Mental Health Services Funding: Behind the Scenes

Proposition 1E is one of six ballot measures the legislature placed on the May 19, 2009, ballot to address California's fiscal crisis. It amends Prop. 63 to cut about $230 million a year for two years (25 to 35% of annual revenues) from the expansion of mental health services and diverts Prop. 63 revenues to the federally mandated Early Periodic Screening, Diagnosis, and Treatment (EPSDT) program. The EPSDT program provides Medi-Cal beneficiaries under age 21 with a variety of screening and diagnostic services – including mental health services. The California legislature is required by federal law to fund this program. If Prop. 1E is not approved by voters the legislature will have to appropriate General Fund revenues to support EPSDT.

In November 2004, voters approved Proposition 63, the Mental Health Services Act (MHSA) with 53% of the vote. Prop. 63 increased the income tax on those making more than $1 million per year and earmarked the revenues for an expansion of mental health services.

Mental health advocates sponsored Prop. 63 to address the growing problem of inadequate access to mental health services in California. Supporters argued that mental health services in California were consistently underfunded and this contributed to higher state and local costs to treat mental illness. They contended that increasing community mental health services would reduce the number of people accessing more costly emergency services for mental illness; reduce homelessness; and lower incarceration rates for the mentally ill. Their argument was buttressed by the findings of the National Alliance for the Mentally Ill (NAMI), which asserted 50,000 Californians were homeless because of mental illness -- a result of the “deinstitutionalization” efforts that occurred between 1957 and 1988.

The opponents of Prop. 63 questioned singling out millionaires to pay the additional 1% surcharge to cover the increase in mental health services instead of spreading the costs to everyone. They also argued it would create a funding system that would be subject to the ups and downs of fluctuating economies. Additionally, they questioned whether the 1% tax increase was the right amount needed to secure the mental health services system and whether the new revenues would be spent efficiently.

Today, California counties spend $5 billion annually to provide a range of psychiatric services, counseling, hospitalization, and other treatments to uninsured or underinsured mentally ill patients. These services are intended to reduce the potential for homelessness, criminal activity, and hospitalization by improving the physical and emotional health of the mentally ill, thereby improving the lives of patients and the welfare of their communities.

Prop. 63 annual revenues have fluctuated between $900 million and $1.5 billion since 2004. California's Department of Mental Health administers revenues generated by Prop. 63 to pay for the state's county-operated mental health services. Revenues are used to expand existing programs or finance new mental health services.

In 2004, voters amended the California Constitution by passing Prop. 58, a balanced budget amendment. This requires that the legislature enact a balanced budget every year using estimates of yearly revenues and expenditures.

In early 2009, California was in the midst of a $42 billion budget shortfall. Lower revenues coupled with weakened financial markets curtailed the state's ability to obtain credit and plunged the state into a fiscal crisis. Experts warned that if the governor and legislature could not agree on a balanced budget, the state controller would be forced to use existing cash flows for high-priority expenditures related to education, state employee payroll and benefits, Medi-Cal, and debt service; and delay lower-priority payments such as tax refunds, student aid grants, and payments to local governments. Most experts concluded that California would have to find new sources of revenues.

On March 10, 2009, Governor Arnold Schwarzenegger called a special election for May 19, 2009, to address the $42 billion budget gap. California voters are being asked to approve the governor and the legislature's compromise budget plan, which includes $14.8 billion in spending cuts, $12.5 billion in tax increases, $8 billion in projected new federal stimulus spending, and $5 billion in borrowing from future lottery revenues. The budget also creates a spending cap and provides $2.5 billion in tax cuts and credits for those who purchase newly constructed homes and for other business interests.

Proponents of Prop. 1E, led by Prop. 63 co-author, state Senate President Pro Tempore Darrell Steinberg (D–Sacramento), say California's unprecedented fiscal crisis necessitates this effort to balance the budget. Proponents also claim that the delays in starting some of Prop. 63's mental health programs resulted in $2.5 billion being held in state coffers. They state that these reserves are more than enough to fund current Prop. 63 mental health services. While they agree that diverting the funds to other programs will reduce the availability of new mental health services, they contend it is necessary to avoid “deeper cuts in other vital state services.”

Opponents of Prop. 1E say that diverting funds from Mental Health Services Act recipients at a time when state and local revenues are already waning will lead to thousands in need of mental health services going untreated. They contend that MHSA results in lower mental health costs by providing early, cost-effective care and treatment. They point to a recent report by the Legislative Analyst's Office indicating that cities and counties may have to pay more for homeless shelters, social services, medical care, law enforcement, and incarceration as a consequence of the defunding of mental health services.