Legislative Analyst's Office

Analysis of the 2000-01 Budget Bill
Public Health

The Department of Health Services (DHS) delivers a broad range of public health programs. Some of these programs complement and support the activities of local health agencies in controlling environmental hazards, preventing and controlling disease, and providing health services to populations who have special needs. Other programs are solely state-operated programs such as those that license health facilities.

The Governor's budget proposes $2 billion (all funds) for public health local assistance. This represents an increase of $79 million, or 4 percent, over estimated current-year expenditures. The budget proposes $349 million from the General Fund, which is a 7.1 percent decrease from current-year expenditures. The main reason for this decrease is the proposed substitution of federal funds for General Fund support of the Community Challenge Grant Program. This program funds local community projects designed to reduce teen pregnancy.

Statewide Immunization Information System

Since 1995, the DHS has been planning a statewide immunization information system (SIIS). This is an electronic record-keeping system designed to improve immunization levels, primarily among the state's 3.2 million infants and children under the age of five.

Under DHS's model, the SIIS would consist of a central repository into which locally-developed registries would input immunization data. Local registries have been developing independently and in advance of the SIIS. While some county registries have received state support and are required to follow certain technical guidelines, other counties are developing registries outside of state oversight. Many counties, moreover, do not have registries in development.

Provider participationthe submission of immunization data to the local registriesis not required by state law and, therefore, the degree of such participation is uncertain. In this analysis, we address the issues raised by the department's approach and recommend changes that, in our view, would move the state toward the implementation of an effective statewide immunization information system.

Why Does the State Need to Improve The Childhood Immunization Rate?

Children need immunizations to protect them from dangerous childhood diseases. If immunization rates drop significantly, these diseases resurface, such as in 1989 when a national measles outbreak and the subsequent death of 135 people were traced back to a decline in measles vaccinations. In California, the measles epidemic resulted in over $31 million in direct medical and outbreak control costs. Immunizations are cost-effective: the federal Centers for Disease Control and Prevention recently reported that every dollar spent on a vaccination saves between $6 and $16 in direct medical costs, depending on the type of vaccine.

Because immunizations can prevent debilitating and life-threatening diseases, the federal government's goal is to increase childhood immunization rates to 90 percent by the year 2000. In 1997 (the most recent year for which data are available), the national immunization rate for 19- to 35-month-olds was 76 percent. California's rate was 74 percent.

Lack of Information: A Barrier to Immunization. A child can fall behind in his or her immunizations for various reasons, such as barriers to access and cultural beliefs. However, much of underimmunization can be explained by a lack of information: providers often overestimate the percentage of their patients who are fully immunized, parents do not know their children's immunization status, most providers do not remind their patients when an immunization appointment is due or missed, and providers frequently do not have access to a child's immunization history because of scattered records and lost immunization cards. Missed opportunities to immunize are common and may be increasing due to parental and provider confusion about the growing number of recommended immunizations and the complexity of vaccination schedules. (The number of vaccinations recommended by the age of two has increased from 3 in the 1950s to between 15 and 19 in 1999.)

What Is an Immunization Registry And Why Is It Beneficial?

Immunization Registries. Immunization registries are confidential, computerized information systems that contain information about immunizations of children. Typically, children's registry records are established at the time of their birth (often through a linkage with electronic birth records) or at first contact with the health care system. If a registry includes all children in a given geographical area and all providers are reporting immunization information, it can provide a single data source for all community immunization participants, including parents, schools, health care providers, health plans, and public health departments. The value of creating an immunization registry statewide is that a child's immunization record can be updated and accessed regardless of the child's mobility across counties and regions within the state.

Benefits of Immunization Registries. The information available from registries provides several benefits. For example, immunization registries:

Key Assumptions in Assessing the Benefits of a Registry. The benefits of an immunization registry as described above do not happen automatically. Rather, they only occur if:

As we discuss below, the registry system currently being developed by the state will not ensure that either one of these conditions will be met.

What Is the State's Current Approach to Registry Development?

