Analysis of the 2007-08 Budget Bill: Health and Social Services


Health and Social Services

Compared to the prior year, proposed General Fund spending for health and social services programs in 2007-08 remains essentially unchanged at approximately $29.9 billion (an increase of 0.2 percent). This tiny increase in spending is due primarily to a variety of caseload and cost increases that are offset by reductions in the California Work Opportunity and Responsibility to Kids (CalWORKs) grant payments for children, a shift of Proposition 98 funds for CalWORKs child care, and federal penalty relief in child support automation. The Governor’s proposed health care reform is not reflected in the budget plan.

Expenditure Proposal and Trends

Budget Year. The budget proposes General Fund expenditures of $29.9 billion for health and social services programs in 2007-08, which is 29 percent of total proposed General Fund expenditures. Figure 1 shows health and social services spending from 2000-01 through 2007-08. The proposed General Fund budget for 2007-08 is $55 million (0.2 percent) above estimated spending for 2006-07. Special funds spending for health and social services is proposed to increase by $1.4 billion (21 percent) to about $8.1 billion. Most of this special funds growth is due to an increase in revenues dedicated by Proposition 63 for mental health services.

Historical Trends. Figure 1 shows that General Fund expenditures (current dollars) for health and social services programs are projected to increase by $10.1 billion, or 51 percent, from 2000-01 through 2007-08. This represents an average annual increase of 6 percent. Similarly, combined General Fund and special funds expenditures are projected to increase by about $13.9 billion (58 percent) from 2000-01 through 2007-08, an average annual growth rate of 6.7 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 23 percent from 2000-01 through 2007-08, an average annual rate of 3 percent. Compared to the prior year, General Fund spending for 2007-08 is proposed to decline by 2.4 percent in constant dollars. Combined General Fund and special funds expenditures are estimated to increase by 29 percent during this same period, an average annual increase of 3.7 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 four groups: (1) families and children, (2) refugees and undocumented persons, (3) disabled beneficiaries, and (4) aged persons (who are primarily recipients of Supplemental Security Income/State Supplementary Program [SSI/SSP]). Figure 3 shows the caseloads for CalWORKs and SSI/SSP.

Medi-Cal Caseload. The Governor’s budget plan assumes that the current year caseload for Medi-Cal will fall short by almost 71,000 individuals, or 1 percent of the number assumed in the 2006-07 Budget Act.

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 107,000 average monthly eligibles (1.6 percent) to a total of about 6.7 million in 2007-08. This would be a higher pace of growth than the minimal growth projected for 2006-07. The caseload projections for 2007-08 take into account Medi-Cal enrollment procedure changes mandated by Chapter 328, Statutes of 2006 (SB 437, Escutia), to implement a two-county pilot program allowing for self-certification of income and assets. This change is expected to result in a caseload increase of almost 16,500 individuals in 2007-08. The Medi-Cal budget proposal also reflects growth in several eligibility categories, primarily medically needy beneficiaries and welfare families.

Healthy Families Program (HFP) Caseload. The Governor’s budget plan assumes that the current-year enrollment for HFP will fall short by about 17,000 children compared to the number assumed in the 2006-07 Budget Act. However, the spending plan further assumes that the program caseload will increase by about 74,000 children, or almost 9 percent, during the budget year. Of this increase, about 13,000 children are forecast to be due to the implementation of SB 437 which will allow the self-certification of income at annual eligibility review beginning January 1, 2008. The budget proposal estimates that a total of almost 916,000 children will be enrolled in HFP as of June 2008.

The CalWORKs and SSI/SSP Caseloads. Figure 3 shows the caseload trend for CalWORKs and SSI/SSP. The SSI/SSP cases are reported as individual persons, while CalWORKs cases are primarily families. For 2007-08, the budget assumes that CalWORKs will serve just over 1 million individuals.

As Figure 3 shows, the CalWORKs caseload declined steadily from 1997-98, essentially bottoming out in 2003-04. This period of substantial 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, and, since 1999-00, the impact of CalWORKs program interventions (including additional employment services). In 2004-05 the caseload experienced its first year-over-year increase (about 2 percent) in almost a decade. In 2005-06 the caseload resumed its decline, about 3 percent. For 2006-07 the budget projects a modest decline of 1.5 percent. In 2007-08, the caseload is projected to drop by about 12 percent mostly due to policy proposals which (1) increase sanctions on families where the parents do not meet program participation requirements and (2) impose new time limits on children.

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 (increasing at about 1.5 percent per year). This component accounts for about 30 percent of the total caseload. The larger component—the disabled caseload—typically increases by just under 3 percent per year. Since 1998, the overall caseload has been growing moderately, between 2 percent and 2.5 percent each year. For 2006-07 and 2007-08, the budget forecasts caseload growth of 2.3 percent and 2.1 percent respectively.

