Department of Mental Health (4440)

The Department of Mental Health (DMH) directs and coordinates statewide efforts for the treatment of mental disabilities. The department's primary responsibilities are to (1) provide for the delivery of mental health services through a state-county partnership, (2) operate four state hospitals as well as a fifth now nearing activation, (3) manage state prison treatment services at the California Medical Facility at Vacaville and at Salinas Valley State Prison, and (4) administer various community programs directed at specific populations.

The state hospitals provide inpatient treatment services for mentally disabled county clients, judicially committed clients, clients civilly committed as sexually violent predators, mentally disordered offenders, and mentally disabled clients transferred from the California Department of Corrections (CDC) and the Department of the Youth Authority.

Budget Proposal Increases DMH Budget Overall. The budget proposes $2.7 billion from all funds for support of DMH programs in 2005-06, which is an increase of about $172 million and 6.7 percent above estimated current-year expenditures. As discussed later in this analysis, these budget totals do not include hundreds of millions of dollars in additional anticipated expenditures from a new special fund created by voter-approved Proposition 63, also known as the Mental Health Services Act.

The budget proposes about $1 billion from the General Fund, which is an increase of about $78 million, or 8.2 percent, above the Governor's revised budget plan for the current year. Reimbursements that would be received by DMH—largely Medi-Cal funding passed through to community mental health programs—would amount to about $1.6 billion, an increase of $90 million or 5.9 percent.

The overall proposed increase in DMH expenditures is mainly due to higher costs for state hospital operations. The budget plan provides about $74 million ($66 million from the General Fund) to begin to activate the new Coalinga State Hospital in September 2005. The spending plan provides additional resources to expand the number of treatment beds available for CDC inmates at state hospitals and the DMH treatment facility at the Vacaville state prison, and to intensify staffing levels for certain youth and skilled nursing units. The budget plan also makes adjustments in both the current and budget years for increases in the patient caseload that are occurring across most of the state hospital system.

In regard to community programs, the budget plan reflects the continued expansion of the Early and Periodic Screening, Diagnosis and Treatment Program (EPSDT) for children with emotional problems. The EPSDT funding level would be adjusted downward in the current year by $29 million (with a $16 million decrease in General Fund costs). However, budget-year expenditures for EPSDT would grow by $77 million ($43 million from the General Fund) compared to the revised level of expenditures for 2004-05. The spending plan also provides additional resources for mental health managed care programs administered by counties and the restoration of some state-mandated mental health programs. The budget also provides about $12.5 million from the General Fund to reimburse counties for some state-mandated programs, such as commitment proceedings for offenders known as Sexually Violent Predators (SVPs). (As discussed below, certain other state mandates would not be funded and thereby suspended.)

Budget Proposal Includes Some Reductions. Although the budget plan provides for an overall net increase in General Fund resources, it does include some significant actions to reduce or avoid paying for the costs of mental health programs. Among these proposals:

• State Mandate Actions. While the state, as noted earlier, would resume payment of claims for certain state-mandated mental health programs, it would continue to postpone the payment of more than $514 million in past county claims for such mandates that have accumulated as of November 2004. Among the most significant programs affected by this postponement are the "AB 3632" (Brown) services for special education children and a separate mandate for out-of-state residential services for seriously emotionally disturbed pupils. In addition, the Governor's budget proposal would suspend these two mandates by budgeting nothing for them in 2005-06, thereby freeing counties of any further legal obligation to pay for these services.
• State Hospital Changes. The budget plan would reduce the General Fund cost of operating the state hospital system by (1) shifting some individuals who are being considered for commitment to state hospitals as SVPs to local jails while they await their commitment proceedings, (2) reduce staffing and treatment services for individuals who have been committed as SVPs but are unwilling to participate in treatment, and (3) shifting additional support costs from the General Fund to Proposition 99 tobacco tax revenues.
• Community Program Reductions. The budget plan reduces funding for the Early Mental Health Initiative (supported with Proposition 98 General Fund) by $5 million and does not include a cost-of-living increase for the managed care program.

We discuss some of these specific proposals later in this section of the analysis. The mandate suspension proposals are examined in more detail in the "Education" chapter.

Community Program Issues

Proposition 63 Language Requires Clarification

In November, California voters approved Proposition 63, the Mental Health Services Act, a measure imposing a new state income tax surcharge to finance an expansion of community mental health services. We recommend the Legislature consider the enactment of legislation that would clarify the meaning of some key but ambiguous provisions of the measure in order to ensure its smooth and effective implementation and avoid future state budget problems.