Background. In 1993, the federal government adopted a goal of developing a national electronic immunization tracking system. Although there is no federal requirement to do so, all 50 states have begun development and implementation of statewide tracking systems. Beginning in 1994, the federal government began allowing state and local governments to include immunization registries as one of the activities for which federal immunization grants could be used. Of the $139 million that California's state and local governments have received from this grant since 1995-96, $875,000 has been appropriated at the state level for the development of the SIIS. The DHS does not know how much of the local portion of the federal grant has been spent on local registry development.

In addition, the Legislature has appropriated a total of $17.5 million from the General Fund since 1995-96 to fund the efforts of selected local health departments that opted to develop local immunization registries. In a recently submitted Feasibility Study Report (FSR), the department proposes to build a central statewide hub to which local immunization registries would voluntarily link. Due to a 1999 executive order to deny approval of any technical project proposal until the year 2000 transition is successfully completed, the department has been unable to advance its FSR through the state's technical review process.

Need to Change the Department's Procurement Strategy

We recommend the adoption of budget bill language requiring the Department of Health Services to submit an Alternative Procurement Business Justification for the statewide immunization system, in which the department's procurement strategy would be based on desired program outcomes rather than technical specifications.

Background. In 1995, the Legislature enacted Chapter 314 (AB 254, Alpert), which authorized local health officers to operate immunization information systems "in conjunction with" DHS. In addition, the 1995-96 Budget Act included an initial appropriation of General Fund monies to DHS for the development of a state immunization registry, with most of the funds designated for the local level ". . . to develop a statewide network of local immunization tracking systems." Between 1995-96 and 1999-00, General Fund appropriations for support of local registry development totaled $17.5 million, or $3.5 million annually. The budget proposes to appropriate $3.5 million from the General Fund in 2000-01 for further local registry development.

Require DHS to Complete an Alternative Procurement Business Justification (APBJ). We believe that the department's recently released FSR for a central state hub for the SIIS is too prescriptive. This is because it specifies the technical solutions needed to accomplish the desired business functions of the registry, rather than allowing potential vendors to submit their proposed solutions. As we have recommended for other state system procurements, the department should not prescribe a technical solution during the procurement process, but instead should specify the objectives of the system. In other words, the department should state what it wants from the project and let the vendor community propose how it is to be accomplished. Such an approach has the advantage of not constraining vendors in proposing solutions, and places the burden of success on the vendor who contractually agrees that its solution could resolve the business problem.

Typically in this type of procurement, the department submits an APBJ prior to the FSR. The APBJ includes a description of the problem or opportunity prompting the request; a presentation of the current business process that is the subject of the proposal; the current cost of any existing system that the procurement would likely address; and the anticipated costs, benefits, and resource requirements that may result from a bid award. Because the current FSR is in its earliest stages of the development process, shifting to an APBJ procurement should not significantly affect the state's time line for completion of SIIS.

Accordingly, we recommend adoption of budget bill language to require the department to submit an APBJ for the statewide immunization information system, and that the APBJ (and the FSR to follow) specify the business requirements and objectives of the system rather than the technical solutions.

Our recommendation can be implemented by adoption of the following budget bill language in Item 4260-111-0001:

Of the amount appropriated in this item, $3,500,000 shall not be expended for local registry development until the department submits to the Department of Finance an Alternative Procurement Business Justification for the Statewide Immunization Information System.

Encouraging Coordination of Regional Registry Development

We recommend the adoption of budget bill language directing the Department of Health Services to require the inclusion of "project charters" in grant applications from counties that are developing regional registries, in order to facilitate regional cooperation and coordination in these efforts.

Half the Counties Have No Registry. Under the state's current approach, the first step in ensuring that every child's immunization record is entered into the SIIS is to ensure that every county or region develops a local registry. As of August 1999, 24 local registries were in development: 15 of the registries, covering 14 counties and 1 city in another county, have received state support; the other 9 registries, covering 15 counties and 2 cities, have begun developing their registries without state suppor--tusing only local and private funding.

Half of the state's counties currently are not developing registries. The majority of these counties are small and rural. About 15 percent of the state's zero-to-five-year-olds reside in these counties.

