Analysis of the 2004-05 Budget Bill Legislative Analyst's Office February 2004

County Block Grant Proposal

Programs Proposed for Block Grant Would Be a Poor Fit for Counties

The Governor proposes to consolidate into a single block grant, funding for state-only programs which serve immigrants, and transfer these programs to the counties effective October 1, 2004. The proposal assumes that counties will achieve administrative efficiencies, so proposed block grant funding has been reduced by 5 percent. We recommend that the Legislature reject the proposal because the programs proposed for transfer to the counties are not well-suited for local control.

Key Features of the Governor's Proposal

The Governor's 2004-05 budget plan proposes to consolidate into a block grant about $132 million in state spending and programs for immigrants, and transfer funding and program responsibility to counties. Figure 1 summarizes the programs and funding levels for the programs affected by the block grant proposal. Key features of this proposal include:

Enrollment Caps. All of the programs proposed for the county block grant would have their enrollments capped in the first part of calendar year 2004 (although program responsibility would remain with the state until October 1). For the Healthy Families Program (HFP) for immigrants, the cap is proposed to take effect on January 1, 2004. For the Cash Assistance Program for Immigrants (CAPI), California Work Opportunity and Responsibility to Kids (CalWORKs) for legal noncitizens, and the California Food Assistance Program ([CFAP] state-only Food Stamps for immigrants), the cap would take effect April 1, 2004. (For a more detailed discussion of the proposed enrollment caps for health and social services programs, please see the " Crosscutting Issues" section of this chapter.) 

Block Grant. As of October 1, 2004, the Governor proposes to consolidate all funding for the above referenced programs for immigrants into a single block grant for transfer to the counties. Subject to some restrictions noted below, counties would have freedom to move funds among the existing programs and to restructure benefit and eligibility rules. Counties could have the greatest degree of discretion with the CAPI and the Healthy Families (for immigrants) components, because there are no federal requirements and any state requirements could be eliminated through the state legislation creating the block grant. With respect to all programs, counties would be free to continue the enrollment caps established earlier in the year, or they could fund caseload increases through benefit and service reductions or the addition of their own resources.

The Governor's budget summary indicates that the May Revision is likely to include a proposal for a combined appropriation for these programs. As shown in Figure 1, the total block grant for counties would be about $131 million reflecting nine months of services in 2004-05. (In 2005-06, the first full fiscal year of block grant implementation, the total amount of transferred program funds would be about $174 million.) The proposal is silent with respect to how funds will be allocated among counties, but it is our understanding that the starting point for the allocation discussion would be the respective caseloads within each county.

Five Percent Reduction for Assumed Efficiencies. The proposal assumes that counties will be able to achieve efficiencies in delivering block grant programs to legal immigrants. To account for these efficiencies, state expenditures have been reduced by 5 percent ($6.7 million) compared to the amount that would have been budgeted for the transferred programs from October 2004 through June 2005. The proposal does not indicate how counties would achieve the assumed efficiencies.

Some Federal and State Requirements Remain. Although counties would have some flexibility to restructure the programs and move funding among the programs, certain state and federal restrictions would remain. For example, the CalWORKs program is California's version of the federal Temporary Assistance for Needy Families (TANF) program. Under the TANF program, states must meet specified work participation requirements and are subject to a maintenance-of-effort (MOE) spending requirement. Under the block grant proposal, counties would be required to expend the funds associated with CalWORKs in accordance with federal law so that the expenditures would count toward the MOE. For this to work, counties would have to expend the funds on low-income families with children in ways that are consistent with the state TANF plan, and would need to meet federal reporting requirements. For technical reasons, some of the funds for CFAP would also be "required expenditures" because they are used to satisfy the TANF MOE requirement.

Stakeholders Group to Work on Details. As noted above, the proposal lacks many details including (1) how much flexibility counties will have to restructure programs and move funding among programs in accordance with county priorities, (2) the allocation of the block grant funds among counties, and (3) how counties will achieve budgeted efficiencies so as to not further reduce benefits and services for immigrants. Another open question is how the amount of the block grant would be adjusted in future years. Although the proposal is silent in this regard, the fact that these programs are subject to proposed enrollment caps suggests that future adjustments to the block grant would not reflect caseload growth. Whether to adjust for inflation is another key issue for the Legislature to consider. Given the complexity of the proposal, the administration has indicated it will establish a stakeholders group to discuss its details.

