The 2026-27 Budget: Department of Developmental Services

analysis full 2026-27 BUDGET The 2026-27 Budget: Department of Developmental Services GABRIEL PETEK | LEGISLATIVE ANALYST | MARCH 2026 SUMMARY The Department of Developmental Services (DDS) coordinates a wide variety of services for about 490,000 Californians with intellectual and developmental disabilities or similar conditions. In this brief, we provide some basic background on DDS, then describe and assess the Governor’s 2026-27 budget proposal for the department. The Governor’s budget proposes one-time funding to continue planning for an information technology (IT) project that aims to modernize the program’s case management and accounting systems. The budget also proposes ongoing funding to support compliance with a recently enacted federal rule. These proposals total just under $8 million General Fund. We also address ongoing oversight and implementation issues in the context of a changing fiscal and policy landscape. Specifically, we provide background and issues for legislative consideration on the following areas: (1) implementation of H.R. 1, federal legislation enacted in July 2025 that affects Medicaid funding; (2) progress on service provider rate reform and the quality incentive program; and (3) DDS spending trends over the last several years and underlying cost drivers. BACKGROUND Lanterman Act Lays Foundation for of three with a qualifying developmental delay or “Statutory Entitlement.” California’s Lanterman who are at risk of developmental disability. There Developmental Disabilities Services Act (Lanterman are no income-related eligibility criteria. As of Act) originally was passed in 1969 and substantially December 2025, DDS serves about 60,000 infants revised in 1977. It amounts to a statutory and toddlers in the Early Start program. entitlement to services and supports for individuals Regional Centers (RCs) Coordinate and Pay ages three and older who have a qualifying for Individuals’ Services. DDS contracts with disability. Qualifying disabilities include autism, 21 nonprofit RCs, which coordinate and pay for the epilepsy, cerebral palsy, intellectual disabilities, direct services provided to “consumers” (the term and other conditions closely related to intellectual used in statute). Services are delivered by a large disabilities that require similar treatment, such as a network of private for-profit and nonprofit providers. traumatic brain injury. To qualify, an individual must In addition to state General Fund and some smaller have a disability that is substantial, expected to funding sources, these services are purchased in continue indefinitely, and which began before the part through federal funding obtained through the age of 18. There are no income-related eligibility Medicaid Home- and Community-Based Services criteria. As of December 2025, DDS serves about (HCBS) waiver. The HCBS waiver provides Medicaid 415,000 Lanterman-eligible individuals and another funding for eligible individuals to receive services 15,000 children ages zero through four who are and supports in home- and community-based provisionally eligible. settings, rather than in institutions. California Early Intervention Services Act Recent Rate Study Determines Payments Ensures Services for Eligible Infants and for Services, Including Quality Component. Toddlers. DDS also provides services via its Early For decades, the state paid DDS service providers Start program to any infant or toddler under the age according to an outdated and overly complicated www.lao.ca.gov 1 analysis full 2026-27 BUDGET rate structure that had not kept up with rising receive federal Medicaid matching funds. Such costs over time. In an attempt to modernize and services include residential services, independent rationalize this structure, the state commissioned and supported living services, day programs, a study of service provider costs that was transportation, supported employment, and respite completed in January 2020. The 2021-22 budget services. In addition, some of the time spent on began a multiyear, phased-in implementation of a case management by RC staff for consumers modernized rate model to pay service providers. enrolled in Medi-Cal is eligible for federal Medicaid The final stage of implementation has been in effect funding. The department estimates that about since January 1, 2025. Since this date, statute has 70 percent of consumers are currently enrolled in required that the rates paid to service providers Medi-Cal. consist of two components: (1) a base rate equal Recent Federal Legislation Makes Changes to 90 percent of the rate model, and (2) a quality to Medicaid Eligibility but Exempts Those With incentive payment equal to 10 percent of the rate Intellectual and Developmental Disabilities. model. In July 2025, Congress passed and the President Most Services Provided to Consumers signed H.R. 1, titled the One Big Beautiful Bill Act. Enrolled in Medi-Cal Receive Federal Funding. Among other provisions, H.R. 1 imposes additional DDS can draw down federal Medicaid funding to eligibility requirements for certain childless adults support services provided to consumers who are enrolled in Medicaid. H.R. 1 exempts some groups enrolled in Medi-Cal. For eligible services, costs are from these new requirements, including individuals shared evenly between the federal government and with an intellectual or developmental disability and the state. Nearly all home- and community-based family caregivers of disabled individuals. services coordinated by RCs are eligible to 2026-27 BUDGET PROPOSAL OVERVIEW New Spending Proposals Are Small in Number and Total Cost. The Governor’s budget Proposed Budget Reflects Significant includes two discretionary spending proposals Growth. The Governor’s budget proposal for 2026-27. The first proposal would provide includes $21.1 billion total funds in 2026-27, up $5.7 million limited-term General Fund to continue $2.4 billion (12.6 percent) over the revised 2025-26 planning of an IT project first introduced in 2021-22; level ($18.7 billion). Of the proposed 2026-27 the second proposal would provide $2.1 million total, $13.5 billion is from the General Fund, up General Fund ongoing to help the department $1.5 billion (13 percent) over the revised 2025-26 comply with a recently finalized federal rule. We level ($12 billion General Fund). Significant describe each proposal below and offer points for year-over-year growth in DDS spending is a feature legislative consideration. of DDS budgets over the past ten years, as shown in Figure 1. We describe some of the main drivers PROPOSED FUNDING TO of recent expenditure growth in DDS later in the CONTINUE PLANNING IT PROJECT report. The administration projects that it will serve