LAO 2004-05 Budget Analysis: General Government

Analysis of the 2004-05 Budget Bill

Legislative Analyst's Office
February 2004


Although General Fund spending for health and social services programs is projected to increase by 7.9 percent to $24.6 billion in 2004-05, this year-over-year increase is misleading because General Fund spending in 2003-04 is artificially depressed by one-time federal funds and accounting savings. After adjusting for these one-time savings, health and social services expenditures are essentially the same between the current and budget years. However, this assumes that the budget avoids increased spending in 2004-05 through a combination of grant and provider rate reductions, eligibility restrictions, and caps on enrollment in certain programs.

Expenditure Proposal and Trends

Budget Year. The budget proposes General Fund expenditures of $24.6 billion for health and social services programs in 2004-05, which is 31 percent of total proposed General Fund expenditures. Figure 1 shows health and social services spending from 1997-98 through 2004-05. The health and social services share of the budget as proposed would increase about 1 percent in the budget year, to just over 31 percent. Although the proposed General Fund budget for 2004-05 is $1.8 billion (7.9 percent) above estimated spending for 2003-04, nearly all of this increase is attributable to one-time federal fiscal relief and accounting changes which artificially depressed General Fund spending in 2003-04. After backing out these changes, General Fund spending in 2004-05 is virtually identical to the level in 2003-04. Special funds spending for health and social services is proposed to decrease by $190 million (4.5 percent) to a total of $4.1 billion. 

Historical Trends. Figure 1 shows that General Fund expenditures (current dollars) for health and social services programs are projected to increase by $10 billion, or 68 percent, from 1997-98 through 2004-05. This represents an average annual increase of 7.7 percent. Most of this growth (about 85 percent) occurred from 1997-98 through 2002-03.

In contrast, special fund expenditures have been decreasing since reaching a peak of $4.7 billion in 2001-02. For 2004-05, special fund spending is projected to decrease by $190 million (4.4 percent) to just less than $4.1 billion. Most of this decrease is attributable to reduced spending of funds administered by the Children and Families Commission and reduced Proposition 99 funds, both supported by tobacco tax revenues which have been in decline.

Combined General Fund and special funds expenditures are projected to increase by about $10.6 billion (59 percent) from 1997-98 through 2004-05. This represents an average annual increase of 6.8 percent. 

Adjusting for Inflation. 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 38 percent from 1997-98 through 2004-05, an average annual rate of 4.7 percent. Combined General Fund and special funds expenditures are estimated to increase by 31 percent during this same period, an average annual increase of just less than 4 percent.

Caseload Trends

Caseload trends are one important factor driving health and social services expenditures. Figures 2 and 3 illustrate the budget's projected 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 California Work Opportunity and Responsibility to Kids [CalWORKs], refugees and undocumented persons, and disabled and aged persons (who are primarily recipients of Supplemental Security Income/State Supplementary Program [SSI/SSP]). Figure 3 (see next page) shows the caseloads for CalWORKs and SSI/SSP. 

Medi-Cal Caseloads. As shown in Figure 2, the Governor's budget plan assumes that a modest increase in caseload will occur during the budget year in the Medi-Cal program. Specifically, the overall caseload is expected to increase by about 220,000 average monthly eligibles (3.3 percent). This would continue a growth trend, although at a slightly slower pace, that has occurred in prior years. 

The caseload projections for 2004-05 take into account the following budget proposals and assumptions that would increase the caseload: (1) new procedures to help transfer children receiving screening and immunization services under the Child Health and Disability Prevention (CHDP) program into more comprehensive Medi-Cal coverage and (2) an assumption of rapid growth (6.8 percent) in 2004-05 in the caseload of medically needy aged, blind, and disabled persons. These increases would be partially offset by the following proposals and assumptions that reduce the caseload: (1) a proposal to limit the number of recent immigrants and undocumented persons who can receive nonemergency services, starting January 1, 2004; (2) a measure adopted last year for mid-year reporting of eligibility for certain adults; and (3) another measure adopted last year to require counties to process annual eligibility redeterminations in a more timely manner.

