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Budget and Policy Post
August 10, 2023

Mental Health Services Act

Impact of Governor’s Proposal on Funding for Children and Youth


Summary. This post is one in a series of analyses on the various components of the Governor’s Behavioral Health Modernization proposal. The Governor’s proposal is reflected in (1) SB 326 (Eggman), as amended on July 13, 2023, which would make far-reaching changes to the Mental Health Services Act (MHSA), and (2) AB 531 (Irwin), as amended June 19, 2023, which proposes a $4.7 billion bond for behavioral health facilities and housing for veterans. As we discussed in a previous post, the Governor’s proposal would change the funding categories under the MHSA, requiring counties to allocate more MHSA funding towards Full-Service Partnerships (FSPs) and housing interventions. This post assesses the potential impact of this aspect of the Governor’s proposal on county spending for children and youth mental health services. We find that, on net, whether the current level of county spending on children and youth services would be maintained within MHSA is uncertain. While counties would have less flexibility to spend funds on some children and youth services, counties likely would be able to increase spending of FSPs for children under 18. Consequently, and because there is no funding requirement for children and youth, the net effect on spending is unclear.

Background

Regulations Require Portion of MHSA Funds to Be Spent on Children and Youth. Approved by voters in 2004, the MHSA places a 1 percent tax on personal income over $1 million and dedicates the associated revenues to mental health services. The vast majority­ of MHSA revenues—at least 95 percent—goes directly to counties, ­­­­which use it to support a variety of services for individuals with or at risk of mental illness. Our earlier analysis of the Governor’s proposal to change the MHSA funding categories provides a description of what type of services are funded under current law. In particular, 19 percent of MHSA funding for counties must be used on Prevention and Early Intervention (PEI) activities, which are aimed at preventing mental illnesses before they become severe. Mental health services for children and youth largely align with the services that are allowable under PEI, though there are children and youth services provided under other categories as well. While there is no statutory MHSA funding requirement pertaining to children and youth services, the Department of Health Care Services (DHCS) proposed and adopted regulations requiring that at least 51 percent (approximately 10 percent of the total county-share of MHSA revenues) of PEI funds be used to serve individuals who are 25 years old or younger.

Children and Youth Behavioral Health Initiative (CYBHI) Provided Mostly One-time Funding for Children and Youth Mental Health Services, Including Infrastructure. The CYBHI, enacted in the 2021-22 Budget Act, provides $4.3 billion ($3.4 billion General Fund) to a number of behavioral health programs that target children and youth. Over two-thirds of the funding—$2.9 billion—is for limited-term programs, such as school-linked behavioral health partnerships and capacity grants that provide schools and institutions of higher education resources as they begin implementing a school-linked Medi-Cal fee schedule. About $350 million per year will support ongoing programs. Roughly half of this ongoing funding supports a new Virtual Services Platform that will provide behavioral health services and supports in an online setting to children and youth regardless of insurance type and refer individuals with higher needs to behavioral health professionals. The remaining half of ongoing funding supports the provision of dyadic services as a Medi-Cal benefit. Dyadic services are a model of care that integrate physical and behavioral health care for both children under 21 years of age and their parents/caregivers. (A “dyad” refers to a family unit of a child and their parent/caregiver.). The CYBHI also includes policy changes that are intended to expand access to children and youth behavioral health services on an ongoing basis. In particular, DHCS, in collaboration with the Department of Managed Health Care, is developing a statewide fee schedule to facilitate the provision of outpatient mental health and substance use disorder services to students 25 years of age or younger at or near a school site regardless of insurer type. The increased spending associated with the services provided via the fee schedule is unknown but could be significant.

Governor’s Proposal

Proposed Funding Categories Shift Mental Health Services Priorities. The Governor’s proposal would make major changes to how counties allocate MHSA revenues beginning July 1, 2026. The majority of MHSA funding—92 percent—still would go to counties, but the proposal shifts the focus of the funding allocations towards both FSPs (as a statutory requirement) and housing. Our earlier analysis of the Governor’s proposal to change the MHSA funding categories provides a description of the proposed categories. The current PEI category is removed under the proposal, however, 5 percent of MHSA funding for counties would go towards a new population-prevention category. Additionally, at least half of the new Behavioral Health Services and Supports (BHSS) category—15 percent of total funding to counties—must be spent on early intervention.

Proposal’s Target Population Includes Children and Youth With Behavioral Health Needs… The Governor’s proposal to restructure the MHSA funding categories broadly includes children and youth with serious emotional disturbances and substance use disorder as a target population. The proposal also requires DHCS to provide oversight over county spending on children and youth behavioral health services.

…But Does Not Include Funding Requirements for Children and Youth Mental Health Services. As noted above, there is currently a regulatory, but not statutory, requirement that counties spend a specified portion of their PEI funds on children and youth. Under the proposal, there is no statutory funding requirement for children and youth mental health services in any category, including the early intervention set-aside in BHSS and the population-based prevention services category. In addition, the proposal defines children and youth as individuals under 18 years of age whereas the current regulations require PEI spending on those individuals 25 years of age or younger. This leaves out the majority of transition-age youth, typically 16 to 25 years of age, from this target population.

