Watchdog raises red flags on bid to restructure California’s behavioral health funding | Courthouse News Service
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Watchdog raises red flags on bid to restructure California’s behavioral health funding

Under Newsom's plan, significant changes could tighten how counties spend funds for local behavioral health service programs.

SACRAMENTO, Calif. (CN) — While some lawmakers endorse Governor Gavin Newsom’s plan to reform California’s behavioral health programs, analysts are calling it a “missed opportunity” to address ongoing problems.

Newsom’s proposal to transform the Mental Health Services Act and bring 10,000 new behavioral health beds across the state could land on the March 2024 ballot if the Legislature signs off on Assembly Bill 531. The proposed $4.68 billion bond next goes to the state Senate Governance and Finance Committee after passing the Housing Committee with a 9-1 vote.

“We are facing a homelessness and behavioral health crisis in this state,” Newsom said. “We desperately need new beds to take care of those who need help, and to update and reform our existing laws to spend existing money efficiently and more effectively."

The bill alongside Senate Bill 326 forms a legislative package promising to transform mental health and substance use disorder services and build out capacity to increase behavioral health care and housing.

However, the nonpartisan Legislative Analyst’s Office raised some criticisms of the package in several posts released Thursday.

In November 2004, California voters approved the act as Proposition 63. It made substantial funding available to counties for community mental health services, dedicating some to prevention and early intervention activities and programs.

About 76% of funds must be used on community services and support for adults with serious mental illness and youth with serious emotional issues. Counties can dedicate up to about 20% of the funding they receive in this category to support their local mental health system. They must prepare and submit three-year plans, updated annually, to the Mental Health Services Oversight and Accountability Commission detailing how allocated unused funds and revenues will be spent.

In its first post, the office said the governor’s proposal is “a missed opportunity” to address core problems.

The analyst said the allowable reserves under Newsom’s proposal would be inadequate during an economic recession. Proposition 63 is funded by taxpayers making over $1 million, who derive a greater share of their income from relatively volatile sources including capital gains which depend heavily on movements in financial markets and are often sharply reduced by recession.

In 2018, the Legislature set caps on reserves after a state audit found that the state should have redistributed $231 million. But Newsom proposes lowering the caps from 33% to 25% for small counties and 20% for large counties starting Jan. 1, 2025.

He also proposes requiring counties to recalculate reserves every three years, rather than five.

The analyst said that during a recession, revenue should be expected to decline sharply, and the state should consider allowing county reserves to cover a 20% to 30% revenue decline.

“Under this target, counties would be confident that reserves could be sufficient to avoid major programmatic disruptions during good economic times,” the report said.

The Legislature can consider how to address revenue volatility — such as changing the tax base or transfering the tax collected to the General Fund while shifting some of the General Fund tax base to the act. Lawmakers could also give counties more flexibility in accessing reserves, making deposits or setting aside dollars to offset declines.

In a second post, the office said Newsom’s proposal would drastically alter the role of the commission overseeing spending and usage by changing how counties allocate funds. It said Newsom’s administration did not say whether the proposal will improve coordination by shifting oversight or what, if any, behavioral health outcomes would be improved.

Finally, the legislative analyst reported that restructuring funding categories will require counties to spend 35% of funds on facilitating organization partnerships, such as to treat substance abuse disorder, and 30% on housing intervention programs or infrastructure funding to create new housing.

But doing so lowers counties’ flexibility to address unique local problems, the analyst says. Counties would need to increase spending by a collective $121 million and $493 million, respectively, to reach the proposed funding targets.

However, the office acknowledged that Newsom’s administration reported a 68% decline in homelessness among people who receive partnership or treatment services, and that safe and affordable housing can successfully treat serious mental illness and substance use disorder.

Newsom spokesperson Brandon Richards said the overhaul is overdue.

"The MHSA’s status quo is not acceptable as society-wide responses have caused the gaps in care to change," Richards said in an email, noting the act has been in force for nearly 20 years. “Californians’ most urgent needs have changed too. Long-standing challenges with substance use, community mental health capacity, and homelessness have only gotten worse in the decades since."

The proposal has garnered praise from lawmakers across the state. Proposition 63’s author, Sacramento Mayor Darrell Steinberg, said he supports how the governor wants to modernize the act. San Diego Mayor Todd Gloria said he supports reforms to add thousands of treatment beds.

“Governor Newsom’s proposals would infuse long overdue capital and operating dollars into California’s inadequate continuum of behavioral health care,” San Francisco County Supervisor Rafael Mandelman said. “These investments begin to make good on the decades-deferred promise of community mental health care for the state’s most vulnerable residents.”

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