LAO 2006-07 Budget Analysis: Health and Social Services

Analysis of the 2006-07 Budget Bill

Legislative Analyst's Office
February 2006

Budgeting for County Administration

The Governor proposes trailer bill legislation which would freeze state participation in county administrative costs in health and social services programs at the 2005-06 level. Under this proposal, state support for county administration would be adjusted for caseload and workload but not for inflation. We review the budgeting history for county administration, comment on the Governor’s proposal, and recommend its rejection.


Health and Human Services Budget. The departments within the California Health and Human Services Agency (HHSA) operate an extensive array of health and social services programs. The departments have a combined total budget of $63.7 billion ($27.3 billion General Fund, $29.9 billion federal funds, and $6.5 billion special funds). With the exception of developmental and rehabilitation services and certain mental health services, county welfare departments administer most health and social services programs. For 2005-06, total spending on county administration is $6 billion, about 9.5 percent, of the budgets under HHSA supervision.

What Is County Administration? County administration covers a range of activities depending on the program. Sometimes county administration means administrative, clerical, or supportive efforts that facilitate delivery of a service or a benefit (for example, determining eligibility for benefits, payment of service provider bills, personnel management, accounting, and fraud prevention/investigation). The Medi-Cal Program generally fits this description. Counties receive approximately $1.2 billion to cover the cost of county eligibility workers who determine if applicants are eligible for Medi-Cal benefits. Another example is the CalWORKs program where county staff determine an individual’s eligibility for the program, including determining the amount of the cash grant and employment services to be received by the recipient.

In other programs, county workers may not be providing a specific cash payment or “benefit.” Instead, the salaries and support for the staff constitute the entire program. For example, the Child Welfare Services (CWS) program provides (1) social workers who respond to allegations of child abuse, (2) services to children and families where abuse or neglect has occurred, and (3) services to children in Foster Care who have been removed from their parents. Most of the services are provided by county social workers in the form of case management and counseling. In addition, the social workers are supported by a county administrative structure that provides services including accounting, personnel management, and clerical support. In sum, all program costs are for social workers and related county administrative staff. Child support enforcement is similar to child welfare services in that virtually the entire program is administration.

State and County Program Cost Sharing. The state and the counties share in the nonfederal costs of providing many social services programs. For some programs there are two separate cost-sharing ratios, one for administrative costs and one for benefit costs. Most of these sharing ratios were set in 1991 when the state “realigned” state/county cost shares. In contrast to social services programs, there is no county cost share in Medi-Cal benefits or administration. Figure 1 shows the cost-sharing ratios for county administration of health and social services programs.


Figure 1

County Administration Programs
Subject to Proposed Freeze;
Current Budget and Sharing Ratios

(In Millions)






Nonfederal Sharing Ratio State/County

Department of Health Services






Medi-Cal County Administration





Department of Social Services






Child Welfare Services











fixed MOEa

Food Stamps





fixed MOEa







Statewide automated welfare systemc






Adult protective services





fixed MOE







Foster care






Community Care Licensing





Cash assistance program for








California Food Assistance Program




Department of Child Support






Local child support administration













a    For CalWORKs and Food Stamps, counties meet a combined fixed maintenance-of-effort (MOE) amount based on 1995‑96

b    IHSS=In-Home Supportive Services; KinGAP=Kinship Guardian Assistance Program.

c    According to the administration, costs for vendor contracts would not be subject to this proposal. The administration could not provide an estimate of which automation costs are subject to the proposed freeze.

d    Base program has no county share, however, certain small training and grant programs have county shares.

e    There is no county share, but some counties voluntarily invest county funds.


Budget Methodology for County Administration. During the 1990s, most budgets for county administration of health and social services programs were set through the Proposed County Administrative Budget (PCAB) process. Under PCAB, counties submitted proposed budgets and staffing levels for their programs based on estimated costs, caseload, and workload. These requests included adjustments for inflation. State departments such as the Department of Social Services (DSS) or the Department of Health Services (DHS) then reviewed these proposed budgets to determine if the requests were “reasonable” and “consistent” with current state law and made any necessary adjustments. Under PCAB, administrative budgets reflected increased costs due to workload and inflation.

