Major Issues

We estimate that the budget proposal is more than $700 million in excess of the amount needed to fully fund CalWORKs employment services.

We recommend deleting $95 million (General Fund) proposed as the state match for the new federal Welfare-to-Work block grant because it can be deferred to future years when the match could be provided from within baseline expenditures for CalWORKs.

We recommend reducing the budget for employment services by $209 million in federal TANF block grant funds. In conjunction with separate recommendations to reduce county welfare administration by $43 million, this would free up $252 million in federal TANF block grant funds. We recommend redirecting at least half of the savings ($126 million) to a reserve for future-year CalWORKs expenditures, and we identify options for the Legislature to consider in redirecting the remaining amount. (See pages C-118 and C-120 .)

Budget Proposes to Make Permanent the CalWORKs Grant Reduction and COLA Suspension

The budget proposes to make permanent the 4.9 percent statewide grant reduction and the COLA suspension, for a General Fund cost avoidance of $248 million in 1998-99. Under current law, the grant reduction and COLA will be restored November 1, 1998. (See page C-116.)

Budget Proposes to Make Permanent the State COLA Suspension for the SSI/SSP

The budget proposal would result in a General Fund cost avoidance of $39 million in 1998-99. (See page C-148.)

SSI/SSP Caseload Growth Is Overestimated

We estimate that the General Fund amount needed to fund the program is $113 million less than in the budget. (See page C-147.)

Over $200 Million of Budgeted Medi-Cal Savings Appear Arbitrary

In addition to specific adjustments made as a result of the transition to managed care, the Medi-Cal budget includes General Fund savings of $110 million in the current year and $133 million in 1998-99 as a result of "uncertainty adjustments" in the department's cost forecasting model. These global adjustments appear to be arbitrary. (See page C-50.)

Changes to the New Healthy Families Program Could Provide Better Coverage and Result in Savings

We recommend legislation to require children in the California Children's Services program to enroll, if eligible, in the Healthy Families program. This would provide more comprehensive health care coverage and result in an increase in federal funds and a $6.2 million reduction in state costs.

We also recommend that the administration report on the feasibility of including, as a benefit under the Healthy Families program, services provided by the regional centers for developmentally disabled children. (See page C-20.)

State Plan Amendment Would Result in General Fund Savings in the In-Home Supportive Services (IHSS) Program

Certain IHSS recipients could be made eligible for federal funds by amending our State Medicaid Plan. We recommend such an amendment, and estimate that this would result in General Fund savings of $35 million. (See page C-150.)

Overview

Expenditure Proposal and Trends

Figure 1 (see next page) shows that General Fund expenditures (current dollars) for health and social services programs are projected to increase by $1.4 billion, or 10 percent, between 1991-92 and 1998-99. This represents an average annual increase of 1.4 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 accounted for a significant increase in special funds starting in 1991-92. 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, except for a slight reduction in 1997-98, due primarily to a decline in California Work Opportunity and Responsibility to Kids (CalWORKs, formerly Aid to Families with Dependent Children [AFDC]) program caseloads.

Combined General Fund and special funds spending is projected to increase by 14 percent between 1991-92 and 1998-99. This represents an average annual increase of 1.9 percent.

Figure 1 also displays the spending for these programs adjusted for inflation (constant dollars). On this basis, General Fund expenditures are estimated to decrease by 8.7 percent between 1991-92 and 1998-99. Combined General Fund and special funds expenditures are estimated to decrease by 5.2 percent during the same period. This is an average annual decrease of less than 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. This shortfall was primarily due to the effects of the recession. The budget estimates that realignment revenues will be $2.8 billion in 1998-99.

Caseload Trends

Medi-Cal caseloads increased by 53 percent over the ten-year period shown in Figure 2. As the figure 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, Medi-Cal caseloads have declined, including an estimated reduction of 4.8 percent in the current year and 2.9 percent in 1998-99, due primarily to a decline in AFDC/CalWORKs caseloads.

Figure 3 shows the caseload trend for the CalWORKs and SSI/SSP programs. While the number of cases in SSI/SSP is greater than in the CalWORKs program, there are more persons in the CalWORKs program--about 2 million compared to about 1 million for SSI/SSP. (The SSI/SSP cases are reported as individual persons, while CalWORKs 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/CalWORKs 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/CalWORKs caseloads have declined. As we discuss in our report, California's Fiscal Outlook(November 1997), we believe that this trend is due largely to various factors affecting welfare caseloads, including the improving economy, lower birth rates for young women, a decline in legal immigration to California, and behavioral changes in anticipation of federal and state welfare reform.

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 accounts for about one-third of the total caseload. 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. We note, however, that in recent years the growth of the disabled caseload has slowed.

Total SSI/SSP caseload growth has also moderated in recent years. This is partly attributable to federal policy changes that (1) eliminated drug or alcohol addiction as a qualifying disability, (2) made aged noncitizens in the U.S. prior to August 1996 (but not yet on SSI/SSP) ineligible for assistance, and (3) added restrictions on the eligibility of disabled children.

Spending by Major Program

Major Budget Changes

1. The Budget Proposes to Fund Basic Caseload Growth in SSI/SSP and Reflects Savings From Basic Caseload Reductions in Medi-Cal and CalWORKs. This includes a projected caseload reduction of 2.9 percent in the Medi-Cal Program, a decrease of 5.6 percent in the CalWORKs program, and an increase of 2.1 percent in SSI/SSP (before adjusting for policy changes).

2. The Budget Proposes to Make Permanent Certain Grant Reductions and Suspension of Statutory Cost-of-Living Adjustments (COLAs). Specifically, it:

• Makes permanent the 4.9 percent statewide grant reduction in CalWORKs enacted in 1996-97 ($151 million cost avoidance).

• Makes permanent the suspension of the statutory COLAs in CalWORKs ($97 million cost avoidance) and SSI/SSP ($39 million cost avoidance). (The federal SSI COLA would be provided to the recipients as scheduled in January 1999.)

3. The Budget Funds the Full-Year Implementation Costs of the Major New Health and Welfare Programs Enacted in the Current Year.

• The budget proposes to increase spending for CalWORKs by $307 million in total funds, including an $88 million reduction from the General Fund. The increase is essentially funded by a large carry-over of unexpended federal TANF block grant funds from the current and prior years. The amount proposed for employment services includes $95 million from the General Fund to serve as part of the state match for the new federal Welfare-to-Work block grant, which will provide about $360 million in federal funds for local agencies (primarily Private Industry Councils) over the current and budget years.

• The budget proposes to increase total funding for the new Healthy Families Program from $21.1 million in the current year ($5.1 million General Fund) to $201 million in the budget year ($64.5 million General Fund). The budget-year amount includes $97.9 million ($33.3 million General Fund) for the Managed Risk Medical Insurance Board to implement a health insurance program for children in families that are not eligible for Medi-Cal, and whose incomes are up to 200 percent of the federal poverty level. Most of the remaining General Fund monies proposed for the Healthy Families Program are to expand eligibility in the Medi-Cal Program.

4. The Budget Proposes to Fund Caseload Increases and Enhanced Services for Developmentally Disabled Persons. This includes $114.9 million ($94.5 million General Fund, including Medi-Cal reimbursements) for caseload and cost increases, $50.9 million ($35.2 million General Fund, including reimbursements) to enhance services for regional center clients placed in the community, and $31.1 million ($16.1 million General Fund, including reimbursements) for the first year of a four-year expansion of staffing for the developmental centers.