The 2018-19 Budget:
California's Fiscal Outlook

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

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Sonja Petek

Budget and Policy Post
November 15, 2017


The 2018-19 Budget

California's Fiscal Outlook

Fiscal Outlook: Developmental Services

The Department of Developmental Services (DDS) provides services and supports to individuals with developmental disabilities in California. Anyone with a qualifying developmental disability is eligible to receive services, which DDS provides in one of two ways: (1) through its Community Services Program, which currently serves about 317,000 individuals whose services are coordinated by 21 private nonprofit agencies called Regional Centers (RCs), and (2) through its Developmental Centers (DCs) program, which currently serves about 700 people at three state-run DCs and one state-run community facility. The DDS budgeting process reflects these two service models by presenting estimated funding and expenditures for RCs and DCs separately. DDS receives state funding from the General Fund and federal funding primarily through Medicaid Waiver programs.

DDS Budget Projected to Grow Significantly During the Outlook Period

We project General Fund expenditures for DDS to grow from $4.2 billion in 2017-18 to about $4.4 billion in 2018-19 and increase even more rapidly over the remainder of the outlook period, which extends from 2017-18 to 2021-22. By 2021-22, we project General Fund expenditures for DDS to reach $6.5 billion, resulting in an average annual growth rate of 11.7 percent over the outlook period. Two factors account for nearly all of the growth in the DDS General Fund budget: the rising statewide minimum wage and growing caseload.

Statewide Minimum Wage Increases Will Have the Largest Impact on Growth in the DDS Budget. A 2016 law (SB 3 [Leno]) will increase the statewide minimum wage over a period of several years, reaching $15 per hour for most workers as soon as January 1, 2022. In the DDS Community Services Program, statewide minimum wage increases will affect a large segment of direct service providers, significantly increasing state costs. We project that General Fund expenditures due to scheduled increases in the statewide minimum wage will account for nearly 60 percent of the growth in the DDS General Fund budget over the outlook period, resulting in increased expenditures of close to $1.5 billion by 2021-22, relative to 2017-18.

Overall Caseload Continues to Grow Rapidly. We project DDS caseloads to increase about 4.6 percent annually, growing from 317,000 in 2017-18 to about 380,000 in 2021-22. In part, this rate of growth reflects the restoration of expanded eligibility criteria in the DDS Early Start Program for infants and toddlers in January 2015. We also project that the per-person cost of services will grow about 2 percent annually (excluding the costs of minimum wage increases). Taken together, rises in caseload and service costs will increase annual General Fund expenditures by about $1 billion by the end of the outlook period, relative to 2017-18.

Projected Fiscal Impacts Over Outlook Period From Closure of DCs

Over the outlook period, the Legislature will face budgetary decisions related to its 2015 decision to close DCs. Of the four remaining state-run institutions, the state will be fully closing two, and partially closing a third, over the outlook period. Although these closures mean the state will expend fewer General Fund dollars to run the DCs, there will also be significant upfront and ongoing costs associated with the transition of residents into community settings. In the remainder of this post, we first focus on the savings that will result over the outlook period from the DC closures and then discuss the transition costs that will occur during these years.

State to Close DCs by End of 2021. Sonoma DC in Sonoma County is scheduled to close at the end of 2018, while Fairview DC in Orange County and the general treatment area (GTA) of Porterville DC in Tulare County are scheduled to close at the end of 2021. At the beginning of 2017-18, there were about 530 residents yet to move from these three facilities. Porterville DC also includes a secured treatment program (STP), which will remain open. (Porterville STP serves up to a statutory cap of 211 people who are considered a risk to themselves or others or have been deemed incompetent to stand trial.) In addition, the state plans to keep the Canyon Springs Community Facility open indefinitely.

General Fund Expenditures at DCs Projected to Decline as DCs Close. As DDS consumers transition from the DCs to the community, we project General Fund expenditures for DCs to decline from $350 million in 2017-18 to less than $300 million by 2018-19. After that, expenditures will continue to decline as more residents move and the DCs begin to shut down. (DDS will incur costs to maintain the facilities even after the last resident moves until the properties are sold or repurposed.) We project the annual DC budget will have declined to about $250 million General Fund by the last year of the outlook period, 2021-22. This amount includes the ongoing costs to operate Canyon Springs and Porterville STP—costs that are projected to increase over the outlook period.

Assumes No Revenues From the Potential Sale or Repurposing of DC Properties. The state could increase General Fund revenues on a one-time basis from the sale of the state properties and buildings that house the DCs to a nonstate entity. It could also choose to repurpose one or more of these properties to generate a smaller amount of revenue to the state on an ongoing basis. If the state chooses to transfer one or more of the properties to another state agency, it would not generate any revenue. Because the nature of the disposition and potential repurposing of DC properties is yet to be determined, we have not projected any offsetting revenue gains.

Significant Costs Associated With Transition of DC Residents to the Community. While the state will save money from closing DCs, there will be one-time and ongoing costs associated with the transition of residents into community-based settings. These costs stem from several main factors:

  • Development of Community Resources. The state has appropriated funds in recent years to develop new models of homes, expand or create programs, and provide intensive case management for people moving out of the DCs. The state has committed at least $55 million General Fund annually in recent years for this purpose and we assume this base amount of funding will continue. In addition, DDS could request additional funds in 2018-19 and in subsequent years on top of this ongoing amount, as it has done in the past three years.

  • Ongoing Community Services for Former DC Residents. There is the ongoing cost of community-based services and supports for people who have moved out of DCs. For some of the more medically fragile residents or residents with intensive behavioral needs, the annual state cost to serve them in the community could conceivably be as much as the cost to serve them at the DCs. We project costs in the RC budget to ramp up as additional former DC residents move into the community. DDS expects to move close to 300 people in 2017-18 and has already budgeted for the costs to provide services for these individuals in the community. By the end of the outlook period, we project annual General Fund costs in the RC budget in the range of $25 million to $50 million to serve the 230 residents who will move after 2017-18.

  • Development and Operation of Safety Net Resources. In 2017-18, the state dedicated a total of $21.2 million (a $7.5 million General Fund augmentation) for DDS to develop statewide crisis facilities and services since it will no longer be able to place people at DCs as a last resort. DDS will operate at least five of these “safety net” facilities (which could serve up to 25 people in total at one time) and two mobile crisis units incurring ongoing state costs. Although these ongoing operating costs are unknown at this time, we project that they will be in the low tens of millions of dollars annually by 2019-20, based on the current costs to operate acute crisis units at the DCs.

Net Impact of the DC Closures on DDS Spending. While there will be significant savings over the outlook period from the closure of the DCs, these savings will be offset by the upfront and ongoing costs to transition DC residents to the community. While there are uncertainties as to the level of spending that will take place on these activities, our forecast assumes that there would not be a significant net impact over the outlook period.