Legislative Analyst's Office

Analysis of the 2002-03 Budget Bill

Department of Alcohol And Drug Programs (4200)

The Department of Alcohol and Drug Programs (DADP) directs and coordinates the state's efforts to prevent or minimize the effects of alcohol-related problems, narcotic addiction, and drug abuse. Services include prevention, early intervention, detoxification, and recovery. The treatment system will provide services to approximately 360,000 clients in 2001-02. The DADP allocates funds to local governments (including funds provided under the Substance Abuse and Crime Prevention Act, the 2000 initiative also known as Proposition 36) and contract providers and negotiates service contracts. The department also coordinates the California Mentor Initiative, a multidepartmental effort targeting youth at risk of substance abuse, teen pregnancy, educational failure, and criminal activity.

Current-Year Expenditures. The Governor's budget proposes a nearly $50 million reduction in expenditures (all funds) in the current fiscal year below the level of spending authorized in the 2001-02 Budget Act. This drop in spending largely reflects a technical adjustment in the department's federal spending authority to recognize the termination of certain one-time federal grants that have lapsed. The revised budget plan for the current fiscal year also incorporates a proposal presented by the Governor in November to revert $10.5 million in General Fund appropriation authority for the Drug/Medi-Cal Program that more recent estimates show is no longer needed to pay past claims for treatment services. After accounting for these adjustments, total current-year expenditures for DADP are estimated at $591 million (of which $257 million is General Fund).

Budget-Year Expenditures. The budget proposes $544 million from all fund sources for support of DADP programs in 2002-03, a decrease of about $47 million, or 8 percent below the revised expenditure plan for the current fiscal year proposed by the Governor. The budget would provide $223 million from the General Fund, about a $37 million or 13 percent reduction compared to the proposed current-year spending level.

The proposed decline in spending on alcohol and drug treatment programs in the budget year is partly the result of revised estimates in the Drug/Medi-Cal Program caseload, as well as an administration plan to indefinitely postpone an expansion of Drug/Medi-Cal day-care rehabilitative services authorized by Chapter 108, Statutes of 2000 (AB 2876, Aroner) and the federal government. Other alcohol or drug treatment programs, such as drug courts and perinatal services, would also be reduced to help address the state's fiscal problems. The decline in spending in the budget year is also partly the result of a one-time carryover of funding from the prior year to the current fiscal year.

The funding that would be provided in the budget year for drug treatment programs established under Proposition 36 is set by the terms of the voter-approved initiative at $120 million annually and remains unchanged. The budget also proposes to continue the allocation to counties of more than $8 million in federal funds for drug testing of Proposition 36 offenders.

Assessing the Governor's Proposed Budget Reductions

The Governor's budget plan proposes further significant reductions in local assistance for drug/alcohol treatment services in addition to the reductions taken in the current fiscal year. The combined effect of these reductions could be a violation of federal maintenance-of-effort requirements and result in the eventual loss of some additional federal funds.

Current-Year Budget Act Included Significant Reductions. Because of the state's significant fiscal problems, the Legislature and the Governor acted last year to make some significant reductions (totaling almost $42 million General Fund) in DADP programs to provide local assistance for drug or alcohol treatment services.

The Legislature accepted an administration proposal to save more than $24 million from the General Fund (about $50 million all funds) by postponing a planned expansion of Drug/Medi-Cal services. Previous state legislation (Chapter 108) had authorized DADP to add both day- care rehabilitative (DCR) services and case management/relapse prevention (CM/RP) services to the types of treatment provided for Medi-Cal eligibles subject to federal approval of changes to the state Medicaid Plan. Federal authorities have since disapproved the addition of CM/RP services but concurred with adding DCR services. (The administration has proposed to further delay the addition of DCR services to beyond the budget year because of the state's current fiscal problems.)

The Legislature also accepted a proposal by the Governor to save an additional $7.7 million by scaling back an expansion of drug and alcohol treatment programs for adults. The Legislature rejected a proposed $5.7 million reduction in funding for a youth treatment program, but the Governor subsequently vetoed the funding from the 2001-02 Budget Act. A proposed $8.5 million reduction in state-supported drug court programs was also rejected. In this case, the Governor vetoed a lesser amount of $3 million from the 2001-02 spending plan. Finally, the Governor vetoed $1 million for perinatal services from the budget bill that he had not previously proposed for reduction.

Further Budget-Year Reductions Proposed. Citing the state's continued fiscal problems, the Governor's 2002-03 budget proposes additional reductions to DADP's local assistance programs. These proposals include:

Maintenance-of-Effort (MOE) Could Be a Concern. We are advised by DADP that the cumulative impact of the General Fund expenditure reductions proposed by the Governor creates some risk that the state will violate the MOE requirements for the federal Substance Abuse Prevention and Treatment (SAPT) block grant program. The SAPT block grants are provided to states on the condition that they maintain a specified ongoing level of state support for their drug or alcohol programs. States that violate their MOE requirement are at risk of losing one federal dollar of SAPT block grant funding for every state dollar they spend below the required MOE level.

