Analysis of the 2004-05 Budget Bill Legislative Analyst's Office February 2004

Community Care Licensing

The Community Care Licensing Division (CCL) develops and enforces regulations designed to protect the health and safety of individuals in 24-hour residential care facilities and day care. Licensed facilities include child care; foster family and group homes; adult residential facilities; and residential facilities for the elderly. The Governor's budget proposes expenditures of $124.9 million ($42.2 million General Fund) for the CCL in 2004-05. This represents a less than one-half of 1 percent increase in General Fund expenditures from the current year. Additionally, the Governor's budget proposes an increase in CCL fees, which will result in increased General Fund revenues of $5.9 million for 2004-05.

Increase Oversight by Establishing a Special Fund

The Governor's budget proposes an increase in Community Care Licensing (CCL) fees over the next three years, which would result in General Fund expenditures in the program being completely offset by fee revenue. We recommend the enactment of legislation to establish a fund for the CCL fees and make the funds available upon appropriation by the Legislature. This will increase legislative oversight by allowing the Legislature to assess the adequateness of the fees and to ensure that the funds generated by these fees are directed into the program. (Reduce item 5180-001-0001 by $21,875,776 and increase new special fund item under 5180 by like amount.)

Background. The CCL division of the Department of Social Services oversees the licensing of child care centers, adult residential facilities, group homes, adoption agencies, and foster family homes. The division is also responsible for investigating any complaints lodged against these facilities and for conducting inspections of the facilities. The state moni tors approximately 92,000 homes and facilities, which provide services for almost 1.4 million individuals.

In order to receive and maintain a license to operate a facility, applicants and providers are charged an initial licensing fee and an annual renewal fee. These fees are generally based upon the size of the facility and the number of individuals served. Until 2003-04, CCL fees had not been increased since 1992. However, in 2003-04 the fees were increased anywhere from 25 percent to 100 percent, depending on the type of facility. Prior to that increase, the fee revenues covered approximately 8 percent of the total CCL budget. As a result of that increase, fees now cover approximately 40 percent of the General Fund portion of the CCL budget.

Governor's Proposal. The Governor's budget proposes an increase in most CCL fees. Further, the budget proposes to continue to increase the fees by equal increments each year for the next two years (through 2006-07). Figure 1 shows examples of a few of the various types of facilities licensed by CCL and illustrates how the fees have grown and are projected to grow if the Governor's proposal is adopted. By 2006-07, the fees generated should be enough to fully offset the General Fund costs associated with administering the program. Currently, CCL fees are considered General Fund revenue and offset 40 percent of the General cost of the program.

Recommend Creation of Special Fund. Currently, the CCL fee revenues are considered General Fund revenue and as such are deposited into the General Fund along with all other General Fund revenues. This makes it difficult for the Legislature to determine whether or not the fees are adequate or excessive when it comes to funding the General Fund portion of the CCL budget. We believe that greater oversight of these revenues is necessary given the significant fee increases being proposed by the administration. Toward that end, we recommend enactment of legislation to create a special fund into which the fee revenues would be deposited, with expenditures subject to appropriation by the Legislature. This would increase the Legislature's oversight of the use of these fees. Further, it would help the Legislature determine the appropriateness of the fee level and whether or not it was keeping pace with or outpacing the cost of administering the program.