New Funding for Community Mental Health Services

Funds Raised Through Income Tax Surcharge. Proposition 63, approved by voters in November 2004, enacted a state personal income tax surcharge of 1 percent that applies to taxpayers with annual taxable incomes of more than $1 million. The proceeds of the tax surcharge are earmarked to finance an expansion of community mental health programs. Under this measure, also known as the Mental Health Services Act, the State Controller is to transfer specified amounts of state funding each year on a monthly basis beginning in 2004-05 into a new state special fund, named the Mental Health Services Fund. The amounts transferred are to be based on an estimate of surcharge revenues. The amounts deposited into the fund are to be adjusted later to reflect the revenues actually received from the tax surcharge.

How This Funding Would Be Spent. Beginning in 2004-05, revenues deposited in the Mental Health Services Fund are to be used to create new community mental health programs and to expand some existing programs. Specifically, the funds are to be used for the activities summarized in Figure 1.

Oversight and Administration. The DMH, in coordination with certain other state agencies, has the lead role in implementing most of the programs specified in the measure through contracts with counties. A new Mental Health Services Oversight and Accountability Commission is to be established to implement this measure, and would have the role of reviewing and approving certain county expenditures authorized by the proposition. Each county would be directed to draft and submit for state review and approval a three-year plan for the delivery of mental health services within their jurisdiction. Counties would also be obligated to prepare annual updates and expenditure plans for the provision of mental health services.

The measure permits up to 5 percent of the funding allocated annually from the Mental Health Services Fund to be used to offset state costs for implementation of the measure. Up to an additional 5 percent could be used annually for county planning and other administrative activities.

Legislative Role in Proposition Limited

Continuous Appropriation. The funding provided through Proposition 63 is "continuously appropriated." This means that, unlike some other mental health programs, DMH is authorized under Proposition 63 to allocate funds for its various purposes without appropriation by the Legislature in the annual budget act. The measure specifically authorizes DMH to "immediately make any necessary expenditures and to hire staff for that purpose" as well as to adopt regulations to carry out its provisions. The administration has indicated that it intends to take administrative actions to bring on staff to implement the measure, but will submit requests to the Legislature for permanent new DMH staff position authority as part of the 2005-06 budget process during the spring.

Proposition 63 does give the Legislature some limited authority to assist in its implementation. The measure specifies that it can be amended by the Legislature by a two-thirds vote so long as any amendments are "consistent with and further the intent" of the act. The measure does provide an exception to the two-thirds vote rule, allowing the Legislature to add provisions by majority vote "to clarify procedures and terms" of the measure.

Limitations on Use of Proposition 63 Resources

"Maintenance of Effort" Required. Proposition 63 contains maintenance of effort (MOE) language specifying that the state and counties are prohibited from redirecting funds now used for mental health services to other purposes. It also contains various provisions relating to whether or how Proposition 63 funds can be used to provide mental health services for children or adults eligible for so-called "entitlement" programs, such as Medi-Cal. The language of several such provisions is presented in Figure 2. The policy implications of these provisions are discussed later in this analysis.

Implementation Actions to Date

In light of the timetable set forth in Proposition 63 for the first allocation of funding within the current year, DMH has moved fairly quickly to begin implementing the measure. It has convened meetings of "stakeholder" groups and governmental officials involved in the state's mental health system, drafted and submitted for public review a "vision statement" outlining its intended approach to expanding systems of care, and begun working out the rules for allocating planning grants to counties to assist them in drafting their required county mental health plans. It is also developing guidelines for counties to follow in drafting their Proposition 63 implementation plans.

Important fiscal details of DMH's Proposition 63 implementation plan have not yet been worked out, however. The DMH's 2005-06 budget plan does not yet include any expenditures from the Mental Health Services Act, although the documents do display preliminary administration estimates that $254 million in Proposition 63 revenues will be received for 2004-05 with an additional $683 million available in 2005-06. The administration has indicated that it intends to formally incorporate Proposition 63 funding into its spending plan at the time of the May Revision.

Some Key Aspects of Language Are Ambiguous

Our analysis indicates that some key aspects of the language in Proposition 63 are ambiguous. The varying interpretations that could arise from these provisions could potentially make it more difficult for policymakers to implement the initiative in a timely and effective manner, lead to legal and other types of conflicts over the meaning of its provisions, and create future budgetary issues for the state.