Budget Proposes Funds for Additional Grants for Regional Registries. The department expects to use the proposed $3.5 million General Fund appropriation for 2000-01 to provide regional development grants to groups of counties that do not have immunization registries and that wish to develop regional registries with adjoining counties. These grants would require regional registries to use data elements consistent with the other SIIS-funded registries, so that a uniform set of data can be transmitted to a statewide system.

Make Regional Collaboration Explicit. In order to ensure that regional immunization registries are developed collaboratively, we recommend that DHS require grant applications to include project charters. The Legislature recently applied this management tool in its child support automation legislationChapter 479, Statutes of 1999 (AB 150, Aroner). A project charter is a project management tool: the document articulates the goals and objectives that an organization or consortium is attempting to accomplish when an automation project is undertaken. These charters outline:

Absent these specifications, we believe the process of developing a regional registry is likely to be delayed by problems that could be prevented by working out solutions in advance.

Our recommendation can be implemented by adoption of the following budget bill language in Item 4260-111-0001:

In awarding grants to groups of counties for the purpose of developing regional immunization registries, the department shall require applicants to submit project charters that specify: the project's scope and description; a governance structure; an intercounty communications plan; specifications of the contracting authority, data ownership, and responsibility for maintenance of data; counties' roles and responsibilities; a description of how changes will be managed; exit and entrance rules for participants in the consortium; and a process for conflict resolution.

Ensuring Statewide Compatibility of All Local Registries

We recommend enactment of legislation requiring any local registry that chooses to participate in the statewide immunization system to comply with the state's guidelines for local registry development.

State Lacks Oversight of Some Registries. While the 15 registries that have received state support are contractually required to be equipped with certain functions and follow certain technical guidelines (and the regional grants would require this of new registries), 9 registries that have not received state funding are being developed outside the oversight of the state. Although the department is optimistic that these registries will be able to "communicate" with the statewide hub, there is no assurance of this.

In Order to Link-Up, Registries Need to Be Compatible. The DHS does not have explicit assurance from the nine registries developing outside the oversight of the state that they intend to link to the SIIS once it is developed. However, the involvement of some of the registries in a SIIS work group and the benefits of participating in a statewide information system provide some indication that these counties will link their registries to the SIIS. We are concerned, however, that the state is not ensuring that these registries' data and technical functions will be compatible with the other (state-funded) registries. Such compatibility will be important for the success of a statewide database. Therefore, we recommend the enactment of legislation requiring any local registry that wishes to link to the statewide database to comply with the state's registry guidelines that state-funded registries already follow.

Assuring Provider Participation in a Statewide Immunization Registry

We recommend the enactment of legislation requiring all immunization providers to participate in local registries, or in the statewide registry if the county in which the provider is located chooses not to develop a local registry.

Providers' submission of immunization data to registries is the linchpin of an effective immunization information system. When a provider administers an immunization, that information must be added to the child's electronic immunization record in the registry so that records remain up-to-date and to avoid unnecessary immunizations.

Participation of Providers Public and Private. To reiterate, the success of the SIIS will depend largely on the degree of participation by the providers. In order to ensure that all children's immunization records are entered and updated in the SIIS, we recommend enactment of legislation to require all immunization providers (public and private) to participate in their respective local registries or in the state registry (the central hub) where counties do not have their own registries. We note that ten states currently require provider participation in their statewide immunization registries. As we cited earlier, there are benefits to providers from an immunization registry, such as avoiding the manual search for immunization records, avoiding the administering of unnecessary immunizations, and more efficient delivery of reminder and recall notices when clients are due and overdue for immunizations.

Provide a State Match for Registries' Ongoing Costs

We recommend enactment of legislation to provide a state match for local registries' ongoing costs, effective 2001-02, in order to encourage the continuation of local participation in the statewide immunization system.

Raising children's immunization rates is a statewide goal, and the benefits are generally statewide. As such, it is important that the state take actions to facilitate statewide coverage by the local registries. To help accomplish this, we recommend that the state provide matching funds to participating counties for the ongoing costs of their registries, to take effect in 2001-02, when it is anticipated that all participating counties will be in the operational phase of the project.

Estimating the Costs of Local Immunization Registries. In its FSR, the department estimates that its proposed centralized state hub would result in a one-time cost of $3 million and annual ongoing costs of $1.1 million. This figure does not include the development and ongoing costs of local registries.