Evaluating the Governor's Block Grant Proposal

Compared to the total amount of resources now spent for the programs affected by the proposal, the Governor's block grant plan would achieve some state savings. If the administration's intention is not to adjust block grant levels in the future to keep pace with continued caseload growth for these services, the level of savings could grow significantly in future years.

However, our analysis of the block grant plan indicates that there are some significant policy concerns about the measure that the Legislature may wish to consider. We discuss these policy concerns in more detail below.

Income Redistribution Programs Should Usually Be at State Level. The CAPI, CalWORKs for legal immigrants, and the CFAP are essentially income support programs for low-income immigrant Californians. As these programs are cash (or cash equivalent) programs, the state has an interest in maintaining uniformity in benefit levels. Otherwise, variation in benefit levels could lead to migration effects, whereby one county's reduction in benefits spurs others to reduce benefits in order to avoid becoming a benefit "magnet." Given the state's interest in uniform benefits for income redistribution programs, the CAPI, CFAP, and CalWORKs for immigrants are poor candidates for transfer into a block grant and should be left as state responsibilities.

Achieving Administrative Efficiencies Will Be Difficult. As noted above, the proposal does not explain how counties will achieve administrative efficiencies equal to 5 percent of the proposed block grant. Our review suggests that counties are unlikely to achieve the assumed savings administratively, and will probably need to reduce services or benefits to stay within the proposed block grant amount. Listed below are specific concerns with the affected programs:

• Healthy Families. Currently, the state administers the HFP and contracts directly with insurance plans for coverage of children, including the immigrant children affected by this block grant proposal. The counties' role in the program is minimal. Counties choosing to continue health coverage for these children comparable to what they are now provided under the HFP would have to develop a new program infrastructure that would result in added administrative costs. In addition, because such counties would be arranging for health coverage for a much smaller group of children than the state, the cost per child for the purchase of this coverage would probably be much greater than the rates to insurers through Healthy Families.
• CAPI. Counties currently administer CAPI and have already formed consortia in order to more efficiently deliver cash benefits through automated systems. There is nothing in the Governor's proposal to suggest that further county control will lead to more administrative savings.
• CalWORKs for Immigrants. Like CAPI, CalWORKs is currently administered by the counties. CalWORKs funding for administration, welfare-to-work services and child care are part of an existing block grant to counties. As noted above, this spending is counted toward the TANF MOE requirement. As such, counties would be required to expend these funds in a manner that is consistent with the federal TANF program and meet federal reporting requirements. In summary, block granting CalWORKs for immigrants does not materially increase county flexibility and would be unlikely to result in administrative savings.
• CFAP. Currently, the state purchases food stamps coupons through an existing agreement with the federal government. It is unlikely that the federal government would agree to 58 separate agreements, so counties would need to continue operations under the existing state agreement. Accordingly, putting CFAP funds in a block grant would not appear to increase county flexibility, again making administrative savings unlikely.

For the reasons stated above, the proposal appears to provide little in additional county flexibility and is therefore unlikely to result in administrative savings. We believe that counties are most likely to reduce services or benefits in order to stay within the proposed block grant amount. In other words, the proposed 5 percent reduction is more likely to result in a reduction in services to low-income immigrants, rather than administrative streamlining in the delivery of these services.

Analyst's Recommendation

We believe there is merit generally in the concept of reexamining which programs now operated by the state could be more effectively and efficiently operated by shifting greater responsibility and authority to local governments. In the past, and again this year, we have offered a number of proposals for restructuring state programs (such as substance abuse treatment services) that we believe would improve the quality of the public services provided while also reducing state costs.

However, we recommend that the Legislature reject the proposed county block grant for immigrant programs because the programs are not well-suited for local control. Counties are unlikely to achieve the administrative efficiencies assumed in the Governor's proposal. The 5 percent savings proposed to be achieved through the block grant ($6.7 million) represent a further reduction in services or benefits for low-income immigrants.

In order to offset the loss of the savings associated with the block grant proposal, the Legislature may wish to consider other options and recommendations for reducing state program costs that are presented in The 2004-05 Budget: Perspectives and Issues as well as in the "Health and Social Services" chapter of this Analysis.