DDS Planning IT Project to Replace about 525,000 individuals in 2026-27, up about Outdated Case Management, Accounting, 35,000 individuals compared to 2025-26. This and Reimbursement Systems. Since 2021-22, caseload projection is consistent with recent the department has undertaken planning to trends. We describe some of the factors that modernize the IT systems used in the 21 RCs to contribute to DDS caseload growth later in the support developmental services. RCs currently use report. separate and outdated IT systems for accounting 2 LEGISLATIVE ANALYST’S OFFICE analysis full 2026-27 BUDGET Figure 1 Department of Developmental Services Spending Continues to Grow Rapidly (In Billions) $25 20 Federal and Other Fundsa General Fund 15 10 5 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26 2026-27 a The bulk is federal Medicaid funding, with minor other federal and state special funds. Note: 2024-25 and 2025-26 amounts are estimated; 2026-27 amounts are proposed. and case management. The department also has previously appropriated funding, in last year’s a separate legacy system to claim reimbursements analysis. from the federal government. These systems Department Conducted Additional date back to the 1980s, making them challenging Stakeholder Outreach on LOIS Project in and time-consuming for department and RC 2025. DDS stated that, although it had previously staff to use. The case management systems conducted some discussions on desired outcomes are also inconsistent across RCs, as some for the project, these conversations did not RCs have adopted various “workarounds” over adequately capture feedback from stakeholders. time to overcome shortcomings of the legacy The department therefore undertook additional system. Further, the existing systems do not allow engagement in spring and summer 2025 with consumers or their families to access their records departmental staff, RC staff, providers, and electronically. individuals and families served. The department To address these issues, DDS is developing stated that feedback collected from RC staff and an IT project for a modern system that integrates providers stressed the importance of streamlined accounting, reimbursement, and case management processes, while feedback from individuals and functions. The department envisions that the families emphasized transparency and improved project, called LOIS (Life Outcomes Improvement communication with RC staff. In fall 2025, the System), will create consistency across RCs department consolidated this feedback into a set and allow consumers to view their own records of seven themes that will guide the LOIS project electronically. DDS has completed the first two moving forward. The themes include: stages of the California Department of Technology’s • Improving communication and collaboration. (CDT’s) Project Approval Lifecycle (PAL) process, • Supporting transparency and accountability. the state’s IT project approval process. We provide more detail on the history of the project, including • Centralizing information and education. www.lao.ca.gov 3 analysis full 2026-27 BUDGET • Enhancing authorization and payment approved Planning Advanced Planning Document, processes. this funding would similarly be limited term. • Supporting person-centered planning and The department also proposed budget-related outcomes. legislation that would direct RCs to begin initial • Improving system accountability and usability. preparations for the transition to LOIS starting in 2026-27. Specifically, the proposed legislation • Advancing consistency across RCs. instructs RCs to prioritize data cleanup and limits Project Received Limited-Term Enhanced RCs’ ability to adopt new IT systems or applications Federal Funding. In addition to $5.1 million going forward (other than LOIS). The department General Fund allocated for IT project planning stated that, although more time is still needed in 2025-26, DDS also received enhanced for planning and that a fully operational LOIS IT funding from the federal government through the system is still a few years out, it intends to begin Advanced Planning Document (APD) process. DDS early preparations with RCs to make the eventual collaborated with the Department of Health Care transition process smoother. Services (DHCS) to submit the required application Reasonable to Continue Planning for LOIS, materials to the federal government. The APD but Legislative Oversight Warranted. Given that process allows the state to request a 90 percent the department has made progress in planning match in federal funding (rather than California’s LOIS, it is generally reasonable to continue the PAL standard 50 percent match) to design, develop, process, particularly in light of the administration’s and install IT systems that enable the state to more success in securing enhanced federal funding. The efficiently administer Medicaid benefits. DDS is continuation of the planning process for LOIS with eligible to receive this support because much of the completion of the RFI and RFP processes will the project involves Medicaid-funded services. ultimately result in a cost estimate for the finalized IT This current round of enhanced federal funding is project. (In an earlier and now outdated version of a available to the department from June 2025 through planning document, DDS estimated that the project September 2026. would cost about $135 million to $180 million Administration Requests One-Time Funding in total funds, excluding future maintenance to Continue Planning for LOIS in 2026-27. The and operations costs.) The completed planning Governor’s budget proposes $5.7 million one-time documents, including the cost estimate and General Fund to continue the PAL process for projected time line to finish the project, will provide LOIS. At the time of this report, DDS was working the Legislature with the information necessary to to complete Stage 2 of the PAL process, or evaluate the merits of the proposed project. Given the Alternatives Analysis. Stage 2 requires the the fiscal constraints facing the state, legislative department to conduct market research on which oversight of the LOIS project’s costs and progress IT solution could meet the project’s desired will be particularly important. The Legislature could outcomes, as well as develop a financial analysis ask the department if, after the planning stage is for the recommended solution. The department complete, it intends to request enhanced federal released a Request for Information (RFI) in funding for project maintenance and operations. November 2025 with the goal of understanding industry best practices and vendor capacity for PROPOSED FUNDING TO implementation. Responses to the RFI closed on IMPLEMENT RECENT FEDERAL January 23, 2026. The