Analysis of the 2008-09 Budget Bill: Criminal Justice

Adult Correctional Health Services (5225)

Appointment of New Receiver May Signal Shift in Approach to Remedying Inmate Medical Care

The appointment of a new Receiver to establish a constitutionally adequate adult inmate medical care delivery system raises both new challenges and new opportunities for the Legislature to consider. In this section, we first discuss the broader implications of the transition to a new Receiver, including the potential for the state and the Receivership to cooperate more fully in remedying the system and the potential for the new Receiver to modify his predecessor’s plans. Afterwards, we discuss the immediate concerns that this transition raises in terms of what actions the Legislature should take to adequately budget for the operations of the new Receiver in both the current and the budget year.

Background

New Receiver Appointed by the Court. In January 2008, the federal court overseeing the Receivership of the state’s adult inmate medical care delivery system announced that, effective immediately, a new Receiver would assume responsibility for bringing prison medical care up to federal constitutional standards. In its ruling, the court in the case of Plata v. Schwarzenegger found that, nearly two years after the appointment of the first Receiver, it was time for the Receivership to move from a “primarily investigative and evaluative phase” into an “implementation phase.” As part of this transition, the court noted that it wanted the Receivership to shift its focus from adopting short–term measures to implementing longer–term reforms, including an eventual transition of the system back to state control.

In its ruling, the court acknowledged some of the short–term, practical measures that the first Receiver had undertaken. These measures have included:

• Increasing physician and nurse salaries in order to attract more qualified medical staff and reduce medical staff vacancy rates.
• Establishing “custody health care access units,” composed of correctional officers to escort inmates to medical facilities both inside and outside prisons.
• Contracting with an outside vendor to restructure prison pharmaceutical services, including plans for a centralized pharmaceutical distribution facility.
• Beginning construction on a new “state–of–the–art” medical facility at San Quentin state prison.

The court, while emphasizing that the Receivership should continue to maintain its independence, stated that the time had come for the Receivership to work more closely with different stakeholders, including state officials. Significantly, the court held that such cooperation was more important than ever in light of the current state budget crisis. In order to shift the Receivership toward this more cooperative approach, the court appointed a new Receiver who, according to the court, has the administrative skills necessary to provide such “collaborative leadership.”

Other Actions Taken by the Court. In October 2007, the court appointed an interim working group to evaluate the Receiver’s remedial plan. In its January 2008 order replacing the Receiver, the court confirmed that it would soon appoint a permanent advisory board to assist and advise the court and the Receiver in meeting the goals of the Receivership. In so doing, the court also indicated that it intended to be more directly involved than it had been in efforts to remediate problems in inmate medical care and the operations of the Receiver.

The court also ordered, upon the recommendation of the interim working group, that a professional planner be hired to revise the first Receiver’s remedial plan. The remedial plan, the final version of which was released in November 2007, had contained 22 initiatives. The court indicated that the consensus of the interim working group was that revisions to the remedial plan were needed so it “could serve as a useful leadership document that would provide a common vision for all stakeholders.” The court did not identify the specific changes it wished to be made in the plan. However, the plaintiff’s counsel (which represents prison inmates in the case) and others had contended in documents filed with the court that the plan lacked concrete detail, especially concerning the specific steps necessary to remedy the system and the ways in which the success of the plan would be measured.

Appointment of New Receiver Raises Three Key Questions

The appointment of the new Receiver, announced just after the release of the 2008–09 Governor’s Budget, raises three questions regarding: (1) how the overall relationship between the Receivership and the state budget process might change under the leadership of a new Receiver, (2) whether the transition to a new Receiver will result in a new approach toward bringing inmate medical care up to constitutional standards, and (3) how the appointment of a new Receiver impacts the Governor’s budget request.

Collaborative Approach Could Improve Budgeting Process for Receivership. In a number of cases during the first two years of the Receivership, the Legislature was unable to obtain from the Receiver the level of information that it would ordinarily expect to receive from other state departments in support of budget proposals. Specifically, complete information was often lacking regarding the purpose and justification for proposed new spending initiatives; how proposed new spending relates to funding previously provided for medical programs and facilities; and fiscal details on positions, operating expenses, and equipment sought to implement its remedial efforts.

