Legislative Analyst's Office

Analysis of the 2002-03 Budget Bill


General Fund expenditures for health and social services programs are proposed to increase by 3.3 percent in the budget year. This net increase in spending is due primarily to a variety of caseload and cost increases partially offset by suspension of cost-of-living adjustments in social services programs and certain health program reductions.

Expenditure Proposal and Trends

The budget proposes General Fund expenditures of $22.4 billion for health and social services programs in 2002-03, which is 28 percent of total proposed General Fund expenditures. Figure 1 shows health and social services spending from 1995-96 through 2002-03. Although the health and social services share of the budget is proposed to be less in 2002-03 than it was in 1995-96, it does increase slightly in both the current and budget years. The budget proposal represents an increase of $719 million, or 3.3 percent, over the revised estimated expenditures in the current year.

Figure 1 shows that General Fund expenditures (current dollars) for health and social services programs are projected to increase by $8.2 billion, or 57 percent, from 1995-96 through 2002-03. This represents an average annual increase of 6.7 percent.

The figure also shows that General Fund spending (in current dollars) has increased each year since 1995-96, 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. 

Special funds expenditures are estimated to remain level in the budget year. Under the Governor's spending plan, expenditures from a special new trust fund (tobacco settlement funds) for certain health services programs would remain about the same as in the current year. This is because, under the Governor's proposal, a portion of the tobacco settle ment funds that were originally intended to support growth in health programs will instead be used to pay debt service on money the state would borrow using future settlement proceeds as security. We discuss this proposal later in this chapter of the Analysis. The line-up of health programs supported with tobacco settlement funds in 2002-03 would also change significantly under the Governor's budget plan from the allocation provided in the 2001-02 Budget Act. Some programs would be shifted to General Fund support while others previously supported from the General Fund would be shifted to the new special fund.

Combined General Fund and special funds spending is projected to increase by about $10 billion, or about 58 percent, from 1995-96 through 2002-03. This represents an average annual increase of 6.7 percent. 

Figure 1 also displays the spending for these programs adjusted for inflation (constant dollars). On this basis, General Fund expenditures are estimated to increase by 31 percent from 1995-96 through 2002-03, an average annual rate of 4 percent. Combined General Fund and special funds expenditures are also estimated to increase by 31 percent during the same period.

Caseload Trends

Figures 2 and 3 illustrate the caseload trends for the largest health and social services programs. Figure 2 shows Medi-Cal caseload trends over the last decade, divided into three groups: families and children (primarily recipients of CalWORKs--formerly AFDC), refugees and undocumented persons, and disabled and aged persons (who are primarily recipients of Supplemental Security Income/State Supplementary Program [SSI/SSP]). Figure 3 shows the caseloads for CalWORKs and SSI/SSP.

Medi-Cal Caseloads. As shown in Figure 2, the Governor's budget plan assumes that significant caseload growth will occur during the bud get year in the Medi-Cal program. Specifically, the overall caseload is anticipated to increase by about 300,000 eligibles, or 4.9 percent, during 2002-03 compared to the estimated current-year caseload.

This projected trend reflects the estimated impact of a number of policy changes to the Medi-Cal program approved during the past few years. The changes resulting in the largest projected caseload increases are (1) the expansion of health coverage for two-parent families earning up to 100 per-cent of the federal poverty level (FPL), (2) changes in program rules intended to make it easier for families and children to remain eligible for Medi-Cal coverage or to be enrolled in the program, and (3) a caseload shift to Medi-Cal that would result from the Governor's proposal to eliminate the Child Health and Disability Prevention program.

These increases in caseload would be partly offset by a projected decline in the number of CalWORKs families who are eligible for Medi-Cal benefits. Following the enactment of welfare reform laws, the number of CalWORKs families and children has declined, along with the number of persons who are on Medi-Cal due to their receipt of CalWORKs public assistance. While this decrease in the CalWORKs-related caseload would continue to be significant, the Governor's budget proposal assumes it will not be sufficient to offset the other factors discussed above that are increasing the Medi-Cal caseload.