Spending by Major Program

Figure 4 shows expenditures for the major health and social services programs in 2005-06 and 2006-07, and as proposed for 2007-08. As shown in the figure, three major benefit payment programs—Medi-Cal, CalWORKs, and SSI/SSP—account for a large share (about 66 percent) of total spending in the health and social services area.


Figure 4

Major Health and Social Services Program
Budget Summarya

(Dollars in Millions)



Estimated 2006-07


Change From 2006-07










General Fund






All funds












General Fund






All funds






Foster Care/Child Welfare Services






General Fund






All funds












General Fund






All funds






In-Home Supportive Services






General Fund






All funds






Regional Centers/Community Services






General Fund






All funds






Community Mental Health Services






General Fund






All funds






Mental Hospitals/Long-Term Care Services






General Fund






All funds






Healthy Families Program






General Fund






All funds






Child Support Services






General Fund






All funds







a    Excludes administrative headquarters support.

 N/A=not available.


As Figure 4 shows, General Fund spending is proposed to increase in all major health programs except for community mental health services. The decrease in community mental health services spending between 2006-07 and 2007-08 is due primarily to a prior-year deficiency of $243 million General Fund in the Early and Periodic Screening Diagnosis and Treatment program that significantly increases the current-year funding request.

In regard to major social services programs, General Fund support will increase for SSI/SSP (9.9 percent) and In-Home Supportive Services (1.9 percent). Conversely, the budget proposes to reduce General Fund support for Child Welfare Services/Foster Care (-6 percent), Child Support Services (-48 percent), and CalWORKs (-34 percent). Overall, the budget proposes to decrease General Fund spending on social services by about $560 million (5.8 percent) compared to 2006-07. Most of this year-over-year savings is in CalWORKs and child support, as discussed below.

In contrast, most health programs would be funded in a way that is consistent with existing eligibility, benefits, and other requirements, and recent legislation expanding Medi-Cal and HFP caseloads.

Major Budget Changes

Figures 5 and 6 illustrate the major budget changes proposed for health and social services programs in 2006-07. (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 caseload changes, (2) suspending certain welfare cost-of-living adjustments (COLAs), (3) funding shifts, (4) federal penalty relief, and (5) other policy changes.


Figure 5

Health Services Programs
Proposed Major Changes for 2007‑08
General Fund





Medi-Cal (local assistance)


$14.7 billion





$1 billion







+     $465 million from increases in caseload, costs and utilization of services, mainly for aged and disabled beneficiaries



+     $97 million from rate increases for certain skilled nursing facilities



+     $87 million from increased costs for premiums paid by Medi-Cal on behalf of beneficiaries who are also enrolled in the federal Medicare Program



+     $81 million from growth in the number of enrollees in Medi-Cal managed care






     $44 million from lower drug costs achieved through implementation of the federal Deficit Reduction Act of 2005



     $23 million from the state paying lower Medicare Part D “clawback” payments to the federal government






Department of Developmental Services (local assistance)


$2.2 billion





$46.5 million







+     $46.5 million primarily for increases in regional center caseloads, and costs and utilization






     $144 million from using Public Transportation Account funds in lieu of General Fund for regional center transportation costs



     $44 million from drawing down a federal funds match for Intermediate Care Facilities services previously paid for with 100 percent General Fund







Figure 6

Social Services Programs
Proposed Major Changes for 2007‑08
General Fund







$1.4 billion





$691 million







+     $28 million for child care and services for families who comply with work requirements in response to the full-family sanction






     $17 million in grant savings for families who remain out of compliance and experience a full-family sanction



     $42 million for caseload decrease



     $269 million by using Temporary Assistance for Needy Families funds (freed up by a Proposition 98 shift to CalWORKs child care) to offset General Fund costs for grants



     $336 million from grant savings due to imposing a five-year time limit for children whose parents cannot or will not comply with work participation requirements








$3.9 billion





$350 million







+     $217 million for providing the January 2008 state cost-of-living adjustment



+     $75 million for caseload increase






In-Home Supportive Services


$1.5 billion





$28 million







+     $79 million for caseload increase






     $45 million from full-year implementation of quality assurance initiative





Caseload Changes. The budget funds caseload changes in the major health and social services programs. For example, the Medi-Cal budget reduces spending for lower-than-anticipated caseload in the current year but adds resources for the cost of caseload increases expected in the budget year. Also, the Medi-Cal budget would be adjusted upward by $465 million for significant growth in the baseline costs and utilization of services by various groups of eligibles, but especially the aged and disabled. General Fund support for regional centers (RCs) that serve the developmentally disabled would continue to grow due mainly to caseload growth and utilization increases in these services. Funding would be adjusted downward in the current year for HFP to reflect lower than anticipated caseload in 2006-07, but increased in the budget year for anticipated strong caseload growth.