department stated that it RULE aims to release a Request for Proposals (RFP) in 2026-27 based upon the findings from the RFI. The Governor’s budget proposes $2.1 million Additionally, DDS stated that it is working with General Fund ongoing to implement the federal DHCS to submit a renewed Planning Advanced Home- and Community-Based Services Access Planning Document to continue enhanced federal Rule, which was finalized in 2024. The requested funding beyond September 2026. Like the currently funding will support nine permanent positions at 4 LEGISLATIVE ANALYST’S OFFICE analysis full 2026-27 BUDGET DDS in 2026-27 and ongoing. These positions paid to direct care workers, among other items. had been approved for the same purpose on According to the Centers for Medicare & Medicaid a limited-term basis in 2025-26. The final rule Services (CMS), the final rule is intended to increase imposes a series of new requirements on states transparency and accountability, standardize data with staggered deadlines over the next several and monitoring, and create opportunities for states years. These requirements include establishing to promote active beneficiary engagement. Given grievance systems for home- and community-based that CMS requires states to comply with the final services, reporting on service delivery timeliness, rule, we consider this spending proposal to be and establishing an advisory group on rates nondiscretionary. OVERSIGHT ISSUES In recent years, the DDS system has undergone Participation for Consumers Served by the some significant changes as well as new initiatives Department of Developmental Services, provides that warrant continued legislative oversight. In more background on how Medicaid works in the addition, the DDS system faces a changing fiscal DDS system. and policy landscape, including the implementation Medi-Cal Provides Health Care Coverage for of H.R. 1 provisions affecting federal Medicaid Many DDS Consumers. Medi-Cal is an important eligibility and funding that warrants oversight. Given source of health care coverage for many DDS projected structural deficits, the Legislature will consumers, particularly those who lack commercial likely need to consider potential options for ongoing health insurance. For DDS consumers enrolled in savings across the state budget. Understanding the Medi-Cal, Medi-Cal acts as the primary payer for cost drivers of DDS’ spending growth can help the their health care services. Under current law, the Legislature better understand the fiscal dynamics RC would generally become the payer of last resort of the program should solutions be needed. We for certain health care services if a consumer could discuss these oversight issues in the sections that demonstrate that no other source of coverage was follow. available. H.R. 1 Makes Changes to Medicaid H.R. 1 IMPLEMENTATION Eligibility, but an Exemption Can Apply to Background DDS Consumers. H.R. 1 imposes new eligibility requirements on nondisabled childless adults DDS Can Access Federal Funding Through who qualify for Medi-Cal via their income (that is, Medi-Cal. DDS can draw down federal Medicaid excluding individuals who qualify automatically funding to support home- and community-based because they receive SSI/SSP). Specifically, H.R. 1 services provided to consumers enrolled in requires these adults to (1) verify that they have Medi-Cal. This federal HCBS funding has completed at least 80 hours per month of work, historically supported about 35 percent to education, or community service, and (2) verify 45 percent of total costs in DDS. Of the DDS eligibility every six months, rather than every consumers enrolled in Medi-Cal, the majority 12 months. Notably, H.R. 1 exempts certain groups (about 60 percent based on the most recent from these new eligibility requirements, including available data) qualify automatically because they individuals with an intellectual or developmental receive Supplemental Security Income/State disability that significantly impairs their ability to Supplementary Payment (SSI/SSP). A smaller perform one or more activities of daily living, as well share of consumers enrolled in Medi-Cal qualify as family caregivers of disabled individuals. This through the income-eligibility pathway, including means that, as a matter of law, all DDS consumers children whose families are income-eligible. The enrolled in Medi-Cal via the income eligibility LAO’s 2021 report, Enhancing Federal Financial www.lao.ca.gov 5 analysis full 2026-27 BUDGET pathway should be exempt from the new H.R. 1 state. This is because any loss in Medi-Cal eligibility requirements. The department stated that about will reduce the amount of federal reimbursements 15,000 adult consumers are enrolled in Medi-Cal that DDS can claim for RC-coordinated services. via the income eligibility pathway. Additionally, loss of Medi-Cal coverage could require RCs to pay for health care services for Successful Exemption of DDS Consumers consumers at full cost to the state if no other Depends on Administration’s H.R. 1 source of care is available. Continuing legislative Implementation Plan. While the language of H.R. 1 oversight will help ensure that exemptions for indicates that states should exempt individuals DDS consumers are implemented as intended. with an intellectual or developmental disability Questions to ask the administration at budget and their family caregivers from new Medicaid hearings could include the following: eligibility requirements, the degree to which these exemptions are successfully implemented • Is there a role for RCs to educate individuals in California will depend on the administration’s and families served on the upcoming changes approach. The administration, led by DHCS, has from H.R 1.? If so, how would DDS oversee stated that it intends to maximize the use of existing this effort? data sources to confirm continuing eligibility of • How will DDS collaborate with DHCS in Medi-Cal enrollees without burdening enrollees the coming months to ensure its planned with paperwork. DDS indicated that it has already processes are successful in exempting all been working with DHCS to match information eligible DDS consumers from the H.R. 1 across each department’s records with the goal eligibility requirements? What is the role of the of automatically exempting all 15,000 adult DDS California Health and Human Services Agency consumers in the income eligibility pathway in this process? from the new requirements. This could be more • It is possible that the state’s new automated challenging for consumers’ family caregivers, as data matching processes could fail to RCs maintain information on family caregivers automatically exempt some DDS consumers for children, but less so for caregivers of adult from the