COUNTY OF SAN MATEO

Inter-Departmental Correspondence

County Manager's Office

DATE:

February 18, 2004 REVISED

BOARD MEETING DATE:

February 24, 2004

TO:

Honorable Board of Supervisors

FROM:

John Maltbie, County Manager

SUBJECT:

County Manager's Report #1-Preliminary Analysis of the Governor's Proposed 2004-2005 Budget

Summary

County staff estimates over $49.6 million in potential cuts to programs in San Mateo County. The most significant impacts of the Governor's proposed mid-year State Budget cuts on San Mateo County include:

·

Increased Educational Revenue Augmentation Fund (ERAF) Shift

$24 million

While the Governor restored the Vehicle License Fee (VLF) backfill to local governments, he proposes the VLF 2003-04 funding gap amount be continued. His January proposed State Budget includes a $1.3 billion increase in ERAF shift of property tax from local governments.

·

Reductions in In-Home Support Services

$14.7 million

The proposed reductions in In-Home Support Services (IHSS) are substantial. Governor Schwarzenegger proposes elimination of the Residual Program, reductions in state funding for worker wages and benefits and other elements of the IHSS program.

·

Rate Reductions in Federally Qualified Health Center Funding

$1.8 million

The Administration proposes to revise the reimbursement rate methodology from a system that relies on the 2000 fiscal year cost reports to an average of the 1999 and 2000 cost reports.

Find below a brief, preliminary analysis from reporting departments of the most significant impacts of the state budget as proposed by the Governor. Please note, this analysis is preliminary and brief. Most cost impacts are estimates.

Background

In November 2003, Governor Schwarzenegger called for the fifth extraordinary session of the Legislature to address California's on-going budget problems. Its purpose is to consider legislation relative to the March 2004 debt-financing bond and constitutional spending limit; and to consider funding the offset of the vehicle license fee (VLF). The Legislature and Governor approved Propositions 57-The Economic Recovery Bond Act and Proposition 58-The California Balanced Budget Act, both of which will appear before voters on the March 2004 ballot.

The Governor also issued a fund deficiency (Section 27) letter to backfill local governments for the loss of revenues from his executive order to reduce the VLF. The Governor recalculated the amount of the VLF gap created by the administrative delay between restoring the VLF rates and actual receipts. Originally estimated at $825 million, the Governor raised the gap amount to $1.3 billion.

The Governor also called for mid-year spending cuts, many of which the Governor proposes be sustained for the Budget Year.

The Governor proposes over $16 billion in budget actions over the 2003-04 and 2004-05 fiscal years to bring the budget into balance. They include $2.6 billion in 2003-04 and $14.4 billion in 2004-05. While nearly $6 billion of the proposal is found in spending reductions, the remainder is found in a variety of fund shifts ($1.1 billion) and other one-time solutions including $2.9 billion from "re-basing" Proposition 98 growth, $3 billion from use of the Economic Recovery Bond funds, $1.3 billion from debt-service savings, and nearly $1 billion in suspension of the Proposition 42 requirement to transfer sales tax to transportation programs.

The budget does not propose any increases in state taxes.

Discussion

Increased Educational Revenue Augmentation Fund Shift-($24 million)

The Governor's proposed budget would sustain the backfill for the $4.1 billion in revenues lost as a result of his rescission of the VLF rate restoration in October 2003. However the Administration notes that local government VLF revenues were reduced by $1.3 billion in 2003-04 due to the administrative lag time between restoration of VLF rates and actual receipt of revenues. Recognizing that local government revenue sources, such as sales and property taxes, are less volatile, Governor Schwarzenegger's budget proposal would continue the VLF rate restoration gap loss in the form of a $1.3 billion Educational Revenue Augmentation Fund (ERAF) shift increase. This proposal would permanently relieve the state of its obligation to school funding in an equal amount.

Distribution of the $1.3 billion increase in ERAF could raise concern among local governments. While the "basis" for taking this local revenue is found in the VLF rate restoration gap, CSAC asserts the distribution of the $1.3 billion shift would be in the same manner as the current ERAF shift. County staff estimates that San Mateo County's loss of revenue using a VLF distribution formula would be between $10-12 million. In contrast, CASC estimates San Mateo County's potential revenue loss, using the current ERAF formula, could be between $15.4 to 24.2 million.

Local Mandate Reimbursement Deferral-($4.4 million)

The Governor's proposed budget sustains the current year deferral of state-mandated local program reimbursements, commonly called SB 90 claims. This will be the third year in which the reimbursements are deferred. The County removed this revenue source from the budget in FY 2002-03. Although the State at the time ensured that reimbursement would be repaid in FY 2006, the current State budget contains no appropriation for this multi-year liability.

Human Services-Medi-Cal Eligibility Determination-Fiscal impact to be determined

The Governor proposes to implement a plan to control county welfare department allocations for Medi-Cal eligibility determinations. The plan is to be presented to county welfare departments by January 2005. Since the formal plan has not been developed, a fund impact analysis cannot be made. However, the Governor's Budget Highlights (Budget Highlights) note that the proposal will save $10 million in 2004-05 and $20 million in General Fund at full implementation. County staff estimate the $20 million reduction to be approximately a 3-4% of the current statewide allocation.

Human Services/Medical Centers-Programs for Immigrants-Fiscal impact to be determined, potentially significant

The Administration proposes to consolidate a number of health and human services for immigrants. The programs include CalWORKs benefits for recent documented immigrants, the California Food Assistance Program, Cash Assistance Program for Immigrants and Healthy Families for documented immigrants. The amount of funding would be reduced by 5% (6.6 million in General Fund) with the remainder allocated as a block grant to counties. The proposal is intended to provide flexibility to counties while preserving basic safety net services to this population. The fiscal impact of the proposal will depend on the counties' responsibilities and ability to control program eligibility and program growth.