Healthy Families Caseload. The Governor's budget plan assumes that the entire caseload for the Healthy Families Program will be limited commencing January 1, 2004, and further assumes that this enrollment cap would continue at least through the end of 2004-05. Only about 5,000 infant children who would be shifted to Healthy Families coverage from their present health coverage under the Access for Infants and Mothers program would be exempted from the enrollment limits.

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 slightly more persons in the CalWORKs program—about 1.21 million compared to about 1.17 million for SSI/SSP. (The SSI/SSP cases are reported as individual persons, while CalWORKs cases are primarily families.)

As Figure 3 shows, the CalWORKs caseload peaked in 1994-95 (after the recession of the early 1990s). Since then, the caseload has declined steadily for several years, essentially bottoming out in 2002-03, with slight decreases estimated for 2003-04 and 2004-05, mostly attributable to the proposed grant reduction and stricter work participation requirements.

As discussed in our annual California's Fiscal Outlook report, the CalWORKs caseload decline was 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 CalWORKs program interventions (including additional employment services). The recent end to the caseload decline may be attributable to the composition of the remaining caseload and the extent to which it includes adults who face 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 (about 1.5 percent per year). This component accounts for about 30 percent of the total caseload. The larger component—the disabled caseload—grew rapidly in the early 1990s, but more recently has experienced steady moderate growth of about 2.5 percent since 1997-98.

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 percent each year.

Spending by Major Program  

Figure 4 shows expenditures for the major health and social services programs in 2002-03 and 2003-04, and as proposed for 2004-05. As shown in the figure, three major benefit payment programs—Medi-Cal, CalWORKs, and SSI/SSP—account for a large share (about 69 percent) of total spending in the health and social services area.

Figure 4

Major Health and Social Services Programs
Budget Summarya

(Dollars in Millions)





From 2003-04









  General Fund






  All fundsb












  General Fund






  All funds






Foster Care






  General Fund






  All funds












  General Fund






  All funds






In-Home Supportive Services






  General Fund






  All funds






Regional Centers/Community Services






  General Fund






  All funds






Developmental Centers






  General Fund






  All funds






Healthy Families Program






  General Fundc






  All funds






Child Welfare Services






  General Fund






  All funds






Children and Families Commission






  General Fund

  All funds






Child Support Services






  General Fund






  All funds







a  Excludes departmental support.

b  Includes some costs for other departments and miscellaneous funds.

c  Some program costs temporarily shifted to Tobacco Settlement Fund in 2002-03.

As discussed earlier, much of the increase in 2004-05 reflects making up for the loss of one-time savings (federal funds and accounting changes) which artificially depressed General Fund spending in 2003-04. As Figure 4 shows, General Fund spending is proposed to increase in most health programs (though not as much as is required by current law), while four of the five largest social services programs (CalWORKs, In-Home Supportive Services [IHSS], Foster Care, and Child Welfare) will experience budget reductions. In-Home Supportive Services is proposed for the largest reduction in percentage terms (13 percent).

Major Budget Changes

Figures 5 and 6 illustrate the major budget changes proposed for health and social services programs in 2004-05. (We include the federal Temporary Assistance for Needy Families [TANF] 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 five categories: (1) funding most caseload changes, (2) suspending cost-of-living adjustments (COLAs), (3) grant and provider rate reductions, (4) capping growth in certain programs and shifting the immigrant-related portion of these programs to counties, and (5) other policy restrictions.