H.R. 1 eligibility requirements. If this consumers. were to occur, what systems will be in place to RC Staff Can Assist Consumers With Their identify these cases and notify the appropriate Medi-Cal Enrollment. While county governments RC in a timely manner so that the RC can manage all Medi-Cal eligibility determinations, DDS correct the error? consumers can request assistance from their RC • The department stated that its budget in applying for and maintaining Medi-Cal coverage. projections for 2026-27 do not incorporate DDS indicated that it intends to collaborate with any potential added costs due to the changes RCs to monitor any potentially emerging workload in H.R 1. Will the department be able to needs resulting from H.R. 1-related requests for determine whether its costs increase in the assistance from consumers. future due to H.R. 1? If so, how? Assessment and Issues for Legislative UPDATE ON SERVICE PROVIDER Consideration RATE REFORM AND THE QUALITY Legislative Oversight Can Help Minimize INCENTIVE PROGRAM Potential Adverse Impacts of H.R. 1. The Legislature will likely want to engage in oversight to Background ensure that DDS consumers in practice are exempt from the new H.R. 1 requirements to the maximum Service Provider Rate Reform Intended to extent possible. Aside from potential disruptions Improve Access to Services. The state initiated to individual consumers in their access to health a rate study for DDS services in part because the care coverage, any errors in the exemption system historical rate structure did not result in funding could also have broader fiscal implications for the levels for service providers that kept pace with 6 LEGISLATIVE ANALYST’S OFFICE analysis full 2026-27 BUDGET system growth or supported an adequate supply 10 percent of the rate model beginning in July 2026 of providers. The funding to implement the rate (in addition, providers would still need to meet study’s recommended rate models was phased in quality benchmarks to earn the additional payment, beginning in 2021-22, ramping up to current levels as described next). Specifically, in order to be by 2024-25. The increased funding was intended eligible, providers must (1) comply with Electronic to support a sufficient supply of quality service Visit Verification, (2) comply with the federal HCBS providers by raising funding levels for providers Settings Rule, and (3) complete independent audits via increased rates. We provide more background or reviews if total payments from RCs are above on rate reform in our 2024 report, The 2024-25 a certain threshold. Providers must satisfy these Budget: Department of Developmental Services. requirements by February 27, 2026 to be eligible to receive a full fiscal year of quality payments for Rate Reform Also Focused on Quality of 2026-27. Stakeholders have recently expressed Services and Outcomes. State statute (Chapter 76 concerns about the challenges of meeting this of 2021 [AB 136, Committee on Budget]) deadline for independent audits and reviews, establishes legislative intent that rate reform particularly for providers at or near the payment implementation should help the developmental threshold. In response, the department released services system focus on outcomes. To achieve guidance on February 11, 2026 indicating that this, statute specifies that provider payments providers will have the opportunity to earn a should be linked to consumer outcomes. partial year of quality payments if they come into Specifically, statute provides that the fully funded compliance after the February 27 deadline. provider rate models are to be implemented using two payment components: a base rate equaling For the period spanning from July 1, 2026 90 percent of the rate model and a quality incentive through June 30, 2027, providers can earn the payment equaling up to 10 percent of the rate quality incentive portion of the rate models by model, the latter of which is to be implemented completing surveys about workforce capacity through the quality incentive program. Statute also and service delivery. (Providers must complete establishes that performance metrics should evolve the surveys in addition to satisfying the three from initially being more process-related (such as criteria listed in the previous paragraph. The providers completing certain tasks by set deadlines) deadline for providers to complete the surveys to eventually include outcome measures (such as was February 27, 2026.) To encourage survey whether individual consumers are able to achieve completion, the department offered trainings to their goals). The goals of individual consumers can providers on the data collection surveys and sent vary widely and span from short to long term. Such weekly e-mail reminders to remind providers to goals could include living in an apartment, getting submit their data before the deadline. and maintaining a job, and participating in music or Department Collecting Data to Inform art classes. Future Quality Metrics. The department stated Quality Incentive Payments in Place Since that the provider surveys will form a baseline 2025. The final phase of rate reform has been for the development of future quality measures. implemented since January 2025. Since this time, Specifically, the department is collecting data about rate models are fully funded, with the 90 percent providers’ workforce capacity (staffing, vacancies, (base rate) and 10 percent (quality incentive wages, and turnover), service delivery (where, how, payment) structure set out in statute. For the and in what languages services are provided), and period spanning from January 1, 2025 through data specific to providers of employment services June 30, 2026, providers could earn the quality and providers of residential services. By measuring incentive portion of rate models by enrolling in these existing practices, the department intends to DDS’s Provider Directory. have a better sense of average performance across providers. This will help the department determine As a budget solution, the 2025-26 Budget Act the levels of performance that would be reasonable added three criteria that providers must satisfy as a standard for future quality measures. The to be eligible to earn a quality payment equal to www.lao.ca.gov 7 analysis full 2026-27 BUDGET department indicated that early attention to these as an iterative process. Future iterations could process-oriented measures will help prepare for provide opportunities for legislative engagement eventually measuring individual outcomes. Per and oversight. statute, any metrics or benchmarks for individual Will Providers That Fail to Satisfy Future outcomes must be established with input from Quality Measures Receive Technical Assistance stakeholders through public meetings