Assessment

Methodology and Data Limitations

Data Limitations in Assessing Counties’ Current Spending. To assess the impacts of the proposal on children and youth mental health services spending, we collected 2021-22 program expenditure data from 50 counties (reflecting nearly 99 percent of California’s population). We estimate how much county MHSA expenditures are spent on mental health services for children and youth under current statute and how that may change under the Governor’s proposal. We evaluate which proposed categories counties’ 2021-22 spending would fall under, which in turn helps to estimate whether counties may need to spend less or more in those categories to meet the proposed funding targets. We outline the methodological and data limitations with this data set in our post on the proposed MHSA category changes. Below, we outline the limitations specific to the data collected on county expenditures of children and youth mental health services.

  • Counties must report to the state the percentage of PEI expenditures that go towards individuals under 25 years of age. This allows us to develop a fairly accurate measure of how much PEI expenditures are used on children and youth mental health services in any given year of data. However, to estimate the amount of Community Services and Supports (CSS) and Innovation expenditures that go towards children and youth services, we used program names across counties to determine if they might qualify as children and youth services. Given the data limitations, we may over or underestimate the current county MHSA spending on children and youth mental health services.

  • The Governor’s proposal classifies children and youth—for purposes of defining a broad target population—as individuals under 18 years of age, while many of the programs we classify as serving children and youth are inclusive of transition-age youth (individuals between the ages of 16 and 25). Due to limitations of available data on current county spending, differentiating between services for individuals under 18 years of age and services for individuals under 25 years of age is difficult. Accordingly, if the Governor’s proposal were adopted as written, our estimate may overestimate the amount of current county spending on what would be considered children and youth services under the proposal.

Current County Spending on Children and Youth Mental Health Services

In Addition to PEI Spending Requirement, Counties Provide Services to Children and Youth in Other Spending Categories. Statewide, county PEI spending on children and youth mental health services approximately matches what is required under current regulations. Counties expended approximately $235 million of PEI funding on children and youth mental health services in 2021-22, or about 11 percent of total MHSA funds which is slightly above the approximately 10 percent of the total county-share of MHSA revenues required by current regulations. While there are no regulatory requirements for spending on children and youth services in other MHSA categories, counties expended approximately $148 million on FSPs serving children and youth and $65 million on other children and youth services in the CSS and Innovation categories. In total, counties expended an estimated $448 million on children and youth mental health services (out of $2.1 billion total county MHSA expenditures).

Majority of Current Children and Youth Services Would Be Classified Under Proposed BHSS Category. We estimate that approximately $297 million—or 66 percent—of 2021-22 county expenditures for children and youth mental health services would be classified under the BHSS category. Most of the remaining current spending ($143 million) on children and youth mental health services would be classified under the FSP category, while only a small amount would be funded through housing interventions ($7 million).

Possible Changes to County Spending

Some Current Children and Youth Programs That Would Fit Under Proposed BHSS Category Likely Will Have to Be Reduced. We estimate that the total current county expenditures that would be classified under the BHSS category—across all populations—is $1.34 billion. Of this amount, $297 million is for children and youth services, which represents about two-thirds of all county spending on children and youth services. Under the proposal, however, BHSS funding would be limited to $626 million, which is $718 million less than what counties currently spend on these types of services. Consequently, counties likely will need to reduce or redirect a portion of their spending that would fall under the BHSS category, and with no funding requirement for children and youth services, county MHSA spending on some current children and youth programs likely will have to be reduced.

Spending on Children and Youth Services Delivered Under FSPs Could Increase by an Uncertain Amount. At least one-third of current children and youth mental health service expenditures are for FSPs and would be classified under the proposed dedicated FSP category. We estimate that counties currently spend $515 million on services that would fall under the proposed FSP category and would need to increase spending by $121 million to meet the proposed funding target. Given the proposal’s shift in focus to FSPs and the potential need for counties to increase spending on FSPs, counties could increase spending on children and youth mental health services in FSPs. However, how counties would respond to the new spending requirements is uncertain as there is no requirement under the proposal for a certain percentage of FSP spending to be targeted to children and youth and how counties might prioritize children and youth versus other populations for these services is unclear.

Proposal’s Focus on Housing Interventions Unlikely to Meaningfully Increase Spending on Children and Youth Services. While we estimate counties will need to increase spending on housing interventions relative to 2021-22 levels, whether additional spending would or could be targeted for children and youth is unclear. We estimate only a very small amount of current county expenditures on children and youth services would be classified under the proposed housing interventions category. Under the proposal, the target populations for services under the housing interventions, such as the chronically homeless, do not typically include children and youth. Additionally, the types of services that would be funded under the housing interventions category do not align well with the provision of current services to children and youth.

