1. C OMMUNITY M ENTAL H EALTH F UNDING AND THE P ROPOSED FY11/12 S TATE B UDGET California Mental Health Planning Council April 28, 2011 Mike Geiss Don Kingdon, Ph.D.

2. Community Mental Health Funding 1

3. FY10/11 Estimated Community Mental Health Funding (Dollars in Millions) 2

4. 1991 Realignment Overview 3  “Realignment” refers to the realigning of the funding and responsibility for mental health services, social services and public health services  It represented a major shift of authority from state to counties for mental health programs  Three revenue sources fund Realignment  ½ Cent of State Sales Tax  State Vehicle License Fees  State Vehicle License Fee Collections

5. 1991 Realignment Distributions 4  Realignment revenues are distributed to counties on a monthly basis as funds are collected until each county receives funds equal to previous year’s total  Separate distributions for Sales Tax, VLF and VLF Collections  Revenues above that amount are placed into growth accounts  Sales Tax  VLF

6. 1991 Realignment Distributions 5  Growth distributed according to formula  Different growth distribution formulas for Sales Tax and VLF  Increases in social services caseload costs is first priority for Sales Tax growth  Growth in VLF goes to mental health, social services and public health  Growth distributed in the year after it is collected  Increases the base for that year

7. 1991 Realignment Formula – Insufficient Growth for MH 6  Mental health has received no Sales Tax growth since FY05/06  In FY07-08, FY08-09 and FY09-10 mental health did not even make the prior year’s base  FY09/10 mental health Sales Tax revenues were marginally higher than the original baseline amounts from FY91/92, with no anticipated increases in the foreseeable future  VLF revenues are approximately the same as FY03/04 amounts

8. Realignment Growth for MH: Fiscal Year 2000/01 to 2009/10 7 Realignment Funding for Mental Health

9. Mental Health Services Act (MHSA) Overview 8  The MHSA created a 1% tax on income in excess of $1 million to expand mental health services  Approximately 1/10 of one percent of tax payers are impacted by tax  Approximately 20,000 – 30,000 tax returns

10. MHSA Revenue Sources 9  Two primary sources of deposits into State MHS Fund  1.76% of all monthly personal income tax (PIT) payments (Cash Transfers) Not just millionaires  Annual Adjustment based on actual tax returns Settlement between monthly PIT payments and actual tax returns Based on actual tax returns from two years prior  Other sources of deposits  Interest income (posted quarterly)  Excess State Administration (unauthorized and unexpended)  Reverted funds

11. Historical and Estimated Statewide MHSA Revenues (Cash Basis-Millions of Dollars) a/ 10

12. MHSA Component Funding 11  In accordance with Welfare & Institutions Code Section 5892, deposits into the State Mental Health Services Fund are dedicated to specific components  Prior to making the distribution to components, up to 5% is made available for State Administration  Note: AB100 reduced the amount from 5% to 3.5%  Balance of funds distributed to each component based on the fiscal year in which the deposits are posted on a cash basis

13. MHSA Component Allocations 12  Funds have been made available to each County through Component Allocations  Formerly referred to as “Planning Estimates”  Component Allocations represented the maximum funding for each County  Established by component, published by State DMH  Counties have specified period to spend funds or they revert to State MHS Fund  CSS, PEI and Innovation have 3 year reversion period  WET and Cap/Tech have 10 year reversion period

14. MHSA Component Allocations 13  Prior to AB100, Component Allocations were generally based on estimated revenues to be in State MHS Fund prior to the start of fiscal year  Distributions were on a cash basis (i.e., sufficient revenues are in the State MHS Fund at the start of the fiscal year for distributions for the entire fiscal year)