Figure 5

Health Services Programs
Proposed Major Changes for 2004‑05
General Fund







$11.6 billion





$1.8 billion







+     $958 million due to the 2003‑04 shift from accrual to cash



+     $655 million to offset the loss of one-time federal funds



+     $253 million for a net increase in costs for pharmacy benefits



+     $164 million for rate increases for certain clinics and hospitals





     $341 million from a provider rate reduction and other rate changes



     $279 million from shifting some provider payments into 2003‑04 and $144 million from delaying some payments until 2005‑06



     $184 million due to prior actions to reduce costs for drugs, medical supplies, and services






Department of Developmental Services


$2.2 billion





$115 million







+     $105 million net increase from the transfer of habilitation services





     $100 million from establishing statewide standards for the purchase of services in Regional Centers






Healthy Families Program


$306 million





$11 million







     $32 million from imposing a cap on program enrollment



Department of Mental Health


$911 million





$32 million




+     $28 million to prepare to open Coalinga State Hospital in 2005‑06





     $20 million to eliminate Children’s System of Care



Figure 6

Social Services Programs
Proposed Major Changes for 2004‑05
General Fund







$2 billion





-$64 million







+     $136.5 million for child care and automation costs associated with the Governor’s welfare reform



+     $94.4 million for TANF transfers to achieve General Fund savings in other programs





     $132.5 million from the full-year impact of proposed 5 percent grant reduction effective April 2004



     $162.9 million from grant savings attributable to Governor’s welfare reform



     $67.8 million because welfare-to-work match obligation is satisfied



     $53.7 million for grant savings associated with more adults reaching their five-year time limit








$3.3 billion





$202 million







+     $238.1 million to replace one-time federal fiscal relief funds



+     $57.9 million for caseload increase





     $62.5 million from not “passing through” the federal COLA






In-Home Supportive Services


$897 million





-$137 million







+     $147.4 million for caseload increase



+     $61.4 million to replace one-time federal funds





     $277 million net savings from the full-year impact of eliminating the residual (state-only) program



     $98 million from limiting state participation in provider wages to the minimum wage, rather than $10.10 per hour


Caseload Changes. With the exception of proposed caps on enrollment discussed below, the budget funds caseload changes in the major health and social services programs.

COLA Suspensions and Grant Reductions. The budget proposes to suspend statutory COLAs for CalWORKs and SSI/SSP, and does not provide the discretionary COLA for Foster Care and related programs. Also, the budget proposes to not "pass-through" the federal SSI COLA. In addition, the budget proposes no inflation adjustment for county administration of CalWORKs, Foster Care, Food Stamps, and Child Welfare Services. In addition to the COLA suspensions, the budget achieves significant savings from a 5 percent grant reduction in CalWORKs.

Enrollment Caps and County Block Grant

Enrollment Caps. The Governor's budget proposes to cap enrollment for some or all caseloads in the following health and social services programs: Medi-Cal Healthy Families, AIDS Drug Assistance Program, the Breast and Cervical Cancer Treatment Program, California Children's Services (CCS), the Genetically Handicapped Persons Program (GHPP), state mental hospitals, the Cash Assistance Program for Immigrants (CAPI, state-only SSI/SSP), the California Food Assistance Program (CFAP, state-only Food Stamps), and CalWORKs for post-August 1996 immigrants. The budget scores savings of about $60 million in 2004-05 from these enrollment caps.

County Block Grants. The budget plan proposes to achieve additional savings by restructuring and consolidating some of these capped programs into a single block grant to counties. Affected by this proposal are the following programs which serve legal immigrants: CalWORKs, CFAP, CAPI, and Healthy Families. The budget assumes savings of $6.6 million (5 percent of the proposed block grant) from efficiencies associated with county block grant administration.

Other Policy Changes

IHSS. The budget includes several proposals which restrict services, eligibility, and provider wages. Specifically, the Governor proposes to (1) eliminate the residual program, which is funded exclusively with state and county dollars; (2) limit state participation in provider wages to the minimum wage (that is $6.75, rather than the $10.10 per hour currently authorized); and (3) reduce services for recipients living with able-bodied relatives.

CalWORKs. The Governor proposes state welfare reforms including (1) a 25 percent grant reduction for cases in sanction status, (2) stricter work requirements for recipients and applicants, and (3) a 25 percent grant reduction for families who have reached their five-year time limit and are unemployed.