The cost of building a local immunization registry is not well-documented, partly because of variations among local registries, including population size, technical infrastructure, and vendor contracts. The DHS does not have information on the total cost of any local registry being developed in the state. However, the Robert Wood Johnson Foundation has examined the cost of certain registries (located in various states) that receive foundation support. Depending on various factors--population size, preexisting infrastructure, sophistication of registry functions--development costs ranged from $2.4 million to $6.9 million over a five-year time period. The average annual operating cost of a registry was $3.91 per child. This per-child figure includes the costs of entering immunization data into the registry, managerial oversight of the registry, software rentals, telecommunication costs, and overhead costs such as rent and heat.

Cost of a State Match. Based on the Robert Wood Johnson Foundation's estimates, if all of California's 3.2 million zero-to-five-year-olds had immunization records in local registries, the ongoing operating costs would total $12. million. Since the registries are not likely to capture every child's record, the cost will probably be less ($10 million is a rough estimate). Thus, it might cost the state about $5 million annually to bear half the cost of maintaining local registries. We note that the current $3.5 million General Fund appropriation for the development of local registries will not be ongoing. In addition, DHS estimates that the SIIS would avoid $3.7 million in annual costs that would otherwise be incurred by the department for activities such as consultations to immunization providers, patient immunization status determinations in private and public clinics, and immunization record verifications and replacements. Therefore, a state match of $5 million probably would not introduce any additional costs above the current-year budget level.

Funding Sources for a Statewide Immunization Registry

We recommend the enactment of legislation requiring the department to apply for federal matching funds, under the Medi-Cal and Healthy Families Programs, for the development and operation of the statewide immunization information system.

In this section, we identify potential funding sources that may be available to the state for the development and ongoing costs of the SIIS.

Medicaid. The federal Health Care Financing Administration is currently providing a federal match to states for the improvement of their Medicaid Management Information Systems. Currently, California receives a 90 percent federal match to build the state's system (called Management Information System/Decision Support System) and will receive a 75 percent federal match for ongoing costs of the system. These federal matches could be used to partially finance state-sponsored immunization registry development and maintenance if the registry system is part of an overall system that can be shown to benefit Medicaid clients. Thus, with 28 percent of California's zero-to-five-year-olds enrolled in Medi-Cal, the state may be able to obtain federal Medicaid funds for a percentage of the cost to build and maintain a registry system. Absent the enhanced Medicaid funding, there is reason to pursue a regular Medicaid match of 50 percent for registry costs (potentially state and local) that can be attributed to the Medi-Cal population.

Healthy Families Program. The state also may be able to obtain a federal Title XXI match (on a 2-to-1 federal/state basis) for the maintenance of a statewide immunization registry that benefits Healthy Families clients. We note however, that currently the state is claiming the maximum amount of federal funds available for administration under the 10 percent limit for administrative costs in the Healthy Families Program. Thus, at this time it would not be possible to obtain additional federal funds under this program for the registry. As Healthy Families enrollment increases, however, the program's administrative costs may fall below this limit and, thereby, free up room to submit claims for the costs of the registry, if allowed by the federal administration.

Other Public Health Programs

Proposition 99 Revenues Declining Slightly

The budget projects that Proposition 99 revenues will decrease by 1 percent in 1999-00 and 1.7 percent in 2000-01. Despite the overall decline in funding, the budget proposes to meet the demands of caseload-driven programs and augment certain other activities, particularly the statewide media campaign and emergency room physician services for uninsured individuals, by using additional resources from carry-over balances from 1999-00 and the budget's proposed release of $12 million from litigation reserves.

Proposition 99, the Tobacco Tax and Health Protection Act of 1988, established a 25-cent surtax on the sale of cigarette and tobacco products in California. The proposition requires that the revenues from the surtax be distributed to six accounts within the Cigarette and Tobacco Products Surtax Fund (C&T Fund) according to specified percentages, and further provides that expenditures from each account must be used for specific kinds of activities.