No Inflationary Adjustments for Most County Administration Social Services Budgets Starting in 2001-02. During the state’s budget crisis, the Governor and Legislature began to freeze county administrative allocations within DSS. Beginning with 2001-02, most county-administered social services programs were held at their 2000-01 budget level, adjusted for caseload. No adjustment for inflation was provided. The one exception was for the CWS program. This program received an increase for inflation for 2001-02. Since 2001-02, there have been no adjustments to county administrative allocations to account for inflation in any DSS programs.

County administrative allocations within the Department of Child Support Services (DCSS) followed a similar pattern. County allocations were last increased in 2001-02. Then in 2002-03, county administrative allocations were reduced by 5 percent and have been frozen since then.

Medi-Cal Administration Costs Reflect Inflation. In contrast to the social services programs operated by DSS and DCSS, county administrative allocations for Medi-Cal have been adjusted annually for inflation through 2005-06.

Governor’s Proposal

The Governor proposes trailer bill legislation to limit state participation in county administrative costs for “salaries, benefits, and overhead” to the amount provided in the 2005-06 Budget Act, as adjusted for caseload. This limit would begin in July 2006 and would apply to 14 different programs operated by DSS, DHS and DCSS. Counties would have the option of using their own funds to pay for inflationary increases in administrative salaries, benefits, or overhead. If a county provides its own funds for inflationary increases, the county monies would draw down federal funds to the extent the federal government normally provides matching funds. Figure 1 shows the programs that would be subject to the proposed freeze in county administration.

CalWORKs Block Grant Restriction. Under current law, counties receive a flexible block grant known as the “single allocation” to fund the costs of administration, child care, and welfare-to-work services in the CalWORKs program. Counties may move funds from one block grant component to another to meet local needs. The Governor proposes trailer bill to prevent counties from using this flexibility to fund increases in salaries, benefits, and overhead.

Passing Medi-Cal Penalties on to Counties. In addition to the salary and overhead cost freeze, the administration proposes to hold counties financially responsible for any federal penalties or disallowances that result from the failure of the counties to comply with requirements of the Medi-Cal program. The penalty would be imposed by reducing the allocation of state funds to the county for eligibility determinations. The administration has not explained its rationale for this proposal. Moreover, if, as proposed, county allocations for salaries, benefits, and overhead were frozen indefinitely, it is possible that the counties’ ability to make eligibility determinations in accordance with federal requirements might be impaired.

General Fund Savings. Compared to current law and current budgeting practice, the Governor’s proposal results in General Fund savings of $21.2 million in the Medi-Cal Program in 2006-07. There are no savings in the other programs for 2006-07 because they have received no inflationary adjustments since 2001-02 or earlier. This proposal would result in some out-year cost avoidance.

Comments on the Governor’s Proposal

The Governor’s proposal raises a number questions about the state county fiscal relationship. We discuss these issues below.

Proposal Would Remove Incentive for County Cost Shifts

As described above, the state has consistently funded inflationary adjustments for Medi-Cal administration while not providing any increases for social services program administration since 2001-02 or earlier. In all counties, social services programs and Medi-Cal are administered by the same county welfare department. In fact, in some counties the same workers determine eligibility for Medi-Cal, California Work Opportunity and Responsibility to Kids, and Food Stamps. Because Medi-Cal has received inflationary adjustments, while social services programs have not, it is possible that counties allocate more county-wide overhead to Medi-Cal rather than to other programs. By making all programs including Medi-Cal subject to a freeze, the Governor’s proposal would end the potential for this cost shifting.

Controlling County Costs

One potential rationale for the Governor’s proposal is that it limits the state’s fiscal exposure to county budgetary decisions by limiting the state’s contribution for support of county-administered health and social services programs. This in turn creates an incentive for counties to control costs. Some observers believe that county workers have more favorable overall compensation packages (higher salaries, benefits, and pensions with lower copayments and retirement contributions) than comparable state workers. We have no data to assess the validity of this hypothesis. However, the 2005-06 Budget Act directed the Department of Personnel Administration to conduct a survey comparing state compensation packages to packages offered by other public and private entities including counties. When this information is available (probably by April 2006), we will provide our comments on it to the Legislature.