Healthy Families Caseload. The Governor's budget plan assumes that the caseload for the Healthy Families Program will continue the rapid growth experienced since it began enrolling children in July 1998. The budget provides for the enrollment of 85,000 additional children, a 15 percent increase in caseload, by the end of 2002-03 as a result of ongoing outreach efforts to increase program participation and several changes in eligibility rules. The Governor's January budget plan also delays until 2003-04 a proposed major expansion of the program to parents in families earning up to 250 percent of the FPL because of delays in obtaining federal approval for the change as well as the state's fiscal problems. The federal government announced its approval in January 2002 of a waiver initially allowing the program to serve parents in families earning up to 200 percent of the FPL. Subsequently, the Governor indicated that he was interested in going forward with the expansion provided funding were available to allow this to occur.

The CalWORKs and SSI/SSP Caseloads. Figure 3 shows the caseload trend for CalWORKs and SSI/SSP. While the number of cases in SSI/SSP is greater than in the CalWORKs program, there are more persons in the CalWORKs program--about 1.5 million compared to about 1.1 million for SSI/SSP. (The SSI/SSP cases are reported as individual persons, while CalWORKs cases are primarily families.)

To the extent that caseloads increased in these two programs, it has been due, in part, to the growth of the eligible target populations. As Figure 3 shows, the CalWORKs caseloads increased through the early 1990s due to the recession, peaking in 1994-95. Then the caseloads declined steadily for several years, bottoming out in 2001-02, and are projected to increase slightly in 2002-03.

As discussed in our annual California's Fiscal Outlook reports, the caseload declines are due to various factors, including the improving economy, lower birth rates for young women, a decline in legal immigration to California, changes in grant levels, behavioral changes in anticipation of federal and state welfare reform, and, since 1999-00, the impact of the CalWORKs program interventions (including additional employment services). The projected caseload increase in 2002-03 can be attributed to (1) the downturn in the economy, (2) growth in the child-only component of the caseload, and (3) the likelihood that the remaining caseload with adults probably faces substantial barriers to employment.

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--grew significantly faster than the rate of increase in the eligible population group (primarily ages 18 to 64) in the early 1990s. This was due to several factors, including (1) the increasing incidence of AIDS-related disabilities, (2) changes in federal policy that broadened 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. In recent years, however, the growth of the disabled caseload has slowed.

In the mid-to-late 1990s, the total SSI/SSP caseload leveled off and actually declined in 1997-98, in part because of federal changes that restricted eligibility. Since March 1998, however, the caseload has been growing moderately, about 2.3 percent each year.

Spending by Major Program

Figure 4 shows expenditures for the major health and social services programs in 2000-01 and 2001-02, and as proposed for 2002-03. As shown in the figure, the three major benefit payment programs--Medi-Cal, CalWORKs, and SSI/SSP--account for a large share of total spending in the health and social services area.

Figure 4

Major Health and Social Services Programs
Budget Summarya

(Dollars in Millions)





Change From 2001-02










  General Fundb






  All funds












  General Fund






  All funds






AFDC-Foster Care

  General Fund






  All funds












  General Fund






  All funds






In-Home Supportive Services

  General Fund






  All funds






Regional Centers/Community Services

  General Fundb






  All fundsc






Developmental Centers

  General Fundb






  All fundsc






Child Welfare Services

  General Fund






  All funds






Healthy Families

  General Fundd






  All funds






Children and Families First Commissionse

  General Fund






  All funds






Child Support Services

  General Fund






  All funds






a   Excludes departmental support.

b   Beginning in 2001-02, some General Fund spending for Medi-Cal services is displayed in the
Department of Developmental Services budget instead of the Department of Health Services budget.

c   Includes state’s share of federal Medicaid reimbursements (costs budgeted in Medi-Cal).

d   In 2002-03, all General Fund costs shifted to the Tobacco Settlement Fund.

e   Includes state and county commissions.


Special note should be taken of the budget-year growth rate shown for Medi-Cal benefits (3.8 percent) because it potentially understates the growth in this program (as well as other health programs supported with federal Medicaid funds). This is the result of a key assumption in the Governor's budget proposal. Specifically, the Governor's spending plan includes a proposed budget adjustment (separate from Medi-Cal and the other state health program budget items) assuming that the state will receive $400 million in federal funding in the current fiscal year. The budget assumes that these federal funds will offset General Fund money already allocated to Medi-Cal and other health programs.

