendations. yet provided details on how it plans to prioritize the Master Plan’s recommendations when developing ONGOING PROPOSED near-term versus long-term proposals. In order to INFORMATION TECHNOLOGY (IT) understand the full scope of the Master Plan and its PROJECT implications for the developmental services system, the Legislature will want to request this information Background from the administration. DDS Recently Received Funding for For budget planning purposes and in light of Proposed IT Project to Replace Outdated projected budget deficits through 2028-29, the Case Management and Accounting Systems. Legislature will need to understand the potential The department has recently started a multiyear policy and fiscal impacts of any proposals resulting effort to modernize the IT systems used in from Master Plan. To this end, the Legislature California’s 21 RCs. RCs currently use separate IT could ask the administration how it plans to systems for accounting and case management. prioritize the Master Plan’s recommendations www.lao.ca.gov 7 2025-26 BUDGET Both of these systems are outdated and rely on Department Has Submitted Two IT Project technology from the 1980s, making it challenging Approval Lifecycle (PAL) Documents to Date. DDS and time-consuming for RCs to perform their has completed the first two stages in the California responsibilities. The case management systems Department of Technology’s (CDT’s) PAL process are not consistent across the 21 RCs, as some RCs (the state’s IT project approval process): the Stage 1 have adopted various “workarounds” to overcome Business Analysis and Stage 2 Alternatives Analysis. shortcomings of the legacy system. Further, the Stage 1 of the PAL process requires the department existing systems do not allow consumers or their to justify the project by documenting existing barriers families to access their records electronically. to operations and service delivery, opportunities to To address these issues, DDS proposed an IT address identified barriers, and desired outcomes project for a modern, integrated case and financial from the project. Stage 1 additionally requires the management system that will be consistent across department to identify stakeholders affected by the regional centers and allow consumers to view project and describe how these stakeholders will be their own records. The department has received involved in the planning process. Stage 2 requires the the following funding for this IT project planning department to conduct market research to determine since 2021-22: which IT solution would be able to meet the project’s desired outcomes. In this step, the department • 2021-22 Spending Plan. California’s Home must also provide detailed project plans, including and Community-Based Services Spending a financial analysis for the project that compares Plan, using enhanced federal funding from the the cost of maintaining the existing system with the 2021 American Rescue Plan Act, allocated recommended IT solution cost. Taken together, $6 million in one-time federal funding to help planning documents developed during the PAL modernize DDS’s IT systems. Specifically, the process give the Legislature information necessary to funding supported the initial planning process evaluate the merits of the proposed IT project. to update the regional center fiscal system and implement a statewide Consumer Electronic Although Some Stakeholder Engagement Records Management System. This funding Has Already Taken Place, Department Recently was available through 2023-24. Announced Plans to Solicit More Input in 2025. DDS has stated that, although it has conducted • 2023-24 Spending Plan. The spending plan some discussions on desired outcomes for the provided $12.7 million ($12.2 million General project (pursuant to Stage 1 of the PAL process), Fund) one-time funding to support continued the conversations to date have not adequately planning efforts for the IT project. The budget captured the range of feedback from all stakeholders package also included supplemental report (including department staff, RC staff, and families language requiring the department to provide served by the department). The department therefore quarterly written updates to the Legislature intends to reopen these conversations in 2025. DDS on several project details, including project stated that it already began this effort with internal development, stakeholder engagement, and meetings in January, and that it plans to solicit any identified project risks. feedback from regional centers and consumers • 2024-25 Spending Plan. The spending over the first several months of 2025. As part of this plan provided $1 million General Fund and approach, the department also renamed the project authorized up to $5 million in provisional from the “Uniform Fiscal System Modernization” and authority for continued IT project planning, the “Consumer Electronic Records Management pending the potential approval of federal System” to the “Life Outcomes Improvement funding. We note that the department also System (LOIS)”. (According to the department, canceled its Reimbursement System Project, LOIS pays tribute to Lois Curtis, one of the plaintiffs a separate IT project that first received funding in the Olmstead v. L.C. Supreme Court case that in 2019-20. Please see the nearby box for established the right for people with disabilities to more information on the Reimbursement live in the least restrictive environment appropriate to System Project. meet their needs.) 