Cash Grant COLAs. Pursuant to current law, the budget provides $217 million to fund the six-month cost of January 2008 state COLA for the SSI/SSP. The budget proposes to suspend the CalWORKs July 2007 COLA, resulting in a cost avoidance of $140 million. The budget does not provide the discretionary Foster Care COLA.

Funding and Program Shifts. The budget proposes to spend $269 million in Proposition 98 funds on CalWORKs child care. This proposal frees up TANF child care funds which are then redirected to CalWORKs grants, creating an identical General Fund savings in the CalWORKs program, with no impact on service levels. The budget achieves additional savings ($56 million) by using TANF funds to replace General Fund expenditures in child welfare services. Increases in General Fund support for RCs would be partly offset by a one-time shift of Public Transportation Account funds ($144 million) to pay the transportation costs of RC clients that previously were paid for with General Fund.

Elimination of Federal Child Support Penalty. In 2006-07, the state budgeted $220 million to pay the federal penalty for the state’s failure to have a single statewide child support automation system. The Department of Child Support Services requested federal certification for an interim automation system in August 2006, and during the certification process, all penalties are held in abeyance. Accordingly, the budget reflects a savings of $220 million related to this penalty relief.

Other Policy Changes

Increasing CalWORKs Sanctions. Currently, when an able-bodied adult does not comply with CalWORKs participation requirements, the family’s grant is reduced by the adult portion, resulting in a “child-only” grant. The budget proposes a “full family sanction” whereby the reduced grant for the children is eliminated if an adult is out of compliance with program participation requirements for three months. In response to this increased sanction, the budget estimates that many families will enter employment, resulting in child care and employment services costs of $28 million. In cases where families do not comply, the budget estimates grant and administrative savings of $17 million, so the net cost of this proposal is about $11 million.

Time Limits for Aided Children. Currently, after five years of assistance, a family’s grant is reduced by the adult portion, and the children continue to receive a child-only grant in the safety net program. The budget proposes to eliminate the safety net grant for children whose parents fail to comply with the federal work participation requirements (20 hours per week for families with a child under age 6 or 30 hours per week for families where all children are at least age 6). The budget also proposes to limit assistance to five years for most other child-only cases (such as those with parents who are undocumented or ineligible due to a previous felony drug conviction). These time limit policies are estimated to result in savings of about $336 million in 2007-08.

Limit State Participation in IHSS Provider Wages. Under current law, the state participates in IHSS provider wages up to $11.10 per hour during 2006-07, rising to $12.10 per hour in 2007-08. The budget proposes to freeze state participation in wages to the level provided in each county as of January 10, 2007. However, the administration indicates that it will continue to participate in post January 10, 2007 wage increases, until its urgency legislation proposal prospectively limiting state participation is enacted by the Legislature. The budget scores savings of $14.1 million in 2007-08.

Department of Public Health (DPH). Effective July 1, 2007, the budget plan implements Chapter 241, Statutes of 2006 (SB 162, Ortiz), that creates a new DPH and Department of Health Care Services (DHCS) from the existing Department of Health Services. The DPH will administer a broad range of public and environmental health programs while DHCS will administer the Medi-Cal Program. This change is intended to result in increased accountability and improvements in the effectiveness of public health programs and the Medi-Cal Program by allowing each department to administer a narrower range of programs. The legislation creating the two new departments requires that the change be cost neutral to the state.

Proposition 36 Programs. The budget proposes a net reduction of $25 million General Fund for Proposition 36 drug rehabilitation programs. This would be achieved by reducing funding by $60 million for the Substance Abuse and Treatment Trust Fund (SATTF), established by Proposition 36. Funding for the Substance Abuse Offender Treatment Program—established to improve the outcomes of Proposition 36 Programs—would increase by $35 million. The increased funding would be used for drug treatment activities that are not permitted under Proposition 36 and cannot be funded through SATTF.

Eliminate Integrated Services for Homeless Adults With Serious Mental Illnesses. The Governor’s budget plan proposes the elimination of the Integrated Services for Homeless Adults with Serious Mental Illnesses program in order to reduce state costs by almost $55 million from the General Fund. This program provides funding to local mental health agencies that coordinate the service needs of individuals who have a serious illness and are homeless, or are at risk of homelessness.

Governor’s Proposal for Health Care Reform Independent From the Budget. On January 8, 2007, the Governor announced a health care reform proposal aimed at ensuring that all Californians have health care coverage. This proposal did not provide a timeline for implementation and is not reflected in the budget plan. However, we note that the Governor’s proposal would have a significant impact on future funding for state health programs if it were enacted as proposed.

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