The MOE provisions and the language relating to the relationship between Proposition 63 and existing entitlement programs raise a number of issues, including:

• Which particular mental health programs are subject to MOE rules? The language does not specify whether only community mental health services administered by counties are subject to MOE or whether its language should be interpreted more broadly to apply to expenditures for state mental hospitals, state supervision of persons released from hospitals into the Community Release Program (CONREP), community mental health services provided by CDC, services in county jails, or state-mandated programs for special education students.
• Whether 2004-05 spending levels are subject to the MOE rules or whether the measure's provisions apply only prospectively to the 2005-06 fiscal year and beyond.
• Whether the MOE requirement applies to state General Fund spending in the aggregate, or whether each separate state mental health program that has been receiving support from the General Fund has its own separate MOE requirement.
• Whether the language preventing the shifting of risks and costs from the state to counties protects each individual county or applies on a statewide basis.
• Whether Proposition 63 funds can be used to expand or supplement mental health services which now receive support from existing entitlement programs, such as Medi-Cal.

Fiscal Ramifications Are Great. Ambiguities such as these in the language of the measure could have important operational and fiscal ramifications. The uncertainty over how the measure affects the required funding level of the Children's System of Care program serves as an example of the complications that could arise.

The sponsors of the initiative have generally interpreted the MOE language of Proposition 63 as requiring funding for each distinctive community mental health program now operated by the state at the level it was budgeted in 2003-04. In the case of the Children's System of Care program, this would amount to a funding level of $20 million from the General Fund. Most of this funding was vetoed from the 2004-05 Budget Act, but presumably would have to be restored in the future because of the passage of Proposition 63.

However, the administration is relying on its own and differing interpretation of the new law that the MOE requirements apply only to the aggregate level of state spending for mental health programs. On this basis, the administration's 2005-06 budget proposal does not restore any funding for the Children's System of Care program. These differences in interpretation could lead to future county-state conflicts over the funding level of this program.

Ambiguity over how Proposition 63 applies to the two state-mandated programs for mental health services for special education students has potentially even bigger financial consequences. The administration has proposed to suspend these mandates in a step that could allow the state to avoid paying more than $140 million per year in future claims for county reimbursements for these services. If the Legislature were to approve the administration's budget proposal without restoring this mandate funding and the courts were to subsequently order this funding restored, the state could face large and unbudgeted expenditures for these services.

Analyst's Recommendations

Alternative Approaches Available. Our analysis has identified a number of ambiguities that can be found in the language of Proposition 63. Several approaches are available to the Legislature to sort through and clarify the language in some key provisions of the measure. As a first step, the Legislature may wish to request that DMH consult with stakeholders in the mental health community, including the sponsors of the initiative, to help identify in advance the major potential points of dispute over the interpretation of the measure. The Legislature could also seek formal legal opinions from the Office of Legislative Counsel and the Attorney General to clarify some aspects of the measure and to guide its actions. The Legislature could also rely upon DMH itself to resolve some of these issues through the regulatory authority granted to the department within the language of Proposition 63.

Given the potentially serious fiscal consequences for the state down the line if Proposition 63 were to be interpreted after-the-fact by the courts as requiring large and unbudgeted General Fund expenditures, we believe clarifying action is needed. Specifically, we recommend that the Legislature enact legislation to add new provisions to the Mental Health Service Act that would clarify the major ambiguities in the law. Notably, Proposition 63 explicitly authorizes the Legislature to take exactly such actions, and allows such clarifying legislation of procedures and terms to be approved by a majority vote.

Community Program Issues

We recommend the Legislature eliminate two state-mandated programs within the Department of Mental Health budget for mental health services for special education students. We further recommend the Legislature provide a total of $143 million in state and federal funds to support the costs of Special Education Local Plan Areas for providing these mental health services.

We discuss the Governor's proposal in DMH's 2005-06 budget plan to suspend two state-mandated programs for special education, including the AB 3632 mandate, as well as our own recommendations in regard to this issue, in our analysis of special education programs in the "Education" chapter of this Analysis.

State Hospital Issues

Population Growth and New Facility Costs Increasing Expenditures of Hospital System

The budget proposal increases General Fund spending for the state hospital system by more than $86 million compared to the amount provided for these purposes in the 2004-05 Budget Act, including the resources to complete the planned activation of a new state hospital in Coalinga. We believe these proposals are generally justified and warrant legislative approval. However, we withhold recommendation on two policy proposals to reduce costs for Sexually Violent Predators pending receipt of the proposed legislation to implement these changes.

