The 2018-19 Budget:
California's Fiscal Outlook

See a list of this year's fiscal outlook material, including the outlook on Medi-Cal and the core California's Fiscal Outlook report, on our fiscal outlook budget page.

LAO Contact

Jackie Barocio

Budget and Policy Post
November 15, 2017


The 2018-19 Budget

California's Fiscal Outlook

Fiscal Outlook: In-Home Supportive Services (IHSS)

General Fund expenditures for IHSS are estimated to be $3.5 billion in 2017‑18, increasing to about $3.7 billion in 2018‑19. This increase is primarily due to projected caseload and hours-per-consumer growth, which we assume will continue throughout the outlook period. We project that IHSS expenditures will reach over $4.5 billion by 2021‑22, reflecting an average annual growth of about 6 percent. To a large degree, this growth reflects the implementation of statutorily scheduled statewide minimum wage increases that will significantly increase the average cost per consumer and overtime costs. Additionally, implementing the paid sick leave policy for IHSS providers and the federally required electronic visit verification system in 2018‑19 will likely increase IHSS costs, but the full fiscal impact of these policies is uncertain. These cost drivers are projected to be partially offset by: (1) increases to the county maintenance-of-effort (MOE) that reduce the state share of IHSS costs, and (2) the end of General Fund support for the restoration of IHSS service hours previously reduced by 7 percent. (This General Fund support is set to expire with the sunset of the current managed care organization tax at the end of 2018‑19.) These factors are discussed in more detail below.

Rising Statewide Minimum Wage Will Increase Hourly Costs of Care. The enacted statewide minimum wage increases—set to gradually raise the state’s minimum wage to $15 per hour by 2022—will increase wages for IHSS providers. Since the current average wage for IHSS providers is a little over $11 per hour (above the current statewide minimum wage of $10.50 per hour), we project that the major costs of the scheduled minimum wage increases will begin when wages increase to $12 per hour and above, beginning in 2019. When the statewide minimum wage increases are fully implemented in 2022, we estimate the costs of the minimum wage increases to total about $1.5 billion General Fund per year, increasing thereafter with growth in caseload, hours per consumer, and overtime costs.

Costs of Paid Sick Leave for IHSS Providers Uncertain. Pursuant to state legislation, beginning on July 1, 2018 IHSS providers will be eligible to earn up to 8 hours annually of paid sick leave, ramping up to 24 hours annually when the minimum wage is increased to $15 per hour (scheduled for January 1, 2022). The administration has conducted a number of stakeholder meetings to develop the policies for when an IHSS provider will be eligible to earn and use paid sick leave. We note that actual costs associated with paid sick leave will depend on the number of providers who earn and utilize paid sick leave.

Compliance Costs of Federally Required Electronic Visit Verification (EVV) System Uncertain. Recent federal law requires states to use an EVV system for Medicaid personal care services by January 1, 2019, and for home health care services by January 1, 2023. The IHSS program is one of the largest personal care service programs affected by the EVV requirement, with over 500,000 consumers and almost 500,000 providers. Required functions of the EVV system include electronically collecting and verifying date of service, start and end time, and type of services provided. The current IHSS timesheet and payroll system is not fully equipped to comply with all of the federally required functions. Our outlook assumes that the state will successfully comply with the new requirement—resulting in upfront implementation costs, but avoiding out-year penalties for failure to comply. The federal government has yet to issue regulations on how states must implement the EVV requirements, making it difficult to estimate potential costs and impacts on services. However, we anticipate the associated General Fund costs to implement an EVV system would be significantly less than total costs since the federal government has agreed to pay for 90 percent of the cost of designing and developing an EVV system.

County Costs of IHSS Depend on MOE Growth. In 2017‑18, a new IHSS county MOE was established, increasing the county share of cost from $1.2 billion to about $1.8 billion in 2017‑18 and changing the annual adjustment factor. Specifically, the MOE will increase by 5 percent in 2018‑19. For all following years, the MOE adjustment factor will depend on the growth in realignment revenues. For example, in years that realignment growth revenues increase by more than 2 percent, the IHSS county MOE will increase by 7 percent. We anticipate that the IHSS county MOE will grow by 7 percent beginning in 2019‑20 through at least 2021‑22. This increase in county contributions to IHSS costs effectively decreases our projected state share of cost for the IHSS program by hundreds of millions of dollars annually.

Restoration of the IHSS Service Hours Previously Reduced by 7 Percent Tied to Managed Care Organization (MCO) Tax Existence. Since 2016‑17, the General Fund has supported the restoration of the IHSS service hours previously reduced by 7 percent so long as the MCO tax is in place. Under current law, the MCO tax is set to expire at the end of 2018‑19. Given this expected expiration of the MCO tax, our outlook projections assume that the General Fund support for the restoration of service hours will not be included beginning in 2019‑20. We estimate that discontinuing General Fund support and reinstituting the 7 percent reduction on IHSS service hours would result in General Fund savings of roughly $300 million annually, increasing with growth in caseload and hours per consumer. For further discussion of the MCO tax, please reference the “Medi-Cal” online post.