LAO Analysis of the 1997-98 Budget Bill
Health and Social Services Overview

  1. Major Issues
  2. Overview
    1. Expenditure Proposal and Trends
    2. Caseload Trends
    3. Spending by Major Programs
    4. Major Budget Changes
      1. Savings Would Require Federal Action
      2. Welfare Reform

Major Issues

Health and Social Services

Governor Proposes to Redesign the AFDC/TANF Program

Governor Proposes to Eliminate County Mandate to Provide General Assistance

$484 Million in State Savings Depends on Federal Action

Budget Proposes to Make Temporary Grant Reductions and Cost-of-Living Adjustment Suspensions Permanent

Caseloads Lower Than Projected in Budget

Budget Reflects Savings from Federal Welfare Reform Provision Denying Noncitizens' Eligibility for SSI/SSP Benefits

Budget Proposes to Eliminate State-Only Medi-Cal Program for Prenatal Services for Undocumented Women


Health and Social Services

General Fund expenditures for health and social services programs are proposed to decrease by about 2 percent in the budget year. Most of this reduction is due to certain welfare grant reductions and shifting state costs to the federal government.

Expenditure Proposal and Trends

The budget proposes General Fund expenditures of $14.5 billion for health and social services programs in 1997-98, which is 29 percent of total proposed General Fund expenditures. The budget proposal represents a reduction of $355 million, or 2.4 percent, from estimated expenditures in the current year.

Figure 1 (see next page) shows that General Fund expenditures for health and social services programs are projected to increase by $1.2 billion, or 8.7 percent, between 1990-91 and 1997-98. This represents an average annual increase of 1.2 percent.

In 1991-92, realignment legislation shifted $2 billion of health and social services program costs from the General Fund to the Local Revenue Fund, which is funded through state sales taxes and vehicle license fees. This shift in funding accounts for the significant increase in special funds starting in 1991-92, as shown in Figure 1. General Fund spending declined in 1992-93, due to various program reductions (the largest being welfare grant reductions). The following years reflect an upward trend in spending until 1997-98, when a reduction is proposed.

Combined General Fund and special funds spending is projected to increase by 27 percent between 1990-91 and 1997-98. This represents an average annual increase of 3.4 percent.

Figure 1 also displays the spending for these programs adjusted for inflation. On this basis, General Fund expenditures are estimated to decrease by 7.5 percent between 1990-91 and 1997-98. Combined General Fund and special funds expenditures are estimated, however, to increase by 7.9 percent during the same period, on a constant dollar basis. This is an average annual increase of 1.1 percent.

As noted previously, the 1991 realignment legislation significantly altered the financing of health and social services programs by transferring funding for all or part of several mental health, public health, and social services programs to the counties. The sales tax and vehicle license fee revenues dedicated to realignment amounted to $2 billion in 1991-92, which was $239 million short of the amount that was initially estimated. The budget estimates that realignment revenues will be $2.7 billion in 1997-98.

Caseload Trends

Figures 2 and 3 illustrate the caseload trends for the largest health and welfare programs. Figure 2 shows Medi-Cal caseload trends over the last decade, divided into four groups. Families and children (primarily recipients of Aid to Families with Dependent Children--AFDC), the aged and the disabled (primarily recipients of Supplemental Security Income/State Supplementary Program--SSI/SSP), and refugees and illegal immigrants. (Pursuant to the 1996 federal welfare reform legislation, AFDC is also referred to as Temporary Assistance for Needy Families, or TANF.)

Medi-Cal caseloads increased by 81 percent over the last decade. As Figure 2 shows, most of this growth occurred during the period from 1989-90 through 1994-95. The growth in the number of families and children receiving Medi-Cal during this period reflects the rapid growth in AFDC caseloads during this time as well as the expansion of Medi-Cal to cover additional women and children with incomes too high to qualify for cash aid in the welfare programs. Coverage of refugees and illegal immigrants also increased caseloads significantly during this period. Since 1994-95, overall Medi-Cal caseloads have grown much more slowly, due primarily to a slight decline in AFDC caseloads.

Figure 3 shows the caseload trend for the AFDC (Family Group and Unemployed Parent components) and SSI/SSP programs. While the number of cases in SSI/SSP is greater than in the AFDC Program, there are more persons in the AFDC Program--about 2.6 million compared to about 1 million for SSI/SSP. (The SSI/SSP cases are reported as individual persons, while AFDC cases are primarily families.)