Governor's Proposal

The Governor's spending plan proposes to provide additional funding for DMH in both the current and the budget years primarily to accommodate population increases that the department projects will occur in state hospitals and in hospital facilities that DMH operates on the grounds of two state prisons. The proposal is summarized in Figure 3 below.

Current Year. For the current year, the administration has proposed an increase of about $22 million in General Fund support relative to the funding previously authorized in the 2004-05 Budget Act. The administration proposes to increase the amount of Proposition 99 revenues, which are generated from taxes on tobacco products, by about $9.8 million to offset the costs of hospital caseload increases. Adjustments are also proposed in the level of reimbursements paid by counties. Spending from all fund sources would increase by $34 million.

These and other adjustments are proposed partly due to a net increase in the population of certain groups of patients. The number of Incompetent to Stand Trial (IST) and Mentally Disorder Offender (MDO) patients is greater than initially budgeted, although this increase is partly offset by a reduction in the estimated population of SVPs. The budget proposal reflects the activation of 61 additional DMH beds for an intermediate care and day treatment program for inmates at the state prison in Vacaville, the California Medical Facility. Adjustments for employee compensation and health benefits and other factors are also assumed in the budget proposal.

Budget Year. In the budget year, the spending plan requests a net increase of General Fund spending of $86 million above the 2004-05 Budget Act level. Support from Proposition 99 would increase by $13.6 million, as support from all fund sources would go up by almost $108 million. As we will discuss later in this analysis, this increase in spending for the state hospitals does not reflect an estimated additional $27 million in General Fund costs for repayment of the lease-revenue bonds used to build the new state hospital at Coalinga.

The proposed increase in hospital spending levels primarily reflects an assumption of continued growth in most patient groups as well as a number of other technical budget adjustments, such as for one-time expenditures on equipment for Coalinga in the current year that will not require continuation of funding in the budget year. Two groups are assumed to decline in number: persons committed to the hospitals by counties under the Lanterman-Petris-Short Act (LPS patients) and SVPs.

The drop in LPS patients reflects a continued trend by which counties are relying less on the state hospital system to provide services for patients with acute psychiatric needs. The reduction in SVPs also reflects an assumption that the Legislature will adopt two proposed policy changes: (1) statutory changes allowing a shift of so-called "precommitment SVPs" from state hospitals to counties, and (2) further statutory changes allowing DMH to create a new and less costly licensing category of beds for SVPs who decline to participate actively in treatment.

The single largest component of the proposed budget-year increase is the proposal for the activation of the new Coalinga facility in September 2005, in keeping with the timetable accepted by the Legislature last year. The proposal assumes that the state would phase in 683 beds at Coalinga during 2005-06, including a new 50-bed intermediate care and day treatment facility for CDC inmates. (The number would be 583 beds if the Legislature approves a separate proposal to allow a net shift of 100 SVPs to the counties.) The Coalinga facility is designed to eventually hold 1,500 patients in all. The budget plan reflects a reduction in the patient population, and DMH staffing at Atascadero State Hospital, as SVPs from that facility are transferred to Coalinga.

LAO Assessment of the Governor's Budget Requests

Population Estimates Generally in Line With Budget Request. Our analysis indicates that the patient population growth assumed in the Governor's budget plan is reasonable and generally in line with recent population reports that we have reviewed. Our review of the data indicates that the populations of Not Guilty by reason of Insanity, SVPs, CDC inmate commitments, and LPS patients committed by counties are tracking below the projection trend assumed by the administration. However, the number of ISTs and MDOs are coming in significantly above projections. So, on balance, we believe that the overall caseload projection is reasonable.

We note that DMH is expected to update its budget requests related to the patient population at the time of the May Revision to reflect any changes that occur in caseload trends.

Shift of Proposition 99 Funds. The additional Proposition 99 resources that the administration proposes to use for the support of the state hospital system in the current and budget years are part of a larger and complex set of Proposition 99 funding shifts. We believe the use of funding from the Proposition 99 account for support of the state hospitals, which is in keeping with prior legislative actions, constitutes a reasonable use of these monies. We discuss the broader budget and policy implications of this and other Proposition 99 funding shifts in our discussion of public health programs in this chapter of the Analysis.

Coalinga Nearly Ready for Activation. The continued growth in the overall state hospital population, driven mainly by increases in IST, MDO, and SVP patients, prompted the Legislature last year to approve an additional round of staffing and funding to prepare for the opening of the new Coalinga hospital facility. The Governor's 2005-06 budget request would provide the funds for more staffing and equipment to activate the facility beginning in September 2005. We are advised that the construction, licensing, and hiring for the facility are generally on track with the timetable for activation of the facility presented by the administration and approved by the Legislature last year.