Declining Revenue Source. While Proposition 99 has been a diminishing revenue source due to the decreasing use of cigarettes, events in 1998-99 caused a greater reduction in these revenues (see Figure 1 on page 100). Specifically:

Figure 1
Proposition 99 Revenues Declining
1990-91 Through 2000-01

(Dollars in Millions)

Year Revenues Percent Change
1990-91 $539

1991-92 518 -3.9%
1992-93 499 -3.7
1993-94 473 -5.2
1994-95 465 -1.7
1995-96 462 -0.6
1996-97 463 0.2
1997-98 450 -2.8
1998-99 405 -10.0
1999-00 (est.) 401 -1.0
2000-01 (est.) 394 -1.7

Partly as a result of these factors, Proposition 99 revenues decreased by 10 percent in 1998-99. The budget, however, projects that the revenues will decrease by only 1 percent in the current year and 1.7 percent in the budget year.

Governor's Proposal. Additional resources are forecasted to be available in the budget year due to the carry over of unexpended balances ($76 million) from 1999-00 and the budget's proposal to reduce by $12 million the amount of funds set aside for pending litigation. As reflected in Figure 2, the Governor's budget proposes to meet the demands of caseload-driven programs (such as the Child Health and Disability Prevention Program and the Access for Infants and Mothers Program), and, compared to current-year expenditures, allocate additional resources to the following activities:

Figure 2
Proposition 99 Expenditures

Cigarette and Tobacco Products Surtax Fund

1998-99 through 2000-01

(Dollars in Thousands)

Departments/Programs Actual 1998-99 Estimated 1999-00 Proposed 2000-01 Percent Change From 1999-00
Department of Health Services
Chronic Diseases/Smoking Prevention
Breast Cancer Early Detection -- $11,660 $9,000 -23%
Media Campaign $22,370 22,057 45,264 105
Competitive Grants 17,068 28,325 17,690 -38
Committee and Evaluation 3,634 4,420 4,381 -1
Local Lead Agencies 25,065 17,426 17,426 --
Primary Care and Family Health
Clinic Grants $14,208 $7,653 $7,653 --
Comprehensive Perinatal Outreach 3,162 1,802 1,802 --
Child Health and Disability Prevention 49,291 55,160 59,882 9%
Children's Hospitals 990 565 565 --
County Health Services
Managed Care Counties $2,343 $1,336 $1,336 --
County Medical Services Program Expansion 9,983 5,693 5,693 --
California Healthcare for Indigents 146,387 83,483 105,806 27%
Rural Health Services 6,484 2,456 4,935 101
State Administration 5,692 5,086 7,148 41
Managed Risk Medical Insurance Board
Major Risk Medical Insurance Program $46,033 $42,764 $40,000 -6%
Access for Infants and Mothers 37,499 45,796 39,059 -15
Office of Statewide Health Planning and Development $1,837 $1,047 $1,047 --
University of California $23,871 $97,286 $27,451 -72%
Department of Education $35,404 $28,024 $28,038 0.1%
Resources programsa $33,477 $31,672 $30,330 -4%
State Board of Equalization $1,202 $1,293 $1,357 5


Pro rata charges $1,497 $1,821 $1,118 -39%
Totals $493,018 $496,825 $456,981 -8%
a Includes transfers to Habitat Conservation Fund and Natural Resources Infrastructure Fund.

Budget Proposes to Permanently Eliminate General Fund Support for County Medical Services Program

We recommend adopting trailer bill legislation that suspends the state's General Fund allocation of $20.2 million for the County Medical Services Program for 2000-01, rather than permanently eliminating the appropriation as proposed by the Governor.

Background. The County Medical Services Program (CMSP) was established in 1983 to provide medical and dental care to low-income "medically-indigent adults" (MIAs) who are not eligible for the state's Medi-Cal Program and who reside in small counties (see Figure 3 for participating counties). The CMSP governing board, comprised of ten county officials, is responsible for the administration of pooled funds from 34 counties to provide services to approximately 40,000 CMSP clients at an estimated cost of $198 million in 1998-99. The governing board sets eligibility requirements, benefit levels, and provider reimbursement rates, but contracts with DHS to administer a program offering uniform benefits and to provide claims processing functions.
Figure 3
Counties Participating in the County Medical Services Program
Alpine Mendocino
Amador Modoc
Butte Mono
Calaveras Napa
Colusa Nevada
Del Norte Plumas
El Dorado San Benito
Glenn Shasta
Humboldt Sierra
Imperial Siskiyou
Inyo Solano
Kings Sonoma
Lake Sutter
Lassen Tehama
Madera Trinity
Marin Tuolumne
Mariposa Yuba