Child Care. The budget proposes several changes to state child care programs including increases in family fees, reductions in payments to providers, eligibility limits, and an elimination of dedicated funding for child care for families who have been off cash assistance for three years or more.

Medi-Cal. The Governor's budget proposal reflects the continuation into the budget year of various reductions that were proposed to begin in the current year (but that have not been enacted at the time this analysis was written). These proposals would reduce the reimbursement rates paid to specified providers, which were already set to decrease by 5 percent, by a total of 15 percent; impose the enrollment caps discussed above; and eliminate funding earmarked to increase pay for nursing home workers. Additional reductions proposed in the spending plan to commence in the budget year would reduce Medi-Cal expenditures by delaying payments to providers by one week; establishing a "quality improvement fee" for managed care health plans; and reducing the reimbursements paid to certain clinics and hospitals.

The administration also proposes to pursue a federal waiver to achieve additional ongoing Medi-Cal savings in 2005-06 by simplifying eligibility standards, imposing copayments for services, modifying benefit packages for certain optional populations, expanding managed care plans, and implementing other changes.

Department of Developmental Services (DDS). The January budget plan dropped administration proposals presented in November to cap caseloads for Regional Center (RC) community services. Funding is provided for a shift of habilitation services from the Department of Rehabilitation to DDS that was adopted last year. Also, the budget reversed an earlier proposal to end certain community services, such as respite care. State savings would be achieved in 2004-05 through such steps as establishing copayments to families of certain children receiving services and standardizing statewide the services that are provided in the community. The administration is also proposing to pursue the development of additional cost-saving measures for implementation in 2005-06, including an expansion of copayments, statewide standardization of the rates paid for the major services purchased by RCs, and implementation of a proposed waiver program to cap individual allowances for client services while giving them increased client control over their services.

The administration intends to proceed with closing Agnews Developmental Center and indicated it will review whether additional facility closures are warranted.

Healthy Families Program. The budget plan continues into 2004-05 the proposal first outlined by the administration in November to cap caseloads and reduce provider rates for various programs starting in 2003-04. Benefits for recent immigrants would become part of a block grant to counties (as discussed above). The premiums and benefits provided for children of families with higher incomes would be modified to establish a "two-tier" program structure by 2005-06.

Public Health. The budget proposes a series of program reductions. All TANF funding for the Community Challenge Grant program to re duce the number of teenage and unwed pregnancies and to promote responsible parenting would be eliminated. Allocations for the CHDP program would decline dramatically as clients are shifted to the Medi-Cal and Healthy Families programs. A provider rate reduction comparable to the one imposed for Medi-Cal would be imposed for CCS, CHDP, and GHPP, so that a 5 percent rate cut for these programs that was enacted in the 2003-04 Budget Act would increase to a total of 15 percent under the Governor's spending plan. The administration proposes to again suspend the state's annual contribution to the County Medical Services Program.

Department of Mental Health. State funding would be provided in the budget year for the staffing needed to open a new state hospital primarily to house Sexually Violent Predators in Coalinga early in 2005-06. A series of measures are proposed to limit the population of certain criminal offenders to the state hospital system, and counties (rather than state hospitals) would henceforth be responsible for holding individuals who were being considered for commitment to the state hospital system as Sexually Violent Predators after their parole from state prison. Funding for mental health services for certain children in the Medi-Cal Program would grow significantly, but all funding for the state-supported Children's System of Care program would be eliminated.

Senate Bill 2. No resources are provided in the budget for any state agencies to commence the implementation of Chapter 673, Statutes of 2003 (SB 2, Burton), a measure expanding health insurance coverage.

Department of Alcohol and Drug Programs. The Office of Problem and Pathological Gambling, a newly created state office to help gambling addicts that is funded with Indian gaming revenues, would be abolished.

Return to Health and Social Services Table of Contents, 2004-05 Budget Analysis