8 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET Reimbursement System Project In 2024, Department of Developmental Services Canceled Reimbursement System Project Due to Problems With Contractor. In 2019-20, the Department of Developmental Services (DDS) received $12 million ($11.8 million General Fund) in each of 2020-21 and 2021-22 to develop the Reimbursement System Project. This information technology (IT) project was intended to improve DDS’s ability to process and claim federal reimbursements for its Medicaid waiver-eligible services, as the “legacy” IT system used to claim federal reimbursements was not meeting the department’s programmatic needs. In 2024, the department requested that the California Department of Technology (CDT) cancel the project because the chosen contractor was not able to deliver the agreed-upon product, despite the use of correction plans and remediation efforts. The project ended on June 30, 2024 with the expiration of the contract. DDS has stated that it is evaluating whether to incorporate parts of the canceled Reimbursement System Project into its ongoing IT project for regional centers’ case management and accounting systems. Separate From State PAL Process, IT project can be successfully completed on time Department Also Seeking Enhanced Federal and within budget. The IT system will directly impact Funding. In its original PAL Stage 2 document, a vulnerable population, which means there is a DDS estimated that this IT project will cost about heightened level of risk associated with the project. $135 million to $180 million in total funds (excluding The new IT system will eventually help facilitate future maintenance and operations costs). In the use of quality incentive payments as part of addition to state funding for this project, DDS is rate reform implementation, thereby helping the requesting enhanced funding from the federal developmental services system as a whole to move government through the Advanced Planning towards individual-level outcomes. Additionally, the Document process. This process allows the state cancelation of the Reimbursement System Project to request a 90 percent match in federal funding in 2024 demonstrates the challenges that can occur (rather than California’s standard 50 percent in complex IT projects and the level of time and care match) to develop IT systems that enable the state needed to help these complex projects succeed. to more efficiently administer Medicaid benefits. For these reasons, legislative oversight throughout DDS is eligible to request this support because the planning, development, and implementation of nearly all home- and community-based services this project will be critical. for DDS consumers receive federal Medicaid Ensure Department’s PAL Documents Reflect matching funds. DDS has stated that it started this Outcomes From 2025 Stakeholder Outreach process by working with DHCS to create a Planning Efforts. The department’s efforts to reengage Advanced Planning Document (PAPD). The PAPD the community in 2025 likely have merit, as these provides funding for planning activities before efforts will help ensure that stakeholders can the project is implemented. According to federal provide input on the goals and outcomes of the regulations, a state’s PAPD submission must clearly IT project. By reopening these conversations, state the purpose and objectives of the IT project, however, it is likely that the department’s desired as well as identify the state’s planning activities and outcomes for the project will end up differing from resource needs. what has already been provided in the existing PAL Stage 1 and Stage 2 documents. The department Assessment and Issues for has stated that it plans to submit its findings from Legislative Consideration the 2025 stakeholder outreach and a revised fiscal Legislative Oversight of IT Project Can estimate to CDT and the Department of Finance Help Ensure Success of Important Project. for approval. We recommend that the Legislature exercise its oversight authority to help ensure that this multiyear www.lao.ca.gov 9 2025-26 BUDGET We recommend that the Legislature clarify in Ensure Department’s Submission for Federal budget hearings whether the department intends Funding Aligns With State Documentation. As to update its PAL documents (which the Legislature of January 2025, the department stated that it was receives) as part of this process. To effectively aiming to submit its PAPD to the United States perform legislative oversight of the project, the Centers for Medicare & Medicaid Services (CMS) Legislature must receive project plans that reflect in early 2025. (These submissions are not publicly the most recent actions taken by the department available.) Once the PAPD is submitted, CMS to plan, develop, and implement a project. Without typically provides a written decision to the state updated plans, the Legislature cannot determine within 60 days. We recommend that the Legislature whether or not the needs of the department, RCs, ask the department to provide a status update on and the community are being met by the project. the PAPD process in budget hearings. Much of the Specifically, in budget hearings, the Legislature information required in the PAPD submission overlaps could clarify whether the department plans to revise with the information required in the PAL Stages 1 and its Stage 1 document to incorporate its plans for 2 documents. As a result, any updates to the state’s stakeholder outreach in 2025. Additionally, the PAL Stages 