While counties have significant control over wages through the collective bargaining process, they have little control over rent, utilities, and energy costs. It is for these types of largely uncontrollable costs that the Governor’s budget includes a 3.1 percent inflationary adjustment for state departments.

Will Counties Cover Inflation Costs With Their Own Funds?

Under the Governor’s proposal, counties would have the option of covering costs related to inflation with their own funds. To the extent counties elect to cover these costs, program services would continue to be provided at their current levels. On the other hand, if counties cannot or will not cover these inflationary costs, service levels are likely to decline over time. The Governor’s proposal essentially delegates the decision about whether to reduce service levels in the face of inflationary cost pressures to the counties. County decisions will vary based on their priorities and their individual fiscal situations.

Meeting State Objectives. Each of the programs that would be subject to the proposed freeze was enacted by the Legislature with specific state goals and objectives. Counties administer these programs as agents of the state with the aim of meeting the state established program goals. Unless the counties elect to use their own general purpose revenues to cover inflationary costs, lack of state funding for inflation could will slowly erode service levels.

Proposed Language Is Broad in Scope

Undefined Terms. The proposal freezes state participation in county costs for salaries, benefits, and overhead. However, the language provides no definition for these terms. Although not specified, “overhead” could include any or all of the following: rent, utilities, equipment, vehicles, contracts with vendors, allocated support costs from other county government functions, and gasoline. Adopting broad language such as this delegates the development of definitions to the administration.

Penalty Proposal Raises Policy Issues. The proposal to hold counties financially liable for certain federal penalties that Medi-Cal experiences raises significant policy concerns. For example, the Legislature may wish to consider whether such penalties should be borne by counties alone or whether in some cases they should be shared by the counties and the state. We believe this penalty liability proposal warrants further examination by the appropriate policy committees.

Proposal Is Inconsistent With Budget for State Operations

For 2006-07, the Governor’ budget generally provides a 3.1 percent inflationary adjustment for most departments to cover increased costs in operating expenses and equipment. Counties face identical cost pressures, but, pursuant to the Governor’s proposal would receive no state funds to cover inflationary costs.

Short-Term Budget Solution Vs. Long-Term Budget Policy

During times of fiscal difficulty, not providing inflationary adjustments is a potential budget solution. As discussed earlier, allocations for administration of most social services programs have not received an inflationary adjustment since 2001-02. Moreover, the Legislature and Governor have suspended the state cost-of-living adjustments for recipients of both Supplemental Security Income/State Supplementary Program and the CalWORKs program in 2005-06 and 2006-07. These budget solutions, however, have been adopted on a one-year or two-year basis. By proposing trailer bill legislation, the Governor is moving from a system of relatively short-term budget solutions to a long-term budget policy with implications for the state county fiscal relationship.

Analyst’s Recommendation

The Governor’s proposal would limit state participation in county administrative costs for salaries, benefits, and overhead to the amount provided in the 2005-06 Budget Act, as adjusted for caseload. We recommend rejecting the Governor’s proposal and offer suggestions for developing an alternative policy.

Reject Trailer Bill Proposal

In our view, there is not a compelling case for adopting trailer bill legislation creating a long-term budget policy of limiting state participation in county administration. The proposed language would restrict legislative flexibility to adjust funding and service levels in county administration.

Adopt a Consistent Approach to Budgeting County Administration

With respect to county inflationary adjustments, we recommend that the Legislature take a consistent approach for all county-administered state programs. Specifically, if an increase is to be provided, it should generally be the same percentage increase for all such programs. Conversely, a decision to provide no increase should be applied to all county-administered programs. Having a consistent policy would eliminate the incentive for counties to shift overhead costs from social services to Medi-Cal (where inflationary adjustments have been granted). This approach, has the merit of bringing consistency to budgeting for all county-administered health and social services programs. To the extent the Legislature is concerned about different service levels that have developed in the various programs as a result of differential inflationary adjustments, this could be addressed through separate budget action.

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