15. Historical MHSA Component Allocations (Millions of Dollars) 14

16. Medicaid Overview 15  Title XIX of the Social Security Act authorizes the Federal Government to reimburse states for the costs necessary to administer their Medicaid programs  The Act provides for payments to states on the basis of the Federal medical assistance percentage (FMAP) for part of their expenditures for services provided under an approved State Plan  The Act requires states to share in the costs of Medicaid expenditures and permits state and local governments to participate in financing the non-federal share of the Medicaid expenditures  Local governments must certify that the expenditures are eligible for FFP  Local governments cannot certify an amount in excess of their actual expenditures

17. Medi-Cal Specialty Mental Health Consolidation 16  From 1995 through 1998, the state consolidated Fee for Service and Short-Doyle programs into one “carved out” specialty mental health managed care program  Counties are given the “first right of refusal” for taking on this new responsibility of managing specialty mental health care  Referred to as County Mental Health Plans (MHPs)  Approved by the federal government under a Section 1915(b) Waiver  Under this system, all Medi-Cal beneficiaries must receive their specialty mental health services through the county MHP

18. Medi-Cal Specialty Mental Health Consolidation 17  Upon consolidation, the state DHCS transferred the funds it had been spending under the FFS system for inpatient psychiatric and outpatient physician and psychologist services to county MHPs  It was assumed (by counties) that MHPs would receive additional funds yearly beyond the base allocation for increases in Medi-Cal beneficiary caseloads, and for COLAs

19. Medi-Cal Specialty Mental Health Consolidation 18  Any costs beyond that allocation were to come from county Realignment revenues  In other words, the risk for this entitlement program shifted from the state to the counties

20. Medi-Cal Specialty Mental Health Consolidation 19  Since Medi-Cal Consolidation, administrative requirements by DMH have grown dramatically  Counties have not received COLAs for the Medi-Cal program since 2000  Cumulatively, since FY00/01, counties have lost an estimated $225 million in buying power due to the lack of a COLA (assuming a 5% annual COLA)  Even more importantly, Counties have lost in real dollars over $100 million SGF in the Medi-Cal allocation  Reduced by DMH in FY09/10 for “non-required” services

21. Medi-Cal EPSDT 20  Early and Periodic Screening, Diagnosis and Treatment (EPSDT) represents an expansion of services resulting from a class action lawsuit  Settlement resulted in increased state funding for Medi-Cal specialty mental health services for full scope Medi-Cal beneficiaries under age 21

22. Medi-Cal EPSDT 21  County MHPs were originally reimbursed the entire non-federal expenditure for all EPSDT eligible services in excess of expenditures made in the baseline year (FY94/95) adjusted for inflation  In FY01/02, county MHPs became responsible to fund 10% of the growth in the state/local match above FY01/02 cost settled amounts of state/local match

23. Medi-Cal Reimbursement 22  County MHPs are reimbursed a percentage of their actual expenditures based on the FMAP  County MHPs are reimbursed an interim amount throughout the fiscal year based on approved Medi- Cal services and interim billing rates  County MHPs and DMH reconcile the interim amounts to actual expenditures through the year end cost report settlement process Limited to no more than actual costs, published charges, or Statewide Maximum Allowances (SMAs) set by the State  DMH audits the cost reports to determine final Medi- Cal entitlement

24. State General Fund 23  Other SGF has been appropriated over the years for various programs  Children’s System of Care  AB2034 Integrated Services to the Homeless  Community Treatment Facilities  AB3632 Mental Health Services to Special Education Pupils

25. Other Funds 24  Counties are required to provide a county maintenance of effort in order to receive Realignment funds  Some counties contribute additional county funds (overmatch) based on the availability of local revenues and local priorities  Patient Fees  Counties are required to charge fees to non-Medi-Cal clients based on their ability to pay  Other Third Party Revenue  Insurance, Medicare  Grant Funds  SAMHSA, PATH, other

26. What’s Happening to MH Funding?  Realignment revenues have declined  MHSA revenues continue to decline  Enhanced Medi-Cal sharing ratio eliminated in FY11/12  Local property taxes in decline  State General Fund facing huge structural deficit 25

