LAO 2004-05 Budget Analysis: General Government

Analysis of the 2004-05 Budget Bill

Legislative Analyst's Office
February 2004

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 DADP estimates that its treatment system will provide services to approximately 396,000 clients in 2004-05. The DADP administers the Drug Medi-Cal Program, which provides substance abuse treatment services for beneficiaries of the Medi-Cal Program. It also allocates other 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.

Governor's Budget Proposal. The Governor's budget proposes $598 million from all fund sources in the current fiscal year, with $233 million in General Fund support. That is slightly below the level of state spending authorized in the 2003-04 Budget Act.

The budget plan for 2004-05 for DADP proposes $591 million in spending from all fund sources. General Fund support for DADP programs, including about $120 million in funding appropriated by Proposition 36, would be budgeted at a total of $238 million. That amounts to an increase of about $4.6 million, or 2 percent, above the revised expenditure plan for the current fiscal year proposed by the Governor.

The proposed increase in General Fund spending on alcohol and drug treatment programs in the budget year is primarily the result of revised estimates for the Drug Medi-Cal Program. This includes caseload and utilization changes in substance abuse treatment services, and the phase-out of one-time federal funding that had temporarily increased the share of program costs borne by the federal government. The budget plan also reflects a proposed one-time rollback in the rates paid to Drug Medi-Cal providers in 2004-05 to 2002-03 levels.

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 Governor's budget plan requests authority to spend about $3.5 million in federal grant funds for a new program, known as Screening, Brief Intervention, Referral, and Treatment, which would attempt to reduce substance abuse through intervention with individuals who have been brought to medical facilities, including emergency departments and trauma centers.

Finally, the budget plan proposes to eliminate the Office of Problem and Pathological Gambling, a program established last year with a $3 million allocation of Indian gaming funds. The office had been established to assist individuals who are addicted to gambling.

Federal Funding Requirement May Not Be Met

Current-year expenditures for community treatment services now appear likely to fall short of the level that would be required to satisfy a maintenance-of-effort requirement imposed on the state as a condition of receiving certain federal grant funds. As a result, the state is at risk of being penalized with the loss of as much as $3.2 million in federal grant funds in the future.

State Has Maintenance-of-Effort (MOE) Obligation. The Governor's budget plan for DADP reflects a proposed decrease in General Fund spending for substance abuse treatment programs in the current fiscal year of about $2.2 million below the amount appropriated in the 2003-04 Budget Act. This reduction in current-year spending is the result of (1) reductions in state administrative spending mandated by Control Section 4.10 of the act, (2) technical budget adjustments that reflect the state's receipt in 2003-04 of one-time federal funding that temporarily increased the federal share of support for Drug Medi-Cal services and reduced General Fund expenditures, and (3) downward adjustments in caseload and costs in the Drug Medi-Cal Program.

Primarily as a result of these budget changes, the Governor's revised 2003-04 spending plan now appears likely to be insufficient to meet the state's obligation under a federal grant program to maintain a specified level of state support for community substance abuse treatment programs.

The DADP calculations that we have reviewed indicate that, were the proposed current-year level of spending to stand, the state would fall short by about $3.2 million in the current fiscal year of meeting 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 in the future for every state dollar they spend below the required MOE level.

In this case, then, the state is at risk of subsequently losing $3.2 million of its future SAPT allocation. We would note that, under the Governor's budget proposal, the state would exceed the MOE funding requirement in 2004-05.

Situation Could Change in May. The DADP has indicated that it will review this situation prior to the May Revision to determine whether the state is still at risk of violating the SAPT MOE requirement. It is possible, for example, that unanticipated increases in the caseload in the Drug Medi-Cal Program would prompt the administration to seek additional General Fund spending authority in the current fiscal year. Depending on the amount of additional funding involved, the potential federal sanctions could be reduce or even eliminated if the Legislature concurred in such a budget change.

The DADP also indicates that it could seek federal relief from the MOE requirement on the grounds that is "within material compliance" with the MOE rule. However, it is not certain that federal authorities would actually agree to waive the MOE requirements. We will continue to monitor the situation and will provide the Legislature with information about the matter at the time of the May Revision.

"Remodeling" the Drug Medi-Cal Program

California's program for substance abuse treatment for Medi-Cal, known as Drug Medi-Cal, provides a patchwork of services with an inconsistent level of support for different modes of treatment and for different treatment populations. Based on our analysis, we recommend an approach for addressing these concerns which would provide greater authority and resources for community-based services, contain the fast-growing costs of methadone treatment, and integrate a new and potentially more cost-effective mode of treatment into Drug Medi-Cal that does not require a net increase in state General Fund resources.

The Supplemental Report of the 2002-03 Budget Act directed the Legislative Analyst's Office to examine the operations of the Drug Medi-Cal Program. Our analysis was to include, but was not limited to, an examination of what barriers exist to broaden provider participation and beneficiary access to Drug Medi-Cal, as well a review of the options and recommendations available to the Legislature to maximize federal financial participation for its support. Our analysis of the program can be found in "Part V" of The 2004-05 Budget: Perspectives and Issues.

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