The first Receiver’s budgeting efforts were also often out of sync with the timing of the normal state budget process. For example, new spending proposals of the Receiver surfaced in May 2007, too late for them to be incorporated by the Department of Finance (DOF) into the regular May Revision budget plan, and again in December 2007, too late for them to be fully incorporated into the Governor’s January 10 budget package.

In a number of cases, documentation of new spending proposals has not been submitted at all in the budget process. Instead, the Receiver funded a number of new initiatives from an unallocated reserve set aside by the Legislature. The Legislature was notified after the fact by DOF of funding transfers, and has received only limited information from the Receiver in support of these expenditures compared to the information it would ordinarily receive during a normal budget process.

Although little is known just yet about how the new Receiver will work with the state to budget for the operations of the Receivership, the language in the court’s ruling suggests that it intends that the new Receiver adopt a more collaborative approach on such matters.

New Receiver Will Make Modifications to Remedial Plan. The court’s ruling appointing the new Receiver makes it clear that the court was not satisfied with the first Receiver’s remedial plan. However, it is unclear at this point how the new Receiver may actually change that plan, or the fiscal implications of those changes. The new Receiver has publicly indicated his intention to have a new strategic business plan in place, and a new assessment of its implementation costs, within 45 to 60 days of his appointment by the court. He has also stated publicly his intention to transition the inmate medical care system back to direct state control within four years.

New Receiver’s Budget Could Face Significant Changes. The Governor’s budget proposal on behalf of the Receiver (discussed in more detail in the next section) did not fund all of the budget requests that had been submitted (although the administration did submit the Receiver’s entire budget request to the Legislature). It is not clear at this point whether the new Receiver will want to revise any of these budget requests. Given the change in the leadership of the Receiver’s office, as well as the intention of the court to revise the remedial plan itself, it is quite possible that there will be significant changes to both the Receivership’s and the Governor’s proposals.

The Governor’s 2008–09 Budget Proposal for the Receiver

Support Budget. The Governor’s budget proposes approximately $1.6 billion for the California Department of Corrections and Rehabilitation (CDCR) adult inmate medical operations under the control of the Receivership (including ancillary services involving pharmaceuticals). This proposal is a modest decrease of roughly $12 million from the revised level of funding proposed to be made available to the Receivership for 2007–08. This essentially flat level of funding for medical services reflects the following specific budgetary changes:

• The elimination of the Receiver’s unallocated reserve account in the budget year for a General Fund savings of $125 million.
• Increases in funding for the Receiver for two specific new initiatives to (1) expand units of correctional officers dedicated to improving inmate access to health care and (2) provide more resources to resolve appeals of inmate complaints over medical care. These proposals result in a $47 million General Fund increase in the budget.
• The addition of $26 million to fund the direct operations of the Receivership and its staff. Previously, the Receivership’s operating expenses were funded through transfers from the unallocated reserve account.
• Baseline adjustments to reflect (1) the full–year cost in 2008–09 of implementing initiatives of the Receiver begun in 2007–08 and (2) 2007–08 expenditures that were made on a one–time basis. The
net effect of these baseline adjustments in 2008–09 is a $28 million increase in General Fund spending.

Figure 1 summarizes the support funding proposed to be made available to the Receiver in 2007–08 and 2008–09 under the Governor’s spending plan. (In addition to this funding, the Governor’s budget also includes $878,000 from the General Fund for the Office of the Inspector General to monitor misconduct by medical staff at state prison facilities, as requested by the Receiver.)

Capital Outlay. The spending plan incorporates a capital outlay proposal approved last year by the Legislature to build a new $146 million central health facility at San Quentin prison. In addition, the budget plan proposes to shift $2.2 billion in lease–revenue bond financing—originally allocated last year in legislation to build new prison beds and reentry centers—in order to build new medical facilities being planned by the Receiver.