The Governor's budget plan does not indicate how the $400 million would be allocated among the different health programs in the current year. Nevertheless, by lowering current-year expenditures, it would clearly result in larger year-to-year increases in such expenditures. For example, if $174 million of such federal relief were allocated to the Medi-Cal Program (the fiscal impact of the decline in federal share of costs estimated by DHS), the year-to-year growth in General Fund Medi-Cal expenditures overall would be $540 million, or 5.7 percent, rather than the smaller increase shown in Figure 4 for the Medi-Cal Program budget item.

The budget plan indicates that this funding would come from an economic stimulus package that was pending in Congress at the time this analysis was prepared. This money was expected to provide fiscal relief offsetting a formula-driven decline in the share of costs borne by the federal government. The budget does not assume that this fiscal relief continues in the budget year. 

The budget for the Department of Developmental Services (regional centers and community services) would grow significantly under the Governor's budget plan even without taking into account any federal financial relief. The proposed General Fund budget for the support the state's system of Regional Centers for the developmentally disabled would grow by about $145 million, or 9.7 percent, in 2002-03 compared to the proposed current-year spending level--a rate of growth that is larger than most other major health and social services caseload programs.

Figure 4 also indicates that General Fund support expenditures for local assistance provided under the Healthy Families Program would be eliminated in the budget year. However, this change reflects a shift of some program support to the new tobacco settlement fund. There are also significant increases in expenditures of federal funds. Thus, as the figure indicates, overall spending on the Healthy Families Program would increase almost 19 percent under the Governor's spending plan.

Major Budget Changes

Figures 5 and 6 illustrate the major budget changes proposed for health and social services programs in 2002-03. (We include the federal funds for CalWORKs because, as a block grant, they are essentially interchangeable with state funds within the program.) Most of the major changes can be grouped into four categories: (1) funding caseload growth, (2) suspending cost-of-living adjustments (COLAs), (3) assuming federal penalty relief, and (4) adopting policy changes.


Caseload Growth. The budget funds caseload growth in SSI/SSP, Medi-Cal, the Healthy Families Program, and CalWORKs. The budget reflects projected caseload increases of 2.1 percent in SSI/SSP, 2.3 percent in the CalWORKs program, 4.9 percent in the Medi-Cal program, and 15 percent in the Healthy Families Program.

Cost-of-Living Adjustment Suspensions. The budget proposes to suspend statutory COLAs for CalWORKs, SSI/SSP, and does not provide the discretionary COLA for Foster Care and related programs. Similarly, the budget proposes no inflation adjustment for county administration of CalWORKs, Foster Care, Food Stamps, and Medi-Cal.

Federal Penalty Relief. Although not shown in Figure 6, the budget assumes that Congress will enact legislation eliminating the federal penalty on California for its failure to automate the statewide child support collection system. As discussed later in this Analysis, the penalty for 2002-03 is estimated to be $181 million, so this assumption represents substantial budget risk.

Policy Changes

Medi-Cal. The budget provides an additional $230 million during 2002-03 above projected current-year General Fund expenditure levels due to increases in the cost of prescription drugs for Medi-Cal beneficiaries. These additional costs would be partly offset by a projected $61 million increase in the rebates the state receives on drugs for Medi-Cal patients, and an additional $100 million in projected savings from changing the way drugs are purchased and provided for patients.

About $57 million was added to the Medi-Cal budget to help pay increases in premium costs for Medi-Cal eligibles who are also enrolled in the Medicare program and Medicare Health Maintenance Organizations. The budget plan also provides $85 million General Fund increase for costs for Medi-Cal mental health services administered by the Department of Mental Health as well as $34 million more from the General Fund for two programs to provide care for the elderly run by the Department of Aging.

Several significant spending reductions are proposed in the Medi-Cal budget, including a $78 million General Fund cut in the rates paid to physicians and certain other medical providers. The budget plan also assumes a $31 million savings to the General Fund from charging certain Medi-Cal beneficiaries copayments for specified outpatient medical services.

Healthy Families. The proposal by the Governor to postpone expansion of the Healthy Families Program to parents until 2003-04 is estimated to save $54 million in state tobacco settlement funds in the current year and more than $160 million in the budget year. As noted earlier, the Governor has since indicated his interest in going forward with this expansion in the budget year if funding can be identified for this purpose.