The DADP indicates that it could seek federal relief from the MOE requirement on the grounds that is "within material compliance" with the rule. If such relief were not granted, however, DADP has estimated that the state could lose $3 million in SAPT funding during the 2003-04 fiscal year.

Details Lacking on Reduction Proposal

We withhold recommendation on the proposed $7.5 million General Fund reduction in local assistance for alcohol and drug treatment services because the Legislature lacks sufficient information about this unallocated reduction and, thus, is unable to judge the merit of the proposal.

Unallocated Cut Proposed. As indicated earlier, one of the Governor's DADP budget reduction proposals would reduce the General Fund allocation for drug or alcohol services by $7.5 million. However, the budget plan does not identify the specific programs or services that would be affected by this cut or the effect of the reduction on state drug treatment policies or program caseloads. At the time this analysis was prepared, the administration indicated that the specific details of the proposed reduction were under review, and that this information would be provided to the Legislature when the review and approval process for the reductions had been completed.

Analyst's Recommendation. Without prejudice to its possible merit, we withhold recommendation on this proposal pending the receipt of more information from the administration about how this proposed reduction would be implemented. Until more information about this proposal is forthcoming, it will be difficult for the Legislature to assess the fiscal and policy impact of the reduction and reach judgment about its merit. We recommend that DADP report this information prior to budget hearings, along with its assessment of the impact of the specific reductions that it identifies on caseload and affected programs.

Drug Court Reduction Could Be Counterproductive

The Governor's proposal to reduce drug court programs by $8 million General Fund could result in offsetting increases in state criminal justice system costs, including state prison expenditures. We withhold recommendation on this proposed budget reduction until the completion of an evaluation due March 1, 2002 that will shed light on the program's cost-effectiveness.

One of Two State Programs Would Be Eliminated. The Governor's budget plan would eliminate all $8 million in state funding for state operations and local assistance provided under the Drug Court Partnership Act (DCPA), one of two existing state-funded programs to support drug courts. The DCPA program, established by the Legislature as a four-year demonstration project, was to expire at the end of the budget year, but would be eliminated one year earlier under the Governor's proposal. About $7 million would remain in the budget for grants funded under the Comprehensive Drug Court Implementation program.

As it considers this proposal, one issue the Legislature may wish to consider is the possibility that the reduction could result in an offsetting increase in state criminal justice system costs, including state prison expenditures. A statutorily-mandated evaluation of the drug court program is not due to be released to the Legislature until March 1, 2002. However, preliminary data from this study that was released last year by DADP indicate that the program was diverting a significant number of offenders to treatment who would otherwise be incarcerated. There were also preliminary indications that the treatment being provided to drug- and alcohol-addicted offenders was reducing the rates at which they committed new offenses.

A full assessment of the costs and benefits of the DCPA program, or the Governor's proposal to eliminate it cannot be made until after the DADP study has been completed and submitted to the Legislature. Also at issue is whether the Legislature should continue the DCPA as a separate statutory program or consolidate it with the ongoing, but statutorily separate, Comprehensive Drug Court Implementation program.

Analyst's Recommendation. We withhold recommendation on the proposed elimination of state funding for the DCPA because the report evaluating this program has not yet been released to the Legislature. The information in this report will assist the Legislature in weighing the cost and benefits of this program before determining whether to accept the $8 million cut proposed by the Governor. We would note that, should the Legislature decide to continue the program with General Fund support or some other funding source, it may wish to consider statutory changes to consolidate the program with the Comprehensive Drug Court Implementation program for which the budget proposes to continue funding.

Reductions Could Be Offset With Federal Funds

As a result of congressional action, as much as $15.4 million in additional federal grant funds will be available to California that are not accounted for in the Governor's spending plan. The Legislature has the option of using these funds to restore drug or alcohol programs that were eliminated from the state budget last year or to preserve those proposed for reduction in the 2002-03 budget plan.

Additional Federal Grant Funds Likely. The Governor's budget plan assumes that the state will spend about $237 million during the 2002-03 fiscal year from the SAPT block grant program discussed earlier. This sum would represent about a $2.6 million decrease in spending compared to the prior year due primarily to the expiration of certain one-time grant funds. However, at the time DADP prepared its budget estimates in the fall, Congress had not yet acted on the federal appropriations bill which establishes funding levels for SAPT.

Final congressional action on the measure in December increased the national allocation of funding for SAPT block grants during the 2002 federal fiscal year by $60 million. Although it has yet to receive formal notice from the federal government, DADP has indicated that is likely to receive an additional $15. 4 million in SAPT funds from this source. We are advised that these resources could be expended during the 2002-03 state fiscal year, and that the administration intends to prepare a May Revision proposal for this purpose.