and 30-day to Improve Performance Going Forward? public comment periods. As part of this, the Providers have expressed concerns about department has convened a Quality Incentive whether the department or RCs will offer technical Program workgroup since 2021, which has helped assistance to providers that fail to meet quality to select previous quality metrics. measures in a given year. The department has stated that its goal is to have as many providers as Assessment and Issues for Legislative possible earn the quality payments, but it has not Consideration yet discussed how it might approach circumstances Will Department Need to Update Its in which providers do not achieve them. The Estimated Savings Compared to June 2025? In Legislature could ask the department at budget June 2025 at budget enactment, the department hearings to share its current thinking on whether it estimated that it would save $222 million in is contemplating providing technical assistance to ongoing General Fund savings by imposing the support providers, and if so, how such effort could three additional “pre-qualifiers” that providers be funded. must satisfy in order to be eligible to earn a quality incentive payment. The actual savings achieved COST DRIVERS IN DDS from this budget solution in 2025-26 will depend on Given Projected Structural Deficits, Better the number of providers who fail to comply with the Understanding of Spending Growth Drivers new requirements. Given the department’s recent Important. In light of projected structural budget decision to allow providers to earn a partial-year deficits, we recommend that the Legislature closely payment if they miss the initial deadline, it is examine General Fund spending across the budget, possible that savings will erode from the original including in DDS. We provide this information estimate. The Legislature could ask the department to help inform the Legislature’s deliberations at budget hearings to provide an updated savings and conversations about its budget priorities estimate for this budget solution. over the coming months and years. This section How Will the Quality Incentive Program identifies the major drivers of spending in DDS. Balance Meaningful Standards With Where relevant, this section notes where there are Achievability? The department indicated that potential levers available if the Legislature wishes to future quality metrics will be based upon a adjust spending. The Legislature could have greater benchmark of providers’ current performance. insight into these spending drivers, as well as As future quality metrics are established, the potential spending adjustments, if the department department will need to work with stakeholders were to provide richer data. to determine its definition of “quality” services Four Key Factors Drive Spending in DDS. and individual outcomes. In practice, quality can As discussed in the analysis that follows, the be challenging to measure given the expansive Lanterman Act, due to its foundational role, nature of an individual’s well-being and the many influences all cost drivers in the developmental outcomes involved. Future metrics should be services system. These cost drivers (similar to sufficiently robust to reinforce quality, but not other health and human services programs) so stringent that a large share of providers fail include caseload, available services, utilization of to meet the standards across multiple years and services, and the rates paid for services. Assuming potentially risk ongoing revenue losses due to that the Lanterman Act continues to serve as the reduced payments. The department has stated that foundational policy for the state’s developmental it intends to approach the quality incentive program 8 LEGISLATIVE ANALYST’S OFFICE analysis full 2026-27 BUDGET services system, the Legislature generally has The Lanterman Act Grants Access to Services relatively limited discretion to control spending According to Each Consumer’s Choices. The growth by adjusting caseload or utilization. The Lanterman Act guides the availability and delivery Legislature has previously suspended access to of services in DDS. The act states: “An array of certain services in times of budget challenges, services and supports should be established but this choice raised equity concerns among which is sufficiently complete to meet the needs stakeholders and was only temporary. While the and choices of each person with developmental Legislature does have some discretion over rates, disabilities, regardless of age or degree of any significant reductions in this area would likely disability, and at each stage of life and to support give rise to policy trade-offs, such as reducing their integration into the mainstream life of the consumers’ access to services for which they community.” In this way, the act allows for variety in are eligible. The following paragraphs describe the range of services available to DDS consumers. each of the main cost drivers in more detail after The act also states that these services should first discussing the role of the Lanterman Act in enable people with intellectual and developmental influencing these cost levers. disabilities to have the same patterns of living as people without these conditions, and that The Role of the Lanterman Act consumers should be empowered to participate in The Lanterman Act Is the Foundation of decisions about their services. California’s Developmental Services System. Data Limitations The Lanterman Act has served as the foundational policy of the DDS system and has long guided While the department provides some data legislative decision-making. The act outlines duties on spending drivers, publicly available data are for DDS and establishes that the state “accepts fairly limited. This means that the Legislature’s a responsibility for persons with developmental ability to understand spending drivers at a more disabilities and an obligation to them which it must nuanced level is limited. While the department discharge.” It also gives people with developmental publishes caseload and service expenditure disabilities the right to receive services and data on a regular basis, these data are generally supports to help achieve their goals. Our analysis presented on an aggregate basis. Importantly, the in this section assumes that the Lanterman Act department does not currently publish detailed remains in place as reflected in current law. data on the utilization of services. For example, the department’s budget documents note that The Lanterman Act’s Statutory Entitlement changes in service expenditures in the budget year Sets California Apart From Other States. As are due to changes in utilization, but do not provide mentioned earlier, the Lanterman Act amounts to