Caseload growth in these two programs is due, in large part, to the growth of the eligible target populations. The increase in the rate of growth in the AFDC caseloads in 1990-91 and 1991-92 was partly due to the effect of the recession. During the next two years, the caseload continued to increase but at a slower rate of growth. This slowdown, according to the Department of Finance, was due partly to (1) certain population changes, including lower migration from other states; and (2) a lower rate of increase in "child-only" cases (including citizen children of undocumented and newly legalized persons), which was the fastest growing segment of the caseload until 1993-94. (For a discussion of other factors affecting the AFDC caseload during this period, please see our report on the program in The 1991-92 Budget: Perspectives and Issues, page 189.)

Figure 3 also shows that since 1994-95, AFDC caseloads have declined. As we discuss in our report, California's Fiscal Outlook (November 1996), we believe that this trend is due largely to various factors affecting welfare caseloads, including the improving economy, lower birth rates for young women, and a decline in legal immigration to California.

The SSI/SSP caseload can be divided into two major components: the aged and the disabled. The aged caseload generally increases in proportion to increases in the eligible population--age 65 or older. This component of the caseload accounts for about one-third of the total. The larger component--the disabled caseload--has been growing faster than the rate of increase in the eligible population group (primarily ages 18 to 64). This is due to several factors, including (1) the increasing incidence of AIDS-related disabilities, (2) changes in federal policy that liberalized the criteria for establishing a disability, (3) a decline in the rate at which recipients leave the program (perhaps due to increases in life expectancy), and (4) expanded state and federal outreach efforts in the program.

As the figure shows, the budget projects a significant reduction (6.8 percent) in the SSI/SSP caseload in 1997-98. This is due to the provision in the federal welfare reform legislation of 1996 which makes legal noncitizens ineligible for the program.

Spending by Major Programs

Figure 4 (see page 10) shows expenditures for the major health and social services programs in 1995-96 and 1996-97, and as proposed for 1997-98. As shown in the figure, the three major benefit payment programs--Medi-Cal, AFDC, and SSI/SSP--account for a large share of total spending in the health and social services area.

Major Budget Changes

Figures 5 and 6 (see pages 11, 12) illustrate the major budget changes proposed for health and social services programs in 1997-98. (For technical reasons related to the change from a matching arrangement to a block grant for federal funds, our figures for the AFDC/TANF program components are larger than the amounts indicated in the Governor's budget.) Generally, the major changes can be grouped into the following categories:

1. The Budget Proposes to Fund Basic Caseload Changes. This includes funding for a projected caseload increase of 0.5 percent in the Medi-Cal Program, a decrease of about 1 percent in the AFDC Program, and an increase of 1.8 percent (before adjusting for policy changes) in SSI/SSP.

2. The Budget Reflects a Significant Shift of State Costs to the Federal Government. This would be accomplished by the following actions:

Figure 4
Major Health and Welfare Programs Budget Summarya

1995-96 Through 1997-98

(Dollars in Millions)




Proposed 1997-98 Change From 1996-97
Amount Percent
General Fund $6,252.9 $6,908.4 $6,943.1 $34.7 0.5%
All funds 16,479.1 18,411.5 18,394.2 -17.3 -0.1
General Fund $2,712.4 $2,228.7 $1,965.7 -$263.0 -11.8%
All funds 5,607.2 5,165.8 4,620.1 -545.7 -10.6
General Fund $293.2 $336.3 $353.8 $17.5 5.2%
All funds 1,176.7 1,190.7 1,408.3 217.6 18.3
General Fund $2,050.6 $2,069.9 $1,660.3 -$409.6 -19.8%
All funds 5,586.3 5,731.1 5,066.1 -665.0 -11.6
County welfare


General Fund $477.4 $491.8 $560.3 $68.5 13.9%
All funds 1,833.7 1,993.8 2,049.3 55.5 2.8
In-Home Supportive


General Fund $254.1 $331.3 $375.3 $44.0 13.3%
All funds 924.6 1,061.0 1,167.6 106.6 10.0
Regional centers/

community services

General Fund $395.6 $453.1 $488.9 $35.8 7.9%
All funds 943.0 1,045.0 1,151.7 106.7 10.2
Developmental centers
General Fund $30.7 $31.2 $33.4 $2.2 7.1%
All funds 567.2 532.7 442.4 -90.3 -17.0
Child welfare services
General Fund $318.0 $333.3 $349.7 $16.4 4.9%
All funds 967.6 1,061.2 1,064.9 3.7 0.3
State hospitals
General Fund $199.6 $215.1 $247.3 $32.2 15.0%
All funds 435.1 464.0 456.1 -7.9 -1.7
a Excludes departmental support.