Administration Proposals Could Reduce SVP Costs. As noted earlier, the budget plan assumes adoption by the Legislature of two significant policy changes relating to the SVP program.

First, in order to achieve estimated savings of about $9.2 million General Fund in the state hospital budget, the administration is proposing statutory changes that would allow a shift of precommitment SVPs from state hospitals to counties. Precommitment SVPs are individuals who are awaiting court proceedings for an SVP commitment and who are being held in state hospitals while their cases proceed. Some additional individuals are being held in state prisons as these proceedings occur, while still others who have been released from prison are held in county jails.

We examined a similar proposal last year in our Analysis of the 2004-05 Budget Bill (please see page C-198) and determined that such a change was feasible and could result in some savings in excess of the amount projected by the administration at that time. Our preliminary analysis of the new administration proposal suggests that this is again the case—that several million dollars in state savings beyond those estimated by the administration are possible. One reason is that the actual number of precommitment SVPs held by the state hospitals was 174 as of December 2004. The administration's budget proposal assumes, in effect, that after all 174 of these SVPs are transferred to counties, counties complete the court commitment process for 74 of them, resulting in a net savings equivalent to 100 SVPs. Given the slow pace at which these cases have been resolved in the past, there is a strong likelihood that some of those adjudicated in the courts will not receive an SVP commitment (and therefore will not be returning to state custody). As a result, it is possible that the number of SVPs in the state hospital system in 2005-06 will be fewer than assumed in the Governor's budget.

Other technical adjustments that we believe are warranted to the Governor's proposal would also result in a further net increase in the projected savings. Taken altogether, these factors could mean that the savings from this proposal to the General Fund could be as much as $5 million greater than assumed.

The 2005-06 budget plan further assumes General Fund savings of about $6 million as a result of statutory changes allowing DMH to create a new and less costly licensing category of beds for SVPs who decline to participate actively in treatment. The General Fund savings from these changes are anticipated to grow to $11 million annually by 2006-07.

Our analysis indicates that there is some risk that the level of savings estimated to result from this change in the budget year could be overstated because the implementation of the new licensing categories is assumed to occur by January 2006. It is possible that the regulatory and other administrative changes necessary to create new licensing categories and implement them could take longer than the period assumed by the administration.

In summary, we believe that both of these proposals have merit in concept, in that they would achieve significant state savings over time and prioritize the use of expensive state hospital treatment resources for patients who are ready and willing to accept treatment for their mental illness. However, at the time this analysis was prepared, the administration had released only narrative summaries of its proposals and had not yet released the proposed statutory language to implement either of these changes. The Legislature will not be in a position to fully understand and assess the proposals until the statutory language for them has been made available. For example, the language will enable the Legislature to clarify whether the savings are likely to be greater or less than the amounts assumed in the Governor's budget.

We are advised that the administration intends to send these proposals to legislative policy committees for their consideration. Given the important potential legal and policy ramifications of these proposed changes in the SVP statutes, we believe that it is a reasonable and appropriate approach. We would note, however, that should the Legislature decide to reject the administration's two SVP proposals, it would mean that the state hospital budget would be out of balance by $15.2 million from the General Fund.

Analyst's Recommendations

In general, we recommend approval of the administration's funding requests related to the state hospital population and the activation of the Coalinga hospital, including the shift of Proposition 99 revenues to achieve General Fund savings.

However, we withhold recommendation at this time on the two proposals for policy changes to reduce SVP program costs. While we believe that both proposals for achieving savings have merit in concept, our full analysis of them cannot be completed until the proposed statutory language to implement them is available for review by the Legislature.

State Operations Issues

Technical Budget Adjustments Warranted

Our analysis has identified a series of largely technical issues relating to state operations of the Department of Mental Health. A number of these matters warrant legislative action either at budget hearings or at the time of the May Revision.

In our review of various DMH budget requests, we identified a number of largely technical budgeting issues, some of which warrant consideration by the Legislature in the 2005-06 budget process. These issues relate to: (1) lease-payment debt service for the new Coalinga State Hospital, (2) a proposal to intensify staffing of certain hospital units at Napa and Metropolitan, (3) the way the state bills for prescription drugs under Medicaid, (4) the fiscal impact of the new Medicare drug benefit on the state hospital system, (5) the "Strategic Sourcing Initiative," (6) a study commissioned by the Legislature regarding how the state could obtain greater federal funds for the support of DMH programs, and (7) the caseload for the CONREP program.

