May 18, 2011
Overview
When Governor Jerry Brown proposed the FY 11-12 budget in January, the State was facing an unprecedented structural deficit of $25.4 billion in the current and fiscal year 11-12. The future held no promise of change, as massive shortfalls were predicted each year through FY 15-16.
The Administration launched a concerted campaign to tackle the deficit in a balanced, bipartisan manner. It proposed enormous reductions in state spending on traditional health and human services safety net programs ($12.5 billion) as well as the temporary extension of several major tax rates, due to expire at the end of this fiscal year, and other measures to increase revenue ($12 billion). The Legislature convened subcommittee hearings promptly in February, combing through the myriad of details involved in the proposed reductions. At the conclusion of the hearing process, the Budget Conference Committee approved program cuts totaling approximately $10 billion. This included profound changes to the all of the state’s safety net programs, including Medi-Cal, In-Home Supportive Services (IHSS), and CalWorks. The reductions were codified in dozens of budget trailer bills, most of which were signed into law by the Governor on March 24, 2011. The Governor recently summarized these cuts as “the most significant reductions in government probably in the last decade.”
The Administration was not able to conjure the support it needed to enact the revenue proposals it submitted to lawmakers in January. Due to a 2/3rd vote requirement, most of these proposals, including the controversial plan to eliminate state Redevelopment Agencies as well as the realignment of certain public safety and mental health programs, remain outstanding.
On May 16, 2011, the Administration released the May Revision to the Governor’s FY 11-12 budget. This revision reflects the impact of recent fiscal and legislative developments:
- The sharp and unanticipated rise in tax revenue (+ $6.6 billion)
- Newly enacted spending reductions and other solutions (+ $13.4 billion)
- Revised spending projections and other changes (- $3 billion)
These actions have served to significantly diminish the state deficit, now estimated at $9.6 billion ($4.8 billion in FY 10-11 and $4.8 billion in FY 11-12). The Administration is proposing additional budget solutions that will fill this gap and create a cash reserve of $1.2 billion.
Economic Recovery
Following the national trend, the California economy appears to be experiencing a slight resurgence. The Administration predicts “modest but steady” growth over the next five years. It estimates an average annual growth rate in General Fund major revenue of 5.9% – from $84.5 billion in FY 09-10 to $112.5 billion in FY 14-15. Most of the new revenue realized in the current year and predicted in the next fiscal year result from increases in capital gains income and wage increases among high income earners. Despite these signs of resurgence, however, it is important to note that the state is not expected to achieve revenues at the FY 07-08 level until at least FY 13-14.
Spending Reductions in IHSS
The January Budget included $486.2 million in reductions to the IHSS program. The Legislature rejected a majority of the Governor’s proposals, which included an across the board reduction in service hours and the elimination of domestic and related services for many IHSS recipients. In March, the Budget Conference Committee adopted a series of measures that achieved the targeted savings:
- A requirement that all recipients obtain certification from a licensed health care professional that without IHSS services the recipient is at risk of being placed in institutional care (revised estimated savings of $67.4 million (see Footnote 1).
- A mandate for the state’s participation in the new Community First Choice Option available under Federal law as of October 1, 2011 (estimated savings of $128 million).
- The elimination of the county mandate and most of state funding for IHSS Advisory Committees (revised estimated savings of $1.5 million).
- A mandate for the implementation of the Medication Dispensing Pilot Project beginning July 1, 2011. The goal of the pilot is to reduce hospitalization and institutionalization resulting from medication noncompliance among high-risk Medicaid recipients. There is a stipulation that should the requisite savings not be achieved by July 1, 2012, there will be a mandatory across the board reduction in service hours for all IHSS recipients (estimated savings of $140 million).
These measures were contained in SB 72, the human services trailer bill, and were signed into law on March 24, 2011.
Impact of the May Revision on IHSS
The May Revision appropriates $1.37 billion in state general funds to IHSS in FY 11-12. This represents a substantial increase from the FY 10-11 state appropriation of $1.21 billion. Total funding (state, federal, county) of the program in FY 11-12 is $5.03 billion.
The May Revision does not propose any new changes to the IHSS program. It is important to note that the provisions enacted in March (described above) remain.
Caseload Reduction
The State continues to experience a decline in IHSS program caseload. In March, the Legislature agreed to score savings of $29.5 million in the current year and $53.7 million in FY 11-12 as a result of a significant reduction in caseload compared to what had been forecast. In the May Revision, the Administration further decreases caseload estimates thereby reducing expenditures by an additional $6.9 million in the current year and $7 million in FY 11-12.
As the current fiscal year draws to a close, a more accurate assessment of average monthly caseload is possible. The May Revision now forecasts a monthly average of 430,521 cases in FY 10-11 (compared to 434,000 forecast in the March Conference Budget) and 437,997 in FY 11-12 (compared to the March forecast of 442,638). The Administration expects that IHSS caseload will grow only slightly (1.7%) from the current year to the next.
Importantly, the Administration predicts a significant decline in caseload as a result of the implementation of the new health care certification requirement. As stated above, this mandate will require all recipients to obtain certification from a licensed health care professional that without IHSS services they are at risk of being placed in institutional care. The requirement becomes effective on July 1, 2011; however it will be phased in over a period of time.
| FY 11-12 Total Average Monthly Caseload |
Estimated |
| With no new requirement |
437,997 |
| With new health care certification requirement |
401,073 |
This represents an 8.4% decline in the IHSS recipient population as a result of the new health care certification requirement
Adult Day Health Care
In January, the Administration proposed the elimination of Adult Day Health Care (ADHC) as an optional benefit under the State’s Medi-Cal plan. The Legislature approved the elimination; however it modified the proposal to allocate $85 million toward the transition to and creation of alternative services (see Footnote 2). The elimination of ADHC is estimated to produce $90 million general fund savings in FY 11-12.