27. Assembly Bill 100 26

28. AB 100 is Signed and Effective Now 27 AB 100 is the Legislation that amended the MHSA statute to implement the MHSA redirection and made some significant MHSA administrative changes

29. AB 100 28  Goals of Legislative Language to Implement MHSA Redirection and State Administrative Changes  Changes to the state role are “surgical” or very “minimal” in order to implement budget conference committee compromise  Support MHSA cash flow to counties tied to accountability through the contractual relationship counties have with DMH  AB100 is an urgency statute and became law immediately upon signature of the Governor

30. Key Changes – Administrative 29  Eliminates State DMH and the MHSOAC from reviewing and approving county plans and expenditures  Replaces the “Department of Mental Health” with the “State” in the distribution of funds from the MHS Fund  Changes the amount available from revenues deposited in the MHS fund for state administration from up to 5% to 3.5%  Plans will not longer be evaluated by DMH regarding capacity to meet unmet needs with expenditures

31. Key Changes – Administrative 30  Replaces DMH with the MHSOAC (or Commission) as having a possible role of providing TA to county mental health plans for improvement of their “plans”  Replaces DMH with the State in developing regulations necessary for the State Department of Mental Health, the MHSOAC, or designated state and local agencies to implement the Act.  Counties are still to prepare and “submit” a 3-year plan

32. Key Changes – Fiscal 31  Suspended the non-supplant requirement for FY11/12 due to the State’s fiscal crisis, allowing the MHS fund, rather than State General Fund, to pay for non-MHSA funded programs  Medi-Cal Specialty Mental Health Managed Care  EPSDT  Education-Related Mental Health Services  Changed the way in which revenues are made available  Funds are distributed as deposits are made into the MHS Fund  Two years of funding available in FY11/12

33. AB 100 Fiscal Impacts 32

34. MHSA Revenues 33

35. Estimated FY 11/12 MHSA Funding 34

36. Estimated FY 11/12 MHSA Funding 35  Starting point is data used to establish FY11/12 component allocations  FY10/11 May Budget Revision  Estimated increase in deposits represents actual FY09/10 and estimated FY10/11 deposits  Estimated excess administration represents estimated FY09/10 and FY10/11 based on actual and estimated revenues compared to appropriations  Does not include appropriated but unspent funds  Includes reverted funds as published by DMH on 3/23/11  FY11/12 administration assumed to be 3.5%  Actual appropriation may be less

37. Estimated FY 11/12 MHSA Funding 36  $1,004.1 million estimated to be in State MHS Fund on 6/30/11  $282.2 million distributed for Managed Care and Special Education Pupils on 7/1/11  $64.5 million most likely withheld from July and August 2011 deposits  $488.0 million available for distribution for MHSA on 8/1/11  Amounts identified in three-year plan or update  $579.0 million distributed quarterly for EPSDT  Probably fully funded by end of February 2012  Monthly MHSA payments beginning no later than 4/1/12

38. Estimated FY 11/12 MHSA Funding 37  Analysis does not include PEI funds set aside for statewide programs not published in component allocations  Analysis does not include WET funds not published in component allocations  Analysis does not include additional funds that revert  Not expended based on MHSA Revenue and Expenditure Report  Not released within three year period FY08/09 PEI

39. MHSA Component Funding 38

40. MHSA Component Funding 39

41. MHSA Fiscal Planning 40  Approximately $100 million (10%) estimated shortfall in FY11/12 component funding based on FY11/12 Governor’s Proposed Budget  However, January, February and March revenues were approximately 20% higher than estimated  Amount of component funding is not guaranteed  Estimated funding needs to be tracked  More risk to counties  Similar to existing realignment funding  Use tools provided in MHSA to manage funding  Local prudent reserve  Three year reversion period for unspent funds