Spending Proposal Raises Key Issues for the Legislature

We have identified four key policy and fiscal issues raised by the spending plan. First, it does not account for additional spending proposed by the Receivership, but not included in the Governor’s budget, amounting to hundreds of millions of dollars in the current and budget years—additional spending that, if followed through by the new Receiver, would aggravate the state’s already–severe budget problems. Second, it proposes to do away with the unallocated reserve that the former Receiver had again requested.

Third, adoption of the Governor’s separate budget proposal to dramatically reduce the inmate population through early releases of offenders has significant fiscal and operational ramifications for the resources budgeted for the Receivership. Lastly, a proposal to shift bond financing to the Receiver appears to be premature because the Legislature lacks critical information regarding the projects this change is intended to fund.

Budget Plan Omits Large Funding Requests Submitted by Receivership

The Governor’s proposal does not reflect about $273 million in additional General Fund spending proposals requested by the first Receiver for the current year, as well as $814 million in General Fund spending requested for the budget year. In particular, the administration budget plan does not include specific proposals submitted by the Receivership relating to additional funding for medical guarding and transportation functions, and pharmaceutical supplies. The budget plan also did not fund proposals that the Receiver indicated were “placeholders” for, among other proposals, expansions to existing telemedicine and pharmacy programs and various capital outlay improvements on the grounds of existing prison facilities. (However, the Governor’s budget does propose to shift $2.2 billion in lease–revenue bond financing to the Receiver for capital outlay projects.) Figure 2 summarizes the General Fund proposals submitted by the prior Receiver for additional state spending and compares them with the amounts provided for these purposes in the Governor’s budget plan.

In light of the appointment of a new Receiver and the court’s order to rework the remedial plan, the justification for a number of these requests is uncertain at this time. In addition, it appears likely that much of the funding requested by the Receiver but not included in the Governor’s budget for the current year could be absorbed by savings elsewhere in the CDCR medical budget, the remaining balance in the Receiver’s reserve account, or through the use of lease–revenue bonds, rather than the General Fund, for the capital outlay improvements.

Proposal to Eliminate Reserve Aligns Receivership With Budget Process

As noted above, the administration proposes to eliminate the $125 million reserve account for the Receiver in the budget year even though the prior Receiver had requested such a funding allocation again be set aside for him. The administration indicated that the reserve was intended as a temporary funding mechanism for the initial phases of the Receivership and was not designed to be an ongoing fixture in the budget. Eliminating the reserve would benefit the state by encouraging the new Receiver to provide the Legislature with more information, in advance, through the normal budgeting process on the level of state funding that will actually be needed to improve inmate medical services. As more information about the new Receiver’s budget plans becomes available, the Legislature can revisit this issue.

Early Release Proposal Would Reduce Medical Costs

As part of its 2008–09 budget plan, the administration has proposed releasing from prison early certain nonviolent, nonserious offenders and not actively supervising these same types of offenders on parole. These proposals would result in a significant reduction in the adult inmate and parole populations and state savings estimated at $354 million in the budget year.

(Please see a discussion of these proposals, as well as an LAO alternative approach to achieving inmate and parole population savings, in the “Adult Corrections” section of the CDCR analysis). However, in calculating the cost savings associated with its proposed new policies, the administration has not accounted for cost savings from fewer inmates receiving medical care in prison. (It does include, however, anticipated savings on mental health care and dental care in its estimates.) Nor does the budget plan reflect any specific adjustment in the number of staff positions assigned to providing medical care for inmates, many of which are established on a ratio corresponding to the size of the inmate population.

If an adjustment were made to the budget to reflect the administration’s early release and summary parole proposals, we believe the amount of medical savings would be significant. Based on information provided by CDCR and the estimated impact of both proposals on the inmate population, these proposals could eventually result in additional savings of as much as $80 million annually.

We are advised by the administration that adjustments in medical funding and staff positions were not included in the budget plan at the request of the first Receiver. We are advised that the Receiver contended that the medical funding and staffing budgeted for prison should not be driven by inmate population changes but rather by his own independent determination of the resources needed to carry out his remedial plan. The new Receiver’s position on this matter is unknown at this time.