History Behind General Fund Contribution. Prior to 1983, the MIA population was eligible for Medi-Cal coverage. However, in response to the state's budget problems, this population was transferred from the Medi-Cal Program to the counties, which were made responsible for their health services. Small counties, with populations of 300,000 or less, were permitted to contract with the state for administration of their programs, and this became known as the CMSP. Thirty-four counties initially chose the option. The counties adopted uniform eligibility criteria and benefits similar to the Medi-Cal Program. Initially, the state allocated $23.2 million to the program for health care services, which was 30 percent less than the estimated amount that would have been spent for services under the Medi-Cal Program. Until 1992-93, the state bore the risk for CMSP cost increases above specified revenue amounts.

Legislation was enacted in 1992 to cap the General Fund responsibility for CMSP at $20.2 million, which was the estimated amount needed for the program in 1991-92. In 1999-00, the General Fund appropriation for CMSP was eliminated for that fiscal year, keeping intact the statutory $20.2 million General Fund commitment for subsequent fiscal years.

The CMSP Fund Sources. Funding for CMSP includes realignment revenues (from the 1991-92 realignment legislation), Proposition 99 revenues, county funds, and hospital settlements (audit recoveries for overpayments to hospitals). Until 1999-00, the state General Fund was also a fund source. Figure 4 (see next page) displays the program's 1998-99 revenues.

Governor's Proposal. The Governor's budget proposes trailer bill legislation to permanently eliminate the state's General Fund appropriation of $20.2 million. The budget indicates that (1) CMSP has substantial fund reserves in its local program account and (2) expansions of health care programs by the state have reduced demand for county-funded health care services.

The CMSP Reserve Is Robust. Our review indicates that the CMSP's fund condition is sufficient to absorb the loss of the $20.2 million General Fund allocation in the budget year and possibly for a few additional years. In 1998-99, the CMSP Account showed a reserve of $141 million. Of this amount, $10.5 million was allocated for legal costs associated with a pending lawsuit. The board's approved budget for 1999-00 projects the reserve to be reduced to $97 million, partly as a result of the 1999-00 elimination of the General Fund appropriation and because estimated expenditures exceed projected revenues. At the same time, however, historical trends show that budgeted expenditures are consistently overestimated; therefore the 1999-00 fund reserve could be greater. We project that without the General Fund allocation, the fund will have sufficient resources to support the program for two years beyond the budget year, although there is some uncertainty in this projection.
Figure 4
County Medical Services Program Estimated Revenues

(Dollars in Thousands)

Source Amount Percentage of Total
Realignment $124,382 67%
General Fund 20,237 11
Hospital settlements 17,801 10
Proposition 99 9,983 5
County funds 5,459 3
Interest 3,068 2
Third-party payers 3,825 2
Unclaimed warrants 8 --
Totals $184,763a 100%
a Revenue totals do not include one-time receipt of $8.5 million from a private foundation.

Budget's Expansion Rationale Misleading. We note that one of the administration's reasons for proposing to permanently discontinue the $20.2 million General Fund contribution--that program expansions within the Medi-Cal Program, Healthy Families Program, and indigent health care programs will relieve some of the demand for CMSP--is not entirely accurate. For example, the Healthy Families Program serves children, whereas CMSP serves adults; and most of the $24.8 million that the budget proposes for augmenting emergency medical care services for uninsured individuals would be allocated to the California Healthcare for Indigents Program, which serves the 24 larger counties, not the counties that participate in CMSP.

Recommendation. Rather than permanently eliminate the General Fund contribution to CMSP, we recommend that the budget discontinue the appropriation for 2000-01 so that the CMSP Account's reserve can be monitored for unexpected revenue reductions and/or expenditure increases. For example, a downturn in the economy would likely generate an increase in the MIA population, as well as reductions in sales tax revenues that contribute to CMSP's realignment revenues.