information to understand the nature, extent, and a statutory entitlement to services and supports drivers of these changes in utilization. Accordingly, to individuals with a qualifying disability (broadly data are not readily available to be able to know defined). Unlike other states, California does how many consumers are using a particular service not impose a cap on the number of individuals and at what intensity the service is being used. that can be served through DDS and therefore The following analyses largely rely upon publicly does not maintain a waitlist for individuals to available data, with some additional data provided be evaluated and become eligible to receive by the department upon request. services. Additionally, California does not require that individuals need an institutional level of care Caseload to receive services, whereas some other states DDS Caseload Determined by Number maintain such a requirement. Further, unlike other of Individuals Identified as Eligible for the states, the Lanterman Act does not impose any Lanterman Act’s Entitlement. The Lanterman Act time limits on eligibility. requires DDS to serve all individuals determined eligible by an RC. The program has never required www.lao.ca.gov 9 analysis full 2026-27 BUDGET means testing, so income is not considered when of about 5 percent in total caseload from 2015 an individual applies for services. The department through 2025. This is faster than the population also does not limit eligibility based on immigration growth in the state over this period. Caseload status and does not collect information on increases are driven by the diagnosis of qualifying consumers’ immigration status. Compared to intellectual and developmental disabilities among other health and human services programs such California residents. The National Center for as Medi-Cal, there is little “churn” in the system, Health Statistics found that the prevalence of any or individuals cycling in and out over time. Most diagnosed developmental disability in children DDS consumers are served by the system for their aged 3-17 years in the United States increased by entire lifespan once they are deemed eligible. RCs about a full percentage point (from 7.40 percent to are responsible for providing assessments and 8.56 percent) between 2019 and 2021—a significant diagnoses to determine eligibility; this process can change in a short period of time. From 2015 to include a review of an applicant’s records as well as 2024, California’s population of minors whose tests performed by doctors and/or psychologists. families self-report a cognitive or self-care disability RCs can contact family members, doctors, schools, grew at an annual rate of about 4 percent. One key or other state agencies to request information caveat is that these estimates do not necessarily relevant to the eligibility determination (with the correspond to official diagnoses of any particular applicant’s consent). If an RC determines that an condition. applicant is not eligible for services, the applicant In recent years, the department has noted an can appeal the decision. increase in the share of consumers diagnosed Caseload Has Steadily Increased Over with autism, while diagnoses of intellectual Time, Driven Mainly by Diagnostic Changes disability have decreased. The share of consumers and Increased Outreach. As Figure 2 shows, diagnosed with autism increased from about DDS caseload has increased notably over the 30 percent in 2016-17 to about 40 percent in last ten years, with an average annual growth rate 2024-25. This trend is not unique to California. Research suggests this trend could partly Figure 2 reflect more awareness and outreach among DDS Caseload Has Increased Steadily previously underserved communities, as well 500,000 as evolving approaches to diagnosis and 450,000 evaluation. 400,000 Caseload increases 350,000 Early Start are also partially 300,000 driven by outreach and 250,000 education to those 200,000 potentially eligible. Early Start’s caseload of 150,000 Lanterman infants and toddlers has 100,000 also recently increased, 50,000 likely in part due to better identification of 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 eligible families. For Note: Values represent point in time caseload totals from January of each year, rather than annual averages. example, Medi-Cal has Early Start reflects birth through 35 months. Lanterman reflects ages three and older. Data do not include Provisional Eligibility. increased access to diagnostic screenings 10 LEGISLATIVE ANALYST’S OFFICE analysis full 2026-27 BUDGET over time. Additionally, DDS stated that it has in 2025-26) is spent on the purchase of services increased outreach efforts to identify babies and for consumers. DDS allocates funding to the RCs toddlers potentially eligible for Early Start services that determine which services each consumer will since the COVID-19 pandemic. The department receive and purchase these services on behalf of expanded these outreach efforts so that more consumers. The types of services that consumers children, as well as their families, could receive can receive through their RC include behavioral supportive services earlier in life. (A review of services, day programs, employment supports, academic literature on early intervention suggests medical care, residential services, respite (providing that these programs have a positive effect on breaks for family caregivers), social recreation, developmental progress for participating children.) support and training, and transportation. The DDS Early Start caseload experienced an average annual budget only accounts for services purchased by growth rate of about 6.5 percent from 2015 through RCs; it does not reflect services paid for by other 2025. sources (such as CalFresh, In-Home Supportive Finally, the adult caseload is also affected by the Services, or county services). As Figure 3 shows, trend that lifespans for people with intellectual and spending on services purchased for consumers developmental disabilities have generally increased has more than doubled across all service types. over time due to improved access to services and Importantly, the increased cost for services also supports. This means that more individuals are reflects a combination of the increases in caseload staying in the system for longer. and utilization over time. Caseload Is a Key Contributor to Individual Services Vary in Growth Rates and Spending Growth. Total caseload (of Early the Relative Share of Expenditures Over Time. Start and Lanterman caseload, excluding Across all services, the average annual growth rate presumptive eligibility) has increased from about in spending from 2021-22 to 2026-27 (proposed) 280,000 individuals served in 2015 to about is 19 percent. There is significant variability in the 460,000 individuals average annual growth rate by individual service served in 2025. This represents about a Figure 3 60 percent increase. Total Spending on DDS Services Has Grown, Once a person is deemed eligible to Though Spending Varies by Service Type receive services through (Total Funds in Billions) their RC, the Lanterman Act provides that they $20 Early Intervention are entitled to receive Other 18 Respite the services they need 16 Day Programs for their entire lifespan. Support and Training This arrangement 14 Residential means that, as caseload 12 increases, costs also 10 increase. 