Other Health Programs. Other state-supported health programs would be reduced. The budget assumes net savings of more than $50 million by eliminating the Child Health and Disability Prevention (CHDP) program, which provides screening and immunization services to children, and shifting the caseload to Medi-Cal, Healthy Families, and the Expanded Access to Primary Care (EAPC) community clinic program. A $25 million augmentation provided in the current fiscal year to assist trauma care centers would lapse in 2002-03. A cancer research program would be reduced $7 million in the current fiscal year, with all $25 million for the program eliminated in the budget year. General Fund support for local assistance for drug and alcohol programs would drop by about $50 million while local assistance for mental health services would decrease by about $60 million compared to current-year spending levels. While Regional Center programs would increase overall, they would face an unspecified $52 million reduction in the purchase of services for consumers.

However, the Governor's budget plan contains a number of significant augmentations for public health programs, including an additional $16 million from the tobacco settlement fund to continue implementation of the new Breast and Cervical Cancer Treatment program and a $20 million increase in grants for youth antitobacco efforts from that same source. A proposed $10 million reduction in the EAPC program would be restored in both the current year and budget year, with an additional $17.5 million provided in 2002-03 to handle caseload shifted to the program from CHDP. The AIDS Drug Assistance Program budget would increase by $20 million General Fund, while an additional $7 million in special funds would be used to bolster the Childhood Lead Poisoning Prevention Program.

California Work Opportunity and Responsibility to Kids. In order to hold General Fund spending on CalWORKs at the federally required minimum, the budget proposes several changes to reduce cost pressures. These include (1) redirecting $189 million in county performance incentives and $50 million in funds formerly appropriated to the California Community Colleges to fund basic employment services and grants, (2) suspending the statutory COLA, and (3) reforming child care eligibility rules and reimbursement rates.

Figure 5

Health Services Programs
Proposed Major Changes for 2002-03
General Fund




$10.1 billion



$367 million



+     $230 million due to higher costs for prescription drugs, partly offset by a $61 million increase in rebates

+     $174 million to backfill a decreased federal share of support

+     $85 million for increased costs for mental health services

+     $57 million for increased premium costs for Medicare and
Medicare HMOs

+     $56 million due to simplified eligibility rules and making it easier to enroll new beneficiaries

+     $42 million for continued expansion of eligibility for the working poor and the aged, blind, and disabled

+     $34 million for services provided under the Multipurpose Senior Services Program and the Adult Day Health Care Program

+     $30 million for a caseload shift due to the proposed elimination of the Child Health and Disability Prevention program


–     $100 million in savings from changing the way drugs are purchased and provided

–     $78 million due to reductions in provider rates

–     $55 million from increasing the state “takeout” from a fund for Disproportionate Share Hospitals

–     $31 million from the establishment of copayments for outpatient services


Healthy Families





$146 million



–     $146 million from shifting all General Fund support except $1.8 million for administration to the Tobacco Settlement Fund



Figure 6

Social Services Programs
Proposed Major Changes for 2002-03
General Fund



$2.2 billion



$136 million


+     $341 million to replace TANF carryover funds with General Fund

+     $158 million to backfill for reductions in countable maintenance-of-effort expenditures outside of CalWORKs

+     $96 million for a caseload increase


–     $220 million due to families reaching their five-year time limit

–     $189 million from redirecting county performance incentive funds to support basic program costs

–     $117 million for suspending the October 2002 cost-of-living adjustment (COLA)

–     $50 million from child care eligibility reforms

–     $25 million for deferring state matching expenditures for federal Welfare-to-Work funds



$3 billion



$228 million


+     $162 million for the full-year cost of the January 2002 COLA

+     $51 million for caseload increase

–     $133 million due to suspension of the January 2003 COLA

In-Home Supportive Services


$1 billion



$106 million


+     $54 million for caseload increase

+     $31 million due to the full-year cost of the January 2002 minimum wage increase

+     $26 million for higher wages for certain providers

–     $27 million due to suspension of state participation in a $1 per hour wage increase for providers working in public authorities

Return to Health and Social Services Table of Contents, 2002-03 Budget Analysis