Budget Does Not Maximize Federal Grant for Drinking Water Loan Fund

The budget's proposal to appropriate $15.4 million from the General Fund for the Safe Drinking Water State Revolving Fund does not maximize receipt of federal funds that are available. Passage of a water bond measure on the March 2000 ballot, however, would replace this General Fund appropriation and could maximize federal funds. We withhold recommendation pending the results of the March election.

Background. The department maintains the Safe Drinking Water State Revolving Fund to assist public water systems in financing the costs of their infrastructure improvements to comply with the requirements of the federal Safe Drinking Water Act. Federal funds are received from the U.S. Environmental Protection Agency (EPA), which provides capitalization grants to states according to a need-based formula.

State Match Requirements. Federal law requires that states match 20 percent of the federal funds. States must appropriate the match no later than the end of the following federal fiscal year (FFY). For example, in order for a state to draw down federal funds from FFY 1999 (October 1998 through September 1999), the 20 percent match must be appropriated by September 30, 2000, otherwise the state would lose these funds. The state then has until September 30, 2001 to obligate the funds to local water projects.

Available Federal Funds. By appropriating $15.1 million from the General Fund in the 1998-99 Budget Act, the state received its first federal grant of $75.7 million from FFY 1997. In 1999-00, the budget act appropriated $15.4 million from the General Fund in order to draw down the maximum $77.1 million in federal funds available from FFY 1998. Currently, both the FFY 1999 federal award of $80.8 million and the FFY 2000 federal award of $83.9 million are available for California's use to the extent that the state provides the matching funds.

Budget Proposal. The budget proposes to appropriate $15.4 million from the General Fund in the budget year in order to draw down $77.1 million in FFY 1999 federal grants. Under this proposal, the state will not receive the balance of the FFY 1999 federal award--$3.7 million. We note that according to the EPA, upgrading the state's local public water systems to meet current and anticipated federal regulations will cost $18 billion. Thus, it is apparent that local systems could benefit from additional funds. In order for the state to maximize receipt of all of the FFY 1999 federal grant, the state match would need to total $16.2 million, or $750,000 more than what the budget proposes.

Passage of Water Bond Measure Could Resolve State Match Deficiency. Proposition 13--the Safe Drinking Water, Clean Water, Watershed Protection, and Flood Protection Act--on the March 2000 ballot provides $1.97 billion in general obligation bonds for various water program purposes. Of this amount $70 million is available to use as the 20 percent state match to access the annual federal capitalization grants through state fiscal year 2004-05. If Proposition 13 is adopted by the voters, the water bond funds would be used in lieu of the General Fund appropriation for 2000-01, thereby providing the 20 percent state match of $16.2 million in order to draw down the full FFY 1999 federal grant of $80.8 million. Bond funds could also be used to draw down any portion of the FFY 2000 federal grant of $83.9 million that is also available in the budget year.

Consequently, we withhold recommendation, pending the results of the election.

Budget Proposes to Extend the Community Challenge Grant Program and Use Federal Funds

The budget proposes to extend the Community Challenge Grant Program for one year, using a $20 million federal award allocated to California for reducing its out-of-wedlock birth rates in 1997. The final report of the program evaluation, due January 1, 1999, had not been submitted at the time this analysis was prepared, but should be available prior to budget hearings.

Program Description and Budget Proposal. The Community Challenge Grant Program (CCGP) was established in 1996-97 to support local community projects to reduce teen pregnancy. Since 1996-97, the Legislature has appropriated $20 million from the General Fund annually to DHS for competitive grant awards under the CCGP.

Under current law, the program sunsets on June 30, 2000. The budget proposes to extend the program for one additional year and to continue funding it at $20 million in 2000-01. The budget proposes to fund the program in 2000-01 using a federal award received by the state because it reduced its out-of-wedlock birth rates in 1997.