On Net, Uncertain Whether Current Level of MHSA Spending on Children and Youth Services Will Be Maintained. Given the above-noted likely reductions balanced with potential increases (of an uncertain amount) in child and youth mental health services under the Governor’s proposal, whether the current level of MHSA spending on children and youth services will be maintained is uncertain. While there is uncertainty in what the impact of the proposal will be on children and youth services statewide, there is even more uncertainty at the county-by-county level. This reflects the significant variation among counties in how children and youth mental health services are delivered (for example, FSP versus non-FSP settings) and the extent to which counties would choose to prioritize using MHSA revenue on children and youth mental health services without an explicit funding requirement. Moreover, under the proposal, the definition of children and youth does not include the majority of transition-age youth. This population, in particular, could see reduced MHSA funding for services even if a children and youth funding requirement were established.

Issues for Legislative Consideration

Ascertaining Administration’s Estimate of the Impact of its MHSA Funding Category Proposal on County Spending on Children and Youth Mental Health Services. We estimate that the Governor’s proposal will shift MHSA spending towards FSPs and housing interventions, with a reduction or redirection of funding for other services. However, what the net impact on children and youth spending would be under the proposal is unclear. We recommend the Legislature work with the administration to answer a number of key questions to help establish whether the proposal meets legislative goals for MHSA. Questions to ask the administration include:

  • What is the estimated impact of the administration’s proposal on current MHSA-funded county children and youth mental health services programs? How will the level and makeup of county MHSA spending on children and youth mental health services change? What county-by-county variation is expected?

  • The administration has pointed to the CYBHI as one new funding source for children and youth. While CYBHI added significant ongoing resources, most of the package was one time or temporary in nature, whereas MHSA provides ongoing funds to counties. There are also important differences, relative to MHSA-funded county programs, in the reach and focus of CYBHI programs. For example, dyadic services are provided to Medi-Cal beneficiaries, whereas MHSA funds can be used for a broader population. CYBHI efforts also are relatively standardized statewide, whereas MHSA services are tailored to meet local needs. To what extent do the ongoing CYBHI programs replace the need for children and youth mental health services funded by the MHSA? What would be the benefits of maintaining county MHSA spending on children and youth programs at current levels and supplementing these programs with the CYBHI?

  • What is the administration’s rationale for excluding transition-age youth from the definition of children and youth as a target population of the proposal? From the administration’s perspective, would including all individuals under the age of 25 as a target population impact what services could be funded under the proposal?

Consider Providing a Children and Youth Funding Requirement. Should maintaining spending on children and youth services be a priority for the Legislature, there are a number of ways that the Legislature could amend the Governor’s proposal to include a children and youth mental health services funding requirement.

  • Require a Percentage of FSPs Be Spent on Children and Youth Services. We estimate that counties would need to increase MHSA spending on FSPs under the proposal to meet the FSP category target. FSPs have been shown to reduce the use of mental health emergency services in children and are effective in reaching underserved children in California. As counties already use MHSA funds on children and youth services in FSPs, including a funding requirement may help to maintain, or even grow, children and youth services without impacting current services.

  • Expand Proposed Funding Requirement Within BHSS to Include Early Intervention and Children and Youth Services. The Governor’s proposal requires half of the BHSS category to be used for early interventions, about 15 percent of total county MHSA funding. Based on our estimate, counties spent only 5 percent of total county MHSA funding on early intervention services in 2021-22. The Legislature could consider expanding the proposed funding requirement within BHSS (without changing the percentage of the funding requirement) to include both early intervention services and children and youth mental health services. However, we note that by requiring half of the BHSS category to be used for early intervention and children and youth services, there would likely be a reduction in the amount of early intervention spending that would otherwise occur under the Governor’s proposal. In assessing this approach, the Legislature would want to consider the potential impact on early intervention spending.

  • Require a Percentage of Total County MHSA Revenue to Be Spent on Children and Youth. Another alternative the Legislature could consider is to require a portion of total county MHSA revenue to be spent on children and youth services. A broad funding requirement would give counties flexibility to direct MHSA funding to relevant local services while ensuring a minimum level of support for children and youth services. This alternative, however, comes with the trade-off of reducing the Legislature’s ability to direct children and youth funding to specific types of services. While the Legislature might consider requiring a portion of each proposed category be spent on children and youth services, this approach comes with a number of drawbacks. As discussed above, adding a funding requirement to the FSP category may increase funding for an effective approach to providing children and youth mental health services with a limited impact on current service levels. However, requiring a certain portion of funding under BHSS overall could result in a further reduction of other current services as the proposed BHSS category is already overprescribed. Additionally, the eligible services under the proposed Housing Interventions category do not align with the current children and youth services that counties fund with MHSA. In summary, requiring a portion of total county MHSA revenues be used on children and youth services is worthy of consideration as it would ensure a baseline level of MHSA spending on children and youth and provide counties flexibility. In contrast, setting a funding requirement for each proposed category could further reduce the available MHSA funding for other current services or redirect funding to less effective services.