AB 97 amends Welfare and Institutions Code to read, in part, as follows:
As a result of the enactment of this article to eliminate adult day health care as an optional benefit under the Medi-Cal program, the department shall implement a short-term program to fund organizations to assist individuals receiving ADHC services to transition to other Medi-Cal services, social services, and respite programs, or to provide social activities and respite assistance for individuals who were receiving ADHC services at the time the services were eliminated. The goal of this funding is to minimize the risk of institutionalization by identifying needed services (WIC Article 6, Section 14590(a))
AB 97 also includes intent language to create a new program, titled “Keeping Adults Free from Institutions (KAFI), which would serve as an alternative for eligible former recipients of ADHC services.
The State recently submitted a State Plan Amendment to the federal government requesting the elimination of ADHC as an optional benefit. Approval is needed from the Centers for Medicare and Medicaid Services (CMS) in order for the state to proceed. The ADHC benefit will be eliminated 60 days from when federal approval is received.
The May Revision decreases the original allocation of $85 million to $25 million to fund “transition assistance”. It does not contain any language or appropriation for the KAFI program.
According to the Department of Health Care Services (DHCS), there are over 300 ADHC centers throughout the state serving almost 35,000 recipients. 67.5% of this population also receives IHSS services. The average number of IHSS hours authorized per participant is 83 hours/ month.
The Administration has indicated that it considers IHSS a possible alternative to ADHC.
Revenue Proposals
The need for additional revenue remains as critical today as it did in January. The May Revision includes many of the same revenue proposals included in the January budget. If adopted, they are expected to generate $9.3 billion in additional state income.
- Make mandatory the Single Sales Factor for multi-state/national corporations. This proposal is expected to generate $950 million in FY 11-12.
- Maintain the Personal Income Tax (PIT) Rate Surcharge from 2012 through 2015 – expected to generate $1.3 billion in FY 11-12.
- Maintain the PIT dependent exemption credit for five years – expected to generate $1.4 billion in FY 11-12.
- Maintain the Vehicle License Fee (VLF) for five years – expected to generate $1.1 billion in FY 11-12.
- Maintain the Sales and Use Tax (SUT) at 5% for five years. One percent of this tax would directly fund realignment. This proposal is expected to generate $4.5 billion in FY 11-12.
The Administration proposes to implement these revenue measures on July 1, 2011 with final ratification occurring through a special election to be held sometime in the fall.
Phase One Realignment
The May Revision proposes several changes to the Administration’s original realignment proposal. The major components of the proposal remain the same. It entails the realignment of public safety, certain mental health services, substance abuse treatment, foster care/child welfare services, and adult protective services from the state level to the county level. It would transfer $5.6 billion in funding responsibility from the state to the counties. Counties would receive dedicated revenues from portions of the Sales Tax and the Vehicle License Fee in order to meet these financial obligations.
Phase Two Realignment
The Administration continues to propose a future realignment of the IHSS program from the county to the state level (termed “Phase Two Realignment”). The goal of this effort would be for the state to assume all fiscal responsibility for the program. There are no details yet as to how this would occur. We expect a detailed proposal to implement Phase Two Realignment to be included in the Governor’s FY 12-13. Preliminary discussions with stakeholders are expected to commence later in the spring.
Public Authorities
State funding for Public Authority Administration was reduced in the May Revision as a result of the continuing decline in caseload. The State General Fund appropriation was reduced to $6.6 million for FY 11-12, compared to a General Fund appropriation of $9.7 million in FY 10-11. The total appropriation (county, state, federal) for Public Authority Administration for FY 11-12 is $17 million, a 37.4% decline from the FY 10-11 total appropriation ($27.2 million).
Program Integrity
Appropriations for the various Anti-Fraud measures remain relatively unchanged in the May Revision. The table below provides a snapshot of the net estimated General Fund savings scored in the IHSS budget in FY 11-12.
| Program Integrity Savings (in thousands) |
$144,999 |
| |
|
| County DA Activities (see footnote 3) |
$10,000 |
| County Investigations (see footnote 4) |
$3,551 |
| Related Activities (see footnote 5) |
$1,423 |
| Fingerprinting Recipients – Admin |
0 |
| Total Costs |
$14,974 |
| |
|
| Net Program Integrity Savings (GF) |
$130,025 |
_________________________
1) The May Revision decreases the amount of savings the Administration estimates will result from the new health care certification requirement. It previously estimated savings of $133.5 million. According to the Administration, this decrease “reflects the updated caseload, the inclusion of a one month delay in savings, and a phase-in approach for applying savings.” This recalculation of savings does not impact the provision of IHSS services and should not be interpreted as a reduction.
2) AB 97, Chapter 3, Statutes of 2011
3) Includes county program integrity plans/activities in collaboration with county District Attorneys.
4) Includes 78 county investigators and unannounced home visits to confirm services are being provided as authorized.
5) Includes targeted mailings, fraud training for county staff, modified notices of action to inform of authorized services, provider orientations, reviews of criminal offender record information, subsequent arrest notifications, and appeals of provider terminations.
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