Nature of Federal Bonus Award. The 1996 federal welfare reform legislation included bonus funds for states that could show they had reduced their out-of-wedlock birth rates without increasing their abortion rates. In 1997, California's out-of-wedlock birth rate declined by 5.7 percent from the previous year. The federal welfare reform legislation specifies that these bonus awards can only be used to carry out the goals of the Temporary Assistance for Needy Families (TANF) block grant. The four TANF goals are to (1) provide assistance to needy families; (2) end welfare dependency by promoting job preparation, work, and marriage; (3) prevent and/or reduce out-of-wedlock pregnancies; and (4) encourage the formation and maintenance of two-parent families. The federal government will continue to allocate these bonus awards for another three years.

Legislature Has Been Awaiting Program Evaluation. The CCGP's authorizing legislation--Chapter 197, Statutes of 1996 (AB 3483, Friedman)--required that the department conduct a statewide independent evaluation of the program and submit its findings to the Legislature on or before January 1, 1999. To meet the requirement, the department contracted with an independent evaluator, who submitted an interim report to the department in January 1999, essentially describing the implementation of program components. The Legislature was told during last year's budget hearings that the final evaluation would be completed in December 1999. At the time this analysis was prepared, however, the evaluation report was still under review by the administration. The department indicates that the evaluation should be submitted to the Legislature prior to the budget hearings.

Some Local California Children's Services Programs Not Complying With Statutory Requirement

Current law requires that all California Children's Services claims be submitted by counties to the state fiscal intermediary for payment no later than January 1, 1999. Ten counties have not yet transferred their claims processing activities to the centralized billing system. We recommend that the department report, at budget hearings, on the reasons for counties' noncompliance and present a plan for ensuring their cooperation.

Program Background. The California Children's Services (CCS) Program provides diagnostic and treatment services, medical case management, and medical and occupational therapy services to children under 21 years of age who have eligible medical conditions, such as severe genetic diseases, chronic health problems, or major traumatic injuries. The Medi-Cal Program pays for eligible CCS services for those children who are covered by Medi-Cal. Other costs attributed to the CCS Program are shared equally by the state General Fund and county funds. Additionally, for those CCS children who are also enrolled in the Healthy Families Program, federal funds will cover two-thirds of the cost of their CCS services.

The CCS Program is administered jointly by the state and counties. There are 28 "dependent" counties--counties with populations less than 200,000--that share CCS case management responsibilities with a state regional office. These counties are responsible for approximately 10 percent of the total CCS caseload. There are 30 "independent" counties--with populations greater than 200,000--that are solely responsible for case management activities.

Statutory Deadline Not Met. Chapter 1210, Statutes of 1994 (AB 2793, B. Friedman) establishes a centralized billing system and requires that all counties submit claims for payment of CCS services to the state fiscal intermediary--currently Electronic Data Systems (EDS)--no later than January 1, 1999. The statute further states that the department shall work with the counties to develop a timeline for the counties to begin submitting claims to the state. In addition, if a department review of the system demonstrates that as of January 1, 2000, any county has incurred increased costs as a result of submitting claims to the state fiscal intermediary, that county is exempt from the statute's requirement.

Benefits of Centralizing Claims Processing. The department indicates that the implementation of a centralized billing system (1) improves efficiencies and economies of scale in processing CCS claims, (2) ensures a consistent application of state CCS policies for coverage of services and provider reimbursement rates, (3) provides statewide information on CCS expenditures, and (4) processes claims in a timely manner.

In addition, the department states that it needs all counties to process their claims through EDS in order for it to fully implement the Children's Medical Services (CMS) Network Enhancement 47--a comprehensive database that will interface with other state information systems. Through this database, the CCS Program will, for example, be able to systematically identify whether a client has enrolled in the Healthy Families Program, in which case the state would be eligible for federal matching funds.

Ten Counties Still Outstanding. At the time that this analysis was prepared, 48 counties--covering 72 percent of the CCS caseload--were submitting their CCS claims to EDS for authorization and billing purposes. However, ten counties (Alameda, Fresno, Kern, Napa, Orange, Sacramento, San Francisco, San Joaquin, San Mateo, and Sonoma) had not yet transitioned to the centralized claims processing system. According to the department, six of these counties appear "committed" to completing this task, as they have provided the department with work plans and prospective implementation dates. Four counties, however, do not have these implementation plans in place. Consequently, we recommend that the department report, at budget hearings, on the reasons for the counties' noncompliance and present a plan for ensuring their cooperation.

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