42. THE PROGRAMS AND CONSTITUTIONAL AMENDMENT LANGUAGE Governor’s Realignment Proposal 41

43. Governor’s Realignment Proposal (Reflects February 25, 2011 Revisions)  CALFIRE  Court security provided by county sheriffs  Training funds for local custody and law enforcement  Variety of public safety state mandated activities  Adult Protective Services  Adult parole  Lower-level offenders, parole violators  Juvenile justice programs  Mental health services  Substance abuse treatment  Foster care and child welfare services  Total FY 2011-12: $5.9 B  Total FY 2014-15: $7.2 B 42

44. Governor’s Proposed Ballot Language (Constitutional Amendment)  Revenues for years 1-5 guaranteed.  Year 6+ funded with state General Fund.  Intent to provide counties with maximum flexibility in running programs.  County role in decision making with federal govt.  Realigned programs are not mandates (no SB 90 process).  New programs/higher levels of service imposed by the following are operative only to the extent the state provides funding:  State laws, state regulations, executive orders, directives  State plans negotiated with federal govt.  State settlements of federal litigation. 43

45. Governor’s Proposed Ballot Language (Constitutional Amendment)  For realigned programs, costs for subsequent changes in federal law that alter the conditions under which federal matching funds are obtained will be shared 50/50 between the state and counties.  For federal judicial or administrative proceedings, or a settlement or judicial or administrative order that imposes a cost of monetary penalty, costs will be shared 50/50 between the state and counties (unless the result is a consequence of county error). 44

46. Governor’s Proposed Ballot Language (Constitutional Amendment)  No funding protection for:  State judicial decisions  Voter initiatives  State legislative designation of new crimes  No provisions to require separate funding sub- accounts or firewalls among each realigned program (at either the state or local level). 45

47. CSAC’s 2011 Realignment Considerations  Board of Supervisors must retain expenditure and program authority.  Local taxing authority not an appropriate means for providing resources.  Counties need broad flexibility to manage realigned programs.  Counties support a new role for state agencies.  Counties must maintain independent authority to hire employees of their preference.  Concerned the Administration’s revenue projections are optimistic.  Base shortfalls in 2011 package totaling $779 M. 46

48. Other CSAC 2011 Realignment Considerations  Provide means to restore base funding to mental health and social services programs and base restoration to 1991 realigned programs.  Address long-standing mandate date (pre ‐ 2004 and Suspended Mandates)  Include in repayment amounts owed for AB 3632.  Counties do not want to re ‐ open the 1991 realignment.  Concerned about the Phase Two Realignment proposal. 47

49. PROGRAM-SPECIFIC OVERVIEW Governor’s Realignment Proposal 48

50. Low-Level Offenders, Parole Violators, and Adult Parole Realignment Proposal  Low-Level Offenders  Convicted of non-serious, non-violent, non-sex offenses.  No prior convictions of above offenses.  Permits contracting with the state for the full cost of housing offenders in a state facility.  All Parole Violators  Adult Parolees  Non-serious, non-violent, regardless of prior convictions.  Excludes 3rd strike, current convictions of serious or violent crime, or high risk sex offender parolees. 49

51. Juvenile Justice Realignment Proposal  All remaining wards housed in state juvenile facilities.  Allows counties to contract with state Division of Juvenile Justices to house offenders, but counties must contract with state for all of their violent youth or serve through a county program.  In future, state needs to reassess role in juvenile justice. 50

52. Mental Health Realignment Proposal  Permanently realign AB 3632, EPSDT, Medi-Cal Specialty Mental Health to counties.  Pay for the first year (FY 2011-12) by diverting $861 million from the MHSA to save state GF (AB100).  Pay for subsequent four years with new revenue source, per ballot initiative.  Include 1991 mental health realignment by swapping its original revenue source with the new revenue source, per ballot initiative. 51