The proposals contained in the 2008–09 budget plan to reduce the inmate population, but not to make the normal caseload–related adjustments that would reduce the medical funding and staffing associated with serving this population, represents a major departure from the way CDCR medical services have been budgeted in the past. Tying medical resources to inmate population was intended as a budget strategy to ensure that, over the long term, adequate resources were maintained for such services as the inmate population grew.

Legislature Lacks Information to Support Shift of Bond Funding

As noted earlier, the budget plan proposes to shift $2.2 billion in lease–revenue bond financing—originally allocated last year in legislation to build new prison beds and reentry centers—in order to build new medical facilities that were being planned by the Receiver. These monies would be redirected from a prison construction package enacted through Chapter 7, Statutes of 2007 (AB 900, Solorio). This new funding for medical facilities could be used by the Receiver for renovation of clinical and office space for medical operations on the grounds of existing state prisons as well as coordinating the building of up to 10,000 new medical and mental health beds. The redirection of the $2.2 billion would be in addition to $1.1 billion allocated in AB 900 for various types of health facilities. This proposal would thus bring the total resources for health–related projects to almost $3.4 billion.

The administration’s proposal raises a number of major concerns. First, at this time the Legislature lacks critical information needed to justify making such a large financial commitment to these projects. The Receiver’s office in most cases has yet to specify exactly what facilities it will build, their size, their location, their design, their timing, or a specific plan for financing them—all critical decisions with huge implications for the bond financing shift proposal. Moreover, it appears unlikely that most of this funding would be needed for several years, given the considerable resources already allocated for health facilities in the AB 900 legislation.

Also, the funding–shift proposal does not take into account a separate administration proposal, discussed above, to achieve budget savings through a significant reduction in the prison inmate population. In addition, a federal three–judge panel, appointed as a result of actions in the Plata and Coleman cases, has been considering whether to impose a population cap on the state prison system. The large–scale reductions in inmate population that could result from these potential legislative or legal actions would clearly affect the estimates of the number of new medical beds needed for the Receiver and the Coleman court.

Analyst’s Recommendations

Given the great uncertainty surrounding the operations and plans of the Receivership now that it is under new leadership, we recommend the following actions related to funding activities of the Plata Receiver.

New Funding for Medical Operations. We withhold recommendation on both the Governor’s budget request and the first Receiver’s budget requests. By the May Revision, we anticipate that the Legislature will have additional information upon which to base a decision about these spending proposals, including a clearer picture as to the spending priorities of the new Receiver and any revisions the court has made to the remedial plan that could affect the proposed level of state expenditures.

Shift of Bond Financing for Medical Facilities. We likewise withhold recommendation on the administration proposal to shift $2.2 billion in lease–revenue bond financing authority from various other prison projects to prison medical facilities now being planned by the Receiver, for several reasons. These projects also could change greatly as the remedial plan evolves. Moreover, the Legislature lacks critical information to justify the projects, including information on their cost, design, and timing. Also, proposals now pending before the Legislature and the court that would significantly reduce the size of the inmate population could affect the estimates of the number of new medical beds needed for the Receiver and open up new options for accommodating his facility needs. The Legislature should postpone action on the administration funding–shift proposals until these issues have been resolved.

Medical Savings From Population Reduction Proposals. The Legislature should encourage the new Receiver to revisit his predecessor’s proposal to move away from population–based budgeting for medical operations. The inmate population is subject to fluctuations from year to year due to demographic factors as well as criminal justice policy changes. Basing the medical budget on inmate population, in our view, helps to ensure that there is an appropriate level of resources for inmate medical care when these fluctuations occur. If the Governor’s proposals to reduce the inmate population are adopted, for example, we estimate the budget for inmate medical care should accordingly be reduced by $65 million in 2008–09 and about $80 million annually in subsequent years. Also, funding and staffing for inmate medical services would likely grow in the future in keeping with the historical growth that has occurred in the inmate population.

Funding Sought for Health Operations And Court Compliance

The Governor’s budget proposal contains three unrelated requests for correctional health care programs: (1) new office space and furniture for the Division of Correctional Health Care Services, (2) new dental positions at headquarters, and (3) compliance with court orders from a class action lawsuit regarding accommodations for disabled inmates. We recommend rejecting the proposal for the office relocation and approving, with certain technical modifications, the proposal for new dental staff. We withhold recommendation at this time on the proposal relating to inmate disability issues. (Reduce Item 5225–002–0001 by $5,075,000.)