8 6 Services 4 DDS Budget 2 Largely Dedicated to Purchasing a Variety 2021-22 2022-23 2023-24 2024-25 2025-26 2026-27 of Services. Most of Note: Amounts for 2021-22 through 2023-24 are actuals. Amounts for 2024-25 and 2025-26 are estimates. The amount for 2026-27 the DDS budget (about is proposed. "Other" includes behavioral, employment, medical, social recreation, and transportation services. 90 percent of total funds DDS = Department of Developmental Services. www.lao.ca.gov 11 analysis full 2026-27 BUDGET (many individual services are captured in “Other” fewer group settings and because services are in the figure), ranging from a low of 3 percent more tailored to each consumer. Recent federal (employment services) to a high of 52 percent rules reinforce this growing emphasis on a more (social recreation). Residential, day programs, and personalized approach to services. Specifically, early intervention services have average annual these rules require that individuals receive services growth rates below or equal to 19 percent, while in the most integrated setting and emphasize a respite and support and training services have person-centered approach to service planning. average annual growth rates above 19 percent. Utilization Additionally, there has been some change in the relative contribution of each individual service RCs Develop Individual Program Plans to total services spending over the 2021-22 to (IPPs) to Determine Utilization of Services. The 2026-27 period. For example, the spending share of Lanterman Act tasks RCs with developing an IPP residential services has decreased from 46 percent for each consumer, a document that outlines the to 38 percent, while the spending share of support services that a consumer will receive and in what and training services has increased from 8 percent amount to meet their stated goals. It is intended to 15 percent. that the IPP reflect each individual’s needs and preferences. Service coordinators at RCs follow Costs Vary by Type of Service, With Delivery the RC’s purchase of service policies, which must Models Evolving Over Time to Emphasize be approved by DDS, to determine which services Individualized Supports. The Lanterman Act are appropriate to help a person meet their goals specifies that services overall should be provided in accordance with the Lanterman Act. In this in a cost-effective way. Certain services cost way, RCs act as utilization managers through the more per unit than others depending on the application of purchase-of-service policies. After comprehensiveness of the service and the way it the initial IPP meeting, RCs are required to meet is delivered. For example, some services must be with each consumer to review their IPP at least provided by licensed professionals and therefore once per year. RCs must obtain a consumer’s have higher rates. Residential services, which agreement to the IPP. If a consumer disagrees with include independent and supported living services their RC’s decision to change, reduce, or stop a either in a consumer’s home or in licensed facilities service in the IPP, the consumer can appeal the that provide 24-hour nonmedical residential care, decision. typically have a relatively higher cost per person due to the comprehensiveness of the service Individual Utilization Varies Widely According provided (including personal services, supervision, to Consumers’ Needs. As data are not readily and/or assistance essential for self-protection available on the number of consumers that utilize or completing the activities of daily living). Some each of the wide variety of services available licensed facilities are tiered based on the level of through the RC system, it is not possible to assess services offered, with higher tiers typically coming trends in the utilization of given services over time. at a higher cost because the services require more While data showing the number of consumers staff hours per week. This arrangement ensures using a particular service would allow for better that consumers with relatively higher support needs analysis of trends, even richer data for analysis can receive professionally supervised services in an would include the intensity of service utilization appropriate setting. at the individual consumer level. This is because Additionally, certain services can be provided individual utilization within each service category in a group setting at a lower cost per person, can vary widely based on each consumer’s needs whereas other services are provided individually at as identified in the IPP. For example, one consumer a higher cost per person. Over time, best practices might receive five hours of respite in a given month, in developmental services have evolved to place a while another consumer might receive 20 hours greater emphasis on individualized services. This of respite in the same month. Accordingly, using can result in higher costs, both because there are available data to calculate an average cost per 12 LEGISLATIVE ANALYST’S OFFICE analysis full 2026-27 BUDGET consumer ($21,000 General Fund in 2025-26, utilization. In 2016, the Legislature appropriated for example) or a growth rate in the average cost ongoing funding for the Disparity Funds Program, per consumer (8.6 percent between 2021-22 and which awards grants to RCs and community-based 2026-27, for example) masks a wide range of organizations for strategies to reduce disparities in variation in expenditures per consumer across the service authorizations, utilization, and spending. entire population served. Since 2021-22, the Legislature has also authorized In addition to variation across consumers, funding for programs intended to strengthen utilization can also vary throughout an individual and stabilize the provider workforce in order to consumer’s lifetime. For example, between the establish a more reliable provider network and ages of three and 22, consumers receive services improve access to services. In 2023, the Legislature primarily through their local school district rather codified several efforts to make processes across than their RC. During this