1 and 2 documents should be mirrored in Legislature could clarify whether the department the federal PAPD submission to ensure consistency. plans to resubmit its Stage 2 document, which This consistency will help avoid any potential would include market research on the best IT delays or reductions in the receipt of enhanced solution to meet the additional needs identified by federal funding. stakeholders and an updated cost estimate. Consider Funding Options for 2025-26 and EMPLOYMENT OF DDS Outyears Based on Receipt of Additional CONSUMERS AND SUBMINIMUM Supporting Documentation. We recommend that WAGE PHASE-OUT the Legislature engage with the administration to determine whether DDS’s stakeholder engagement Background efforts for this project in 2025 will require California Adopted an “Employment First” reappropriation of previously approved funds. Given Policy for DDS Consumers in 2013. Chapter 667 the potential change in the project’s direction based of 2013 (AB 1041, Chesbro) created California’s on these efforts, this decision must involve the employment first policy, which makes competitive, Legislature, rather than being decided solely by the integrated employment (CIE) the highest priority administration. To help inform its consideration of a for working age individuals with intellectual and potential reappropriation of funds, the Legislature developmental disabilities, regardless of the severity could consider requesting a detailed expenditure of their disability. (CIE refers to employment at a plan for the funding that was already appropriated workplace mostly employing individuals without for PAL Stages 1 and 2 through provisional disabilities and for prevailing market wages.) This was budget bill language. As part of this exercise, the followed by federal action in 2014 when Congress Legislature could ask the department to provide passed the Workforce Innovation and Opportunity detail on the type of stakeholder feedback it Act, which promotes CIE and increased training and plans to solicit in 2025 (and how this input might supports for individuals with disabilities. differ from the feedback the department already DDS Oversees Multiple Employment Programs collected in PAL Stage 1). This expenditure plan for Consumers. DDS provides a variety of services would help the Legislature determine whether the to help consumers find and maintain employment proposed activities funded by the reappropriation if they desire to work. Supported employment adequately support the new direction of the project. services provide job coaching to consumers (in Any additional funding for the remaining steps in both group and individual placements) who typically the PAL process would be contingent upon, at a are working in a community setting (for example, minimum, the Legislature’s review of this plan. a hotel or a grocery store). Paid internships allow DDS to pay the wages of and provide job coaches to 10 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET consumers (either individually or in groups) placed funding for job developers (those who identify short-term in a community employment setting. and help develop employment opportunities for Tailored day services help consumers develop skills individuals with intellectual and developmental for employment through customized training. Work disabilities) and job coaches, fund counseling to activity programs are sometimes held in “sheltered help consumers understand how employment will or workshops,” which are work areas specifically will not affect the benefits they receive, and provide employing only individuals with intellectual and more transportation options for individuals seeking developmental disabilities. In other cases, work employment at competitive wages. activity programs may take consumers out to As of 2025, All Consumers Have Transitioned community workplaces to work together as a group. Out of Subminimum Wage Employment… DDS Some DDS Consumers Previously Participated has been systematically tracking the number of in Federal Subminimum Wage Program. The remaining consumers employed in subminimum Fair Labor Standards Act, which establishes the wage settings since July 2023. The department federal minimum wage, creates a process (known estimated that there were about 2,900 consumers as the 14(c) certification process) for certifying some employed and earning less than minimum wage. employers to pay employees with intellectual and The department has worked with RCs to track developmental disabilities less than the minimum these individuals and help them transition out of wage. Most subminimum wage employers in subminimum wage. As of December 2024, the California were nonprofit organizations that also department reports that there are no longer any offered a broad suite of other services, including consumers earning less than minimum wage. other employment supports and day programs …Yet About 10 Percent of Consumers Have (which provide education, community engagement, Not Found Other RC-Supported Activities in Their and entertainment during the day for consumers who Place. Of the consumers previously employed in are not regularly employed). Many subminimum wage subminimum wage jobs, about 270 individuals have employers operated work activity programs. not yet engaged in another RC-supported service In 2021, State Committed to Ending in place of employment. Remaining consumers are Subminimum Wage Employment by 2025. engaged in a variety of other activities (with some Chapter 339 of 2021 (SB 639, Durazo) calls for