The Governor’s budget contains three requests for correctional health care programs. These are: (1) $5 million for new office space and furniture for the Division of Correctional Health Care Services (DCHCS), (2) $2.6 million for 19 new dental positions at headquarters, and (3) about $16 million in the current year and $44 million in the budget year to comply with court orders from a class action lawsuit regarding accommodations for disabled inmates. We discuss each of these proposals and our recommendations below.

Relocation of DCHCS

The Governor’s budget requests an ongoing funding increase of $2.6 million to lease new office space and one–time funding of $2.4 million for new furniture, in order to relocate DCHCS. The DCHCS houses three main units: Mental Health, Dental Health, and Administration. The Dental Health and Administration units are currently located at 501 J Street in Sacramento, in the same building that houses the medical Receiver’s Plata Support Division. Due to a lack of available space in this building, the Mental Health unit is currently operating out of a temporary site at 1300 National Drive in Sacramento.

The budget proposal would consolidate all three units into a single space at a location in the Sacramento area that is still to be determined. The department has cited several reasons for this proposed consolidation and relocation, including the potential for better coordination among units, as well as the lack of additional space available at 501 J Street due to the expansion of the Plata Support Division.

Calculation of Space and Furniture Needs Unclear. While we agree that housing the three units together in one building makes sense, our analysis indicates that the proposed amount of new space and furniture far exceeds the division’s current needs. The DCHCS is currently authorized to have 292 positions. However, the department based its calculation for office space on 478 staff. The administration has indicated that it did so in anticipation of future court orders that it believes will expand its staff. However, the administration was unable to point to any specific court rulings to justify such a large increase. In addition, even if there were justification for leasing so much space, we find little justification for buying so much furniture now for staff that is not yet authorized.

LAO Recommendation. We recommend that the Legislature reject the proposal for $5 million to relocate DCHCS and advise the department to submit a revised proposal for the relocation more in line with its current staffing levels.

Staff Increases for the Inmate Dental Services Program

The Governor’s budget requests $2.6 million and 19 positions for headquarters staff for the dental program. The administration indicates that 16 of these positions are necessary in order to comply with a direct court order to improve the administration of dental services for inmates. The remaining three positions are necessary in order to comply with the California Code of Regulations, Title 15, which specifies the staffing requirements for a review committee that decides when to send inmates outside of prisons for dental care.

Technical Budgeting Adjustment. Our analysis indicates that the proposed new positions for dental programs are justified on the basis of court and regulatory requirements. However, our review of the calculations for the positions found that the department did not appropriately adjust for salary savings for the new positions. The state budgets for most types of staffing positions on the assumption that they will be vacant, on average, for 5 percent of each year to account for normal hiring delays and turnover in staffing. Ordinarily, the proposed appropriations for salaries and wages are reduced by 5 percent to account for these salary savings. However, the appropriate salary savings adjustments were not made for these new positions, which would, by our estimate, amount to approximately $75,000.

LAO Recommendation. We recommend that the Legislature reduce the amount requested by $75,000 to account for salary savings for the new dental positions.

Armstrong Court Compliance Plan

The Governor’s budget requests about $16 million and 24 positions in the current year and $44 million and 221 positions in the budget year in order to comply with court rulings in the Armstrong v. Schwarzenegger inmate class action lawsuit. The Armstrong court has ruled that the department is in violation of the Americans with Disabilities Act and has ordered it to bring its practices and institutions into compliance through various specific actions.

Our preliminary review of the proposal has raised a number of questions about the sizeable appropriations proposed in this measure, the ambitious timetable for implementation of these changes, and the technological approach being contemplated for Armstrong compliance. In any event, the department has advised us that it submitted this proposal as a “placeholder” in order to demonstrate to the court that it was acting speedily to implement the changes. We are advised that the proposal will be revised and resubmitted to the Legislature in the spring.

LAO Recommendation. We withhold recommendation on this proposal until the Legislature is in a position to evaluate the revised Armstrong compliance plan.