time, utilization of RCs more consistent in order to improve access to services purchased by the RC is low. After age 22, services statewide (Chapter 192 of 2023 [SB 138, utilization of RC-purchased services will increase Committee on Budget and Fiscal Review]). for most consumers. Any analysis of utilization These efforts include establishing common data would also require information on consumers’ definitions to promote service access and equity ages to account for these differences. As another in all RC services, creating a standardized IPP example, a consumer’s utilization of services would template, establishing standardized procedures likely change if their goals change (such as deciding for providers to contract with RCs, and developing to move out of the family home and into a separate recommendations to address inconsistencies in the residence, or deciding to request employment availability of services or supports across the state. supports to obtain a job). The annual IPP meetings Rates are intended to capture such changes and adjust services accordingly. State Recently Overhauled Service Provider Rates, With Goal of Improving Consumer Service Utilization Also Impacted by Outcomes. As discussed earlier, the state began Availability of Providers. Under the Lanterman implementing rate reform in 2021-22, with the goal Act, RCs are responsible for connecting consumers of supporting a sufficient supply of quality service to provider organizations that can provide the providers and improving consumer outcomes. services agreed upon in the IPP. In some cases, Now that rate reform is fully implemented, the even if the RC authorizes a service, a provider might administration estimates that the annual cost is not be immediately available to fulfill the need. This about $3.5 billion total funds ($2.1 billion General could be for several reasons (for example, local Fund). providers are already at capacity with existing clients, or there are no local providers that speak State Minimum Wage Also Increases Rates. the consumer’s language). In such cases, the In addition to rate increases implemented under consumer would likely need to wait until a provider service provider rate reform, the statewide minimum is available before they can receive the authorized wage also increases DDS rates. Rate models service. Actual utilization can therefore be lower for DDS services are automatically increased than authorized utilization. RCs publish annual whenever the state minimum wage increases. reports on the share of authorized services that Chapter 4 of 2016 (SB 3, Leno) has gradually were actually utilized, but the reporting is not increased California’s statewide minimum wage consolidated across RCs statewide. Additionally, from $8 per hour to $16 per hour. Under SB 3, the the annual reports do not break out total statewide minimum wage will continue to increase authorization or utilization by service type. by up to 3.5 percent each year, depending on inflation. In recent years, the cumulative cost of Legislature Has Recently Focused on annual minimum wage increases under SB 3 have Increasing Access to Services. Over the past represented about 5 percent to 10 percent of several years, the Legislature has taken actions General Fund spending on services purchased for intended to mitigate barriers to service access and DDS consumers. www.lao.ca.gov 13 analysis full 2026-27 BUDGET Legislature Has Some Discretion Over Rates, trends in the program. In addition, the Legislature But Faces Trade-Offs With Service Access is hampered in its ability to fully assess the Impacts. Given that the rate increases adopted programmatic impacts and trade-offs of proposed under rate reform are intended to increase access spending adjustments (both spending proposals to services, the Legislature would likely want to and budget solutions). Lacking robust data on consider whether any potential reductions to rates DDS program dynamics, the state in previous could reduce access. Additionally, because many periods of budget challenges often enacted budget DDS services receive federal Medicaid matching solutions that were blunt and not targeted well to funds for eligible consumers, these services are minimize adverse programmatic impacts. Such subject to Medicaid rules. A recent federal rule solutions included across-the-board provider rate in Medicaid now requires states to demonstrate reductions and the full suspension of a particular that any proposed changes to provider rates service. Going forward, richer data could help will not negatively impact individuals’ access the Legislature take a more targeted approach to to Medicaid-funded services. If the Legislature minimize programmatic harm, retain services to wanted to consider savings in DDS rates, it could the extent possible to consumers with the highest request collaboration with the department (and the needs, and reduce the potential for increasing department’s third-party consultant that developed disparities among consumers. the current rate models) to carefully consider Legislature Could Work With Administration whether there are any rates that could be adjusted on Revised Data Reporting. The Legislature without significantly reducing access to services. could consider collaborating with the department to determine the nature and content of a more Issues for Legislative Consideration robust public data reporting requirement placed Legislature Requires Richer Data to Consider on the department. This reporting requirement Cost Drivers and Spending Adjustments. should consider the feasibility of data collection and Moving forward, the Legislature may wish to better the usefulness of the data for legislative analysis. understand program dynamics in DDS, both in Data should help the Legislature be more informed terms of fiscal considerations as well as service when working with the administration on spending levels provided to consumers. The data that are adjustments going forward. It is also important to currently publicly available provide some insight note that the recently created Provider Directory, as into these questions, but do not provide a holistic well as the proposed LOIS project, could facilitate picture of the DDS system. Without ready access to this type of reporting. The Legislature could ask the richer service utilization data detailing consumers’ department about how its planning for the Provider service level and cost, the Legislature can only Directory and LOIS could accommodate statewide draw narrow or incomplete conclusions about data collection and reporting. 14 LEGISLATIVE ANALYST’S OFFICE analysis full 2026-27 BUDGET www.lao.ca.gov 15 analysis full 2026-27 BUDGET 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. 16 LEGISLATIVE ANALYST’S OFFICE