53. Governor’s Mental Health Realignment Proposal PROGRAMEstimated Revenue Estimated Need (Difference) EPSDT$636.9 M$709.9 M($73 M) Medi-Cal Managed Care$190.7 M$255.3 M($64.6 M) Educationally Related Mental Health Services $150.9 M$200 M($50 M) 1991 Mental Health Realignment Services $1.077 B (starts FY 11/12) $1.077 B- TOTAL$2 B$2.1 B($187.6 M) Estimated Annual Revenues: FY 2012-13 to FY 2014-15 (Per Governor’s Feb. 25, 2011 proposal) NOTE: No firewalls, separate accounts, or allocation amounts for any of the realigned programs have been specified to date. 52

54. EPSDT: 2011 Realignment Issues  Federal entitlement  DMH’s EPSDT funding estimates include questionable offsets.  The state budget allocation for this program has been typically insufficient.  Proposed base is underfunded.  Significant litigation.  Base restoration.  GF backstop.  100% state share of cost for lawsuit settlement.  State share of growth costs from changes in law, court actions, penalties.  County role in state decision ‐ making, including negotiations with federal CMS. IssuesProtections/Mitigations 53

55. Specialty Mental Health Managed Care: 2011 Realignment Issues  Federal entitlement  Proposed base is underfunded.  Same as EPSDT.  Additional flexibility by eliminating state-only rules (CMHDA bill AB 1297).  Clarify responsibilities for health care ancillary services delivered to residents of IMDs. IssuesProtections/Mitigations 54

56. AB 3632: 2011 Realignment Issues  Federal entitlement, schools determine AB 3632 referrals.  Base underfunded (Administration anticipates that cost controls can be implemented to reduce costs).  Counties would lose access to the SB 90 mandate reimbursement.  Long history of underfunding and litigation. Counties owed approximately $400 million in past mandate claims.  Schools have no “skin in the game” financially.  The Administration anticipates that cost controls can be implemented to reduce costs.  Remove mandate from counties.  Re-name to “Educationally related mental health services”  Rewrite state statute and regs. to specify counties are responsible to the extent resources are available.  MOUs between county mental health departments and LEAs.  Preserve use of IDEA funds.  One-year transition period. IssuesProtections/Mitigations 55

57. 1991 Mental Health Realignment: 2011 Realignment Issues  Existing 1991 realignment funds will be funded with new revenue source. Freed up resources will be used to fund increased county sharing ratio for CalWORKs grants (from 2.5% to 40%).  How will moving community mental health programs out of the 1991 realignment funding source affect funding for these programs? Will the 1991 formulas apply to the 2011 fund sources?  Will the original ‘91 financial provisions remain in place to require these funds to be used for state hospital and community based involuntary treatment alternatives, including IMDs?  1991 Realignment fiscal year starts July 15 for VLF and August 15 for Sales Tax. How will differing fiscal years between 2011 and 1991 proposals affect the transaction? 56

58. Phase II Realignment: Implementation of National Health Reform in 2014 57  Current low-income individuals who are now served in county indigent health systems will become eligible for “reformed Medi-Cal” in 2014  The Governor states this shift requires examining the existing “Local Revenue Fund Indigent Health Care Account”

59. Realignment Policy/Fiscal Challenges 58  Will competition be created for the new revenues, creating compliance problems for the programs proposed to be realigned?  Will there be sufficient revenues to go along with the realigned service responsibilities?  Are there opportunities under a realigned community mental health system?

60. Next steps for CMHDA 59

61. Next Steps for CMHDA  Identify a process for developing principles for distribution of MHSA, EPSDT, Medi-Cal, and Educationally-Related Mental Health funds.  Continue to advocate for firewalls or other protections to ensure adequate funds for 2011 realigned mental health services.  Identify recommendations on the realignment implementation statute; identify state laws and regulations that should be changed or eliminated.  Discuss the practical implications of the MHSA redirection for FYs 2011-12 and 2012-13.  Continue efforts to gain state-level administrative efficiencies. 60