the individuals participating in multiple activities). Many transition of employees working under subminimum are working and earning at least minimum wage, wage into CIE by January 2025. The bill required the with about 75 individuals now engaged in CIE, about State Council on Developmental Disabilities (SCDD) 700 employed in group settings, about 240 employed to establish a multiyear plan for phasing out the use in work activity programs, and about 70 participating of 14(c) certificates in California. By the end of the in paid internships. For these individuals who are multiyear plan (once 14(c) certificates are phased out), employed, the department is not able to provide any DDS consumers who are employed must be paid details on the average number of hours worked. at least minimum wage. When SB 639 was enacted, Many other consumers previously employed in the number of individuals receiving subminimum subminimum wage jobs are not currently working. wage was not clearly documented due to data About 850 consumers are receiving a type of day limitations. As of January 2023, it was estimated program service. Another 600 are participating that at least 4,000 people with disabilities (many in a “Community Integration Training Program,” of whom were DDS consumers) were employed in which is a service that can be adapted for a variety subminimum wage jobs in fiscal year 2021-22. of purposes. Another 150 consumers have retired, The SCDD’s multiyear plan was published in moved, or no longer have a case with a RC. About January 2023. Among other recommendations, 20 individuals are receiving training or support SCDD’s plan called for the state to increase state towards employment. www.lao.ca.gov 11 2025-26 BUDGET Department Recently Created New Service consumers who desire to work in CIE remains the for Consumers Leaving Subminimum Wage ultimate goal of SB 639. We recommend that the Employment or Transitioning From Secondary Legislature ask DDS to provide regular updates on Education. After SB 639 was enacted, the the status of individuals who recently transitioned 2022-23 spending plan allocated $8.4 million out of subminimum wage employment and whether ($5.1 million General Fund) one-time available they have been placed in CIE. A particular focus over three years for DDS to establish a service is warranted on the 270 consumers who have not model focused on individuals transitioning out of found alternative RC-supported activities as of subminimum wage or recently graduating from high January 2025. DDS, SCDD, and DOR have stated school. This funding resulted in a new service called that they remain committed to finding services for Coordinated Career Pathways (CCP), which aims to these individuals. In addition to administrative efforts, help individuals achieve CIE after exiting subminimum the Legislature could use its oversight authority wage employment or completing secondary to track whether these individuals have found education. CCP includes two new service options: alternative activities. a Career Pathway Navigator and a Customized Is the New CCP Service Capable of Effectively Employment Specialist. The department states that Serving Consumers Statewide? While the new CCP these services are time-limited to 18 months but can service has potential, it is still too early to assess its be extended to a maximum of 24 months. effectiveness in helping individuals obtain CIE. DDS stated that, as of January 2025, about 25 providers Assessment and Issues for have been approved to provide CCP. A small number Legislative Consideration of consumers have recently started to receive the While the administration has not proposed service. The department said that it has needed any changes to its employment programs in the time to set up this new service, and that it intends to budget year, we provide the following topics for survey RCs on the service in the spring of 2025. legislative consideration given the recent phaseout DDS noted that, in order to offer this service, of subminimum wage. It is important to acknowledge providers must have skilled staff capable of offering that, as SCDD notes in its January 2023 transition customized employment approaches beyond plan, centralized statewide leadership is needed for traditional job coaching. In light of this required level CIE to succeed, and meaningful change is not the of skill, some RCs and providers have expressed responsibility of one agency alone. The following interest in receiving technical assistance to better discussion is limited to issues that fall within DDS’s understand and implement CCP. The Legislature scope of responsibility. could ask DDS whether it would be able to offer this Has the Implementation of SB 639 Reflected type of technical assistance to interested RCs and Legislative Intent? Given that the deadline providers so that they can take full advantage of the established in SB 639 only recently passed, it new service’s potential. Expanding the availability would be unrealistic to expect that every consumer of this service could potentially help consumers previously earning subminimum wage would transition from day programs to employment, which already be fully transitioned to CIE. Nonetheless, in turn would further progress towards the intent it is important to acknowledge that placing DDS of SB 639. LAO PUBLICATIONS This report was prepared by Karina Hendren, and reviewed by Mark C. Newton and Carolyn Chu. 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, California 95814. 12 LEGISLATIVE ANALYST’S OFFICE