Figure 5
Health Services Programs

Proposed Major Changes for 1997-98

General Fund

Medi-Cal Requested: $6.9 billion
Increase: $35 million (+0.5%)
+$93 million for caseload increase
+$376 million due to higher utilization of services and other cost increases
+$50 million for increased costs to reimburse certain hospitals for their capital project debt
+$43 million (including $23 million transferred from the Office of Family Planning) for the full-year costs and expansion of the family planning program
+$25 million for a new drug--human growth hormone--for the treatment of AIDS

-$216 million by assuming federal reimbursement for emergency services for undocumented persons
-$112 million from an increase in the federal cost-sharing ratio
-$80 million by eliminating the state-only program for prenatal care for undocumented persons
Public Health Requested: $308 million
Decrease: $12 million (-3.7%)
+$16 million due to increased caseload and costs for the AIDS Drug Assistance Program
Figure 6
Social Services Programs

Proposed Major Changes for 1997-98

General Fund


Employment Services

Requested: $2.1 billion
Decrease: $237 million (-10%)
+$80 million for employment services (CalTAP proposal)

-$245 million (cost avoidance) by not restoring the statewide 4.9 percent grant reduction and the cost-of-living adjustment
-$156 million by revising the grant structure (CalTAP proposal)
-$74 million due to a decline in basic caseloads
County Welfare Administration Requested: $560 million
Increase: $68 million (+14%)
+$93 million to train caseworkers and pay for increased data processing costs for the proposed CalTAP.
SSI/SSP Requested: $1.7 billion
Decrease: $410 million (-20%)
-$153 million to reflect federal provision eliminating most legal noncitizens from SSI/SSP
-$66 million by assuming federal legislation to implement the regional 4.9 percent grant reduction (current state law)
-$213 million by assuming federal legislation to implement statewide 4.9 percent grant reduction.
In-Home Supportive


Requested: $375 million
Increase: $44 million (+13%)
+$90 million (and $37 million in current year) due to increases in the minimum wage

-$22 million due to legal noncitizens' loss of eligibility resulting from federal welfare reform provisions for SSI/SSP

3. The Budget Reflects Savings From federal welfare reform Provisions Making Noncitizens Ineligible for Certain Health and Welfare Programs:

4. The Budget Proposes to Make Permanent Certain Grant Reductions and Cost-of-Living Adjustment (COLA) Suspensions in the AFDC and SSI/SSP Programs:

Savings Would Require Federal Action

The budget proposes significant changes in the health and social services area that depend on federal legislation. As Figures 5 and 6 show, this includes: $216 million in General Fund savings by assuming federal funds to reimburse the state for Medi-Cal emergency services for undocumented persons; and net General Fund savings of $268 million ($279 million in the Department of Social Services, offset by $11 million in costs in other departments) from SSI/SSP grant reductions.

Welfare Reform

The Governor proposes legislation to redesign the AFDC Program, effective January 1, 1998. Figure 7 summarizes the key features of the Governor's proposal--the California Temporary Assistance Program (CalTAP). The proposal is estimated to result in a net General Fund savings of $3 million in 1997-98. This consists of costs of $172 million for employment services and county administration, and savings of $175 million due to changes in the grant structure (which results in lower grants to recipients with earned or unearned income) and a requirement that new applicants establish paternity for their children before qualifying for the full amount of the grant.

Our office has released a report that offers a different approach to redesigning the welfare system. (Please see Welfare Reform in California: A Welfare-to-Work Approach, January 23, 1997.) We discuss the Governor's proposal and our approach in detail in our analysis of the AFDC/TANF Program.

Figure 7
Governor's Proposal to Reform Welfare
Grant Reduction After Six Months. Beginning January 1, 1998, Temporary Assistance for Needy Families recipients on aid for more than six months will receive a grant reduction of 15 percent.
Time Limits:
  • For those on aid prior to January 1, 1998, recipients are limited to two years of cash assistance in any three-year period. After the two years, benefits are reduced by roughly 15 percent (the portion of the grant for the adult) and this aid is provided in the form of noncash benefits (state-funded) such as vouchers.
  • For those coming on aid as of January 1, 1998, their cash assistance is limited to one year in any two-year period. After the one year, benefits are reduced as noted above.
  • Recipients who go off aid (grant and voucher) for one year would be eligible to return at the same level of cash benefits as new applicants.
  • Lifetime receipt of cash assistance is limited to five years. After this period, benefits are available, but limited to noncash assistance as noted above.
Participation Mandate. To receive assistance, recipients must participate for 32 hours per week (35 hours for two-parent families) in work or county-approved education or training activities.
Grant Structure. Families with income (including earnings) will have lower grants (roughly 30 percent) than under current law as a result of reducing the amount of income that is excluded when calculating the grant.
Services. Provides additional funding for automation, employment services, and training for county caseworkers.

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