We summarize these technical issues below:

• Coalinga Debt Service. The DMH budget item does not yet incorporate the General Fund costs for repayment of lease-payment bonds issued to build the new Coalinga state hospital. These costs, currently estimated to be about $27 million in 2005-06, upon activation of the new facility. These costs are currently included, but are not separately identified, in the Governor's budget document within an aggregate amount for lease-payment debt service. We are advised that, at the time of the May Revision, the administration will update the Coalinga debt-service costs and propose to shift this updated amount from the aggregate item to the DMH budget item.
• Staffing at Napa and Metropolitan Hospitals. The budget requests $3.6 million in reimbursements paid by counties for staffing increases for certain youth and skilled nursing facility units at the state hospitals at Metropolitan and Napa. The proposed request relates to concerns that, although the overall number of patients being committed by the counties to the state hospitals has decreased, the medical needs of the patients are typically much more intense and therefore more clinical staff are required to care for them. However, the budget request is based in part on a count of 85 youth at Metropolitan when the current population is actually about 50. We recommend approval of the proposal with a reduction of about $560,000 and eight positions to correct for the overstatement of the youth population. We further recommend the Legislature direct DMH to update and adjust its funding request at the time of the May Revision to reflect an accurate projection of the patients who will actually be in the affected units during 2005-06.
• Drug Procurement Savings. In "Part V" of The 2005-06 Budget: Perspectives and Issues, we discuss a number of steps the state could take to reduce expenditures for the procurement of pharmaceuticals for various state agencies and programs, including DMH's state hospital system. In regard to DMH, we specifically propose that its Medi-Cal reimbursement procedures be modified so that drug purchases for Medi-Cal patients in the state hospitals are accounted for separately and the state gets deeper discounts on prices available under federal law. We recommend that the Legislature direct DMH (in consultation with the Department of Developmental Services, which handles Medi-Cal billing for DMH) to estimate the state savings that could be achieved in the budget year from such a change.
• Adjustment for Medicare Part D Drug Benefit. In our analysis of the Medi-Cal Program, we recommend that the Legislature recognize savings that are likely to accrue to certain state agencies as a result of the new federal law. We estimate that the costs to the state hospital system for prescription drugs will decrease by about $3.6 million (all funds) if all 590 patients enrolled in Medicare henceforth receive their drug benefit under Medicare instead of under state programs. Now that federal authorities have released final regulations to implement Part D, we recommend that DMH, in consultation with the Department of Health Services, present the Legislature with an appropriate budget adjustment relating to the Part D benefit at the time of the May Revision.
• Strategic Sourcing Initiative. The DMH spending plan assumes that the department will achieve about $2.4 million in General Fund savings in the current year and a further $2.4 million in General Fund savings in the budget year, as a result of the Strategic Sourcing Initiative, an effort to improve state procurement efforts. However, the budget plan does not identify specifically how the assumed savings will actually be obtained, and it appears likely that little if any of the savings will be achieved in the current fiscal year. We examine several issues related to the Strategic Sourcing Initiative in our discussion of Control Section 33.5 in the "General Government" chapter of the Analysis.
• Report on Federal Funds Pending. The 2004-05 Budget Act provided DMH with $472,000 for staffing and contract services to identify and evaluate approaches for increasing federal funding and reducing state costs for community mental health services and the state hospital system. Provision 3 of Item 4440-001-0001 in the budget act directed DMH to provide the Legislature by January 10, 2005, with a status report on its work and any findings and recommendations stemming from that study. At the time this analysis was prepared, the status report had not yet been presented to the Legislature. The DMH indicated that a written report on this subject was pending and being reviewed by the administration prior to its release.
• CONREP Program Caseload. The Governor's budget plan proposes various caseload adjustments for CONREP, which provides supervision and treatment for certain mental health patients after they are released from state hospitals into the community. The 2004-05 Budget Act assumed that the program would provide community care for 753 patients by July 2005. However, the CONREP population estimate for July 2005 has been revised downward by 23 to 730. The Governor's budget plan proposes to reduce CONREP funding by $485,000 in the budget year to reflect the lower-than-anticipated caseload. However, it proposes to make no adjustment in the current year for this change. We believe such a change is appropriate because the program has been overbudgeted also in the current year. Accordingly, we recommend that the Legislature direct DMH to provide an updated estimate of the current-year CONREP caseload and the appropriate budget adjustments for both the current and budget years at the time of the May Revision.