The Legislature could modify the Governor's budget plan to recognize the additional SAPT block grant funds that are likely to be available during the budget year. It could allocate these resources for DADP programs that were reduced in the current fiscal year or proposed for reduction in 2002-03 budget. Under this approach, the Legislature would determine which types of treatment programs and which specific target groups receive funding priority. Alternatively, the additional SAPT funds could be distributed to county governments in accordance with DADP's customary funding distribution formulas, thus permitting local officials to set their own funding priorities based upon local needs.

Analyst's Recommendation. We recommend that the Legislature consider using the additional SAPT funds that are likely to be received by the state as a means to finance alcohol or drug programs that are a priority for the Legislature, but have either already been reduced or are facing reduction under the Governor's budget proposal. As it considers this strategy, the Legislature should also carefully consider which programs should be allocated General Fund support and which should be supported from other funding sources, such as SAPT. Depending on such funding choices, it would be possible to restore the programs without increasing General Fund costs.

Asset Forfeiture Proceeds Could Bolster Treatment Efforts

The Legislature has the option of using a portion of the proceeds received from the seizure of assets from illegal narcotics traffickers to help prevent crime through an increase in support for substance abuse treatment programs. This approach could enable the state to maintain sufficient state funding for such programs to avoid federal sanctions that would result in the loss of additional treatment funds.

Use of Forfeiture Proceeds Could Be Shifted. As discussed earlier, the Legislature could use forthcoming SAPT funds to restore drug or alcohol programs that were eliminated from the state budget last year or to preserve those proposed for reduction in the 2002-03 budget plan. However, this approach would not resolve the potential MOE problem we identified earlier that could result in the loss of as much as $3 million in federal funds. Absent federal forgiveness of its MOE requirement, additional discretionary state resources would be needed to avoid the loss of federal funds. Because of the state's fiscal problems, the Legislature may wish to consider alternatives to using General Fund resources to address the potential MOE problem.

One such alternative would be to enact statutory changes (similar to those adopted in some other states) to shift between $4.5 million and $10 million of the approximately $50 million in asset forfeiture proceeds received each year to support DADP local assistance programs. These funds are the proceeds gained from the seizure of assets found to have been used in illegal drug-trafficking activities.

Such funding shifts would primarily come at the expense of local law enforcement agencies involved in criminal investigations that result in asset forfeiture, although under this option the funding would be returned to various local agencies in the form of more resources for drug or alcohol treatment services. The policy rationale for such changes would be to shift more resources from law enforcement to crime prevention by investing in treatment programs that studies indicate can be cost-effective in reducing involvement in criminal activities by persons who would otherwise remain addicted to drugs.

State law currently requires that 24 percent of the $21 million in asset forfeiture proceeds now being received each year (about $4.5 million) be deposited in the state General Fund. A statutory formula allocates the remaining proceeds among prosecutors, the California District Attorneys Association, and the law enforcement agencies that were involved in the seizure of criminal assets. However, all of the $30 million per year in federal asset forfeiture proceeds goes directly to the California agencies involved in these criminal cases.

Our analysis indicates that the Legislature could modify state law, as Oregon, Utah, and other states have done, to require that part of the federal asset forfeiture proceeds received by California agencies be redirected to specific state programs--in this case, support of substance abuse treatment. Although current U.S. Department of Justice (U.S. DOJ) guidelines require that federal asset forfeiture proceeds be used primarily to support specified law enforcement activities and equipment purchases, those guidelines do permit up to 15 percent of such proceeds to be used for drug treatment programs. In California, allocation of 15 percent of federal asset forfeiture proceeds could generate about $4.5 million annually to support DADP's local assistance programs. Any such reallocation of funds would be subject to review by U.S. DOJ.

The Legislature could also take the further step of changing the way state asset forfeiture proceeds are allocated to provide increased state funding for DADP local assistance efforts. If state law were changed to require that the state share of such proceeds be increased from 24 percent to 50 percent, an additional $5.5 million could be generated to support DADP's local assistance programs, or for other state purposes.

Analyst's Recommendation. We recommend that the Legislature consider the option of modifying state law to redirect a portion of asset forfeiture monies to support drug treatment programs. We believe this option, which other states have adopted, could be justified on policy grounds as an effort to shift only a portion of these resources from law enforcement to crime prevention, particularly if the funds were used to preserve or expand programs targeted at individuals, such as juveniles, who are or were at risk of becoming criminal offenders.

Implementation of the asset forfeiture funding option could also help the state avoid a potential violation of the conditions of its SAPT grant by providing an additional allocation of state funding for DADP's drug or alcohol treatment programs that could be counted against California's MOE requirement. As noted earlier, the option for shifting support for some DADP programs from the General Fund to federal funds would not resolve the MOE problem.

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