As noted in the County Manager's analysis of the proposed 2003-04 Mid-year budget cuts, the Governor proposed capping service for various State-only programs, including the Cash Assistance Program for Immigrants (CAPI) and the Healthy Families Program, at January 1, 2004 caseload levels. If caseloads exceed the limit, people eligible for CAPI and the other programs would be placed on a waiting list. While the County administers CAPI and it has no net county cost, elimination of the program could increase enrollment in General Assistance (GA), which is funded through County General Fund revenues. Most persons eligible for CAPI are also eligible for General Assistance. Those on a CAPI waiting list may be eligible to receive GA, thus increasing GA costs. County staff continues to explore alternatives. If caseloads exceed the limit for the Healthy Families Program, children eligible for these services would be placed on a waiting list. Those on the waiting list would likely either forgo services, risking a future medical emergency or seek services through the County's programs for uninsured, most notably the Healthy Kids and WELL programs. While County staff has not yet determined the fiscal impact, they predict it would be significant.

Health and Human Services-Tobacco Tax Health and Protection Act (Proposition 99)-($187,500)

Due to lower tobacco tax revenues resulting from the decline in tobacco sales, the Administration proposes an average decline of 15.5% in funding for some health programs funded through Proposition 99. The Human Services Agency estimates a reduction of approximately $77,500 for programs they administer. Health Services estimates a 22% reduction in California Healthcare for the Indigent Program (CHIP) which would translate to a $110,000 loss for Health Services and the Medical Center.

Human Services-CalWORKs Aid Payments (Grants)-$1,600

As the Administration proposed in the 2003-04 mid-year spending reductions, Governor Schwarzenegger continues to seek a 5% reduction in cash aid payments to CalWORKs recipients. In addition, the Governor proposes suspension of the 2004-05 cost-of-living adjustment (COLA) for recipients. As noted in the County Manager's analysis of the proposed 2003-04 Mid-year budget cuts, San Mateo County clients collectively would lose approximately $65,000 a month in purchasing power. County would save $1,600 a month in local match requirements from $65,000 reduction in benefits. The proposed reduction and suspension would save approximately $179.7 million statewide.

The budget also proposes a 25% reduction for child-only, safety-net grants for children in families with parents that do not cooperate in the work participation requirements and for families that have reached their lifetime assistance limit. The net county savings would be small, since CalWORKs has only a 2.5% county chare and San Mateo County has few cases that meet these criteria.

Human Services-Foster Care Reform-Fiscal impact to be determined

The Administration proposes program reforms to promote the care of more children in family home environments and to shorten the period of time children spend in foster care. The Administration asserts that increasing costs in foster care are the result of placements in higher-cost Foster Family Agencies (FFA). As a result, the administration hopes to curtail such costs through legislation to institute performance measures on FFA contracts, foster care facility rate restructuring and a federal waiver to allow flexible use of funds on prevention programs. According to County staff, the County's FFA rate is reasonable compared to other FFAs throughout the state. Foster care funding flexibility has been supported by County staff in the past and would lead to better and leveraged use of state and county funding.

Medical Center-Revised Rate Methodology for Federally Qualified Health Centers-($1.8 million)

Federally Qualified Health Centers (FQHC) serve a large portion of the low-income population. As a result, they receive an enhanced reimbursement from Medicare and Medi-Cal. According to the Administration the currently approved rate methodology for determining reimbursement for services results in "an overstatement of costs in some instances." The Administration proposes to revise the reimbursement rate methodology from a system that relies on the 2000 fiscal year cost reports to an average of the 1999 and 2000 cost reports. This could reduce the Medical Center's reimbursement by $1.8 million.

Medical Center-Medi-Cal Provider Rate Reduction-at least ($27,657)

As noted in the County Manager's analysis of the proposed 2003-04 Mid-year budget cuts, Governor Schwarzenegger proposed a 10% reduction in Medi-Cal provider rates over the existing 5%, effectively returning to Governor Davis' May 2003 proposal for a 15% reduction in Medi-Cal provider rates. While the majority of Medi-Cal reimbursements are through HPSM, the Medical Center receives reimbursement for non-HPSM patients whose physicians' services are billed to the State. Based on 2002-03 revenue estimates, a 15% provider rate reduction would result in a $27,657 loss. However, the Medical Center anticipates this revenue source to be larger in 2003-04 and, as a result, the impact of a rate reduction. The provider rate reduction would also impact the MSSP and AIDS Waiver Program. However, these reductions have been assumed in the preparation of the County's 2004-05 budget.

In addition, reductions in provider rates will have a negative impact on access and the recruitment of doctors to serve Medi-Cal patients and threaten the revenue of the County's health care system, which has come to rely on Medi-Cal payments as a significant source of revenue.

Medical Center-Medi-Cal Reform-Fiscal Impact to be determined

The Administration proposes Medi-Cal reform to control costs while meeting the medical needs of beneficiaries. While no specifics were detailed in the proposed Budget, it anticipates a minimum of $400 million in General Fund savings starting in 2005-06.

Health Services-Aging and Adult-IHSS Residual Program-($8 million)

Consistent with the Governor's mid-year reductions, the Administration proposes elimination of the In-Home Supportive Services Residual Program, a state-only program to fund certain services (heavy cleaning, transportation, non-medical personal care, respite services and supervision of individuals with dementia or Alzheimer's) not eligible for federal funding. Currently, 33% of independent provider hours and 8% of contract hours are designated for services covered by the Residual Program. The total cost of this program as budgeted in 2004-05 is $12.390 million. The County share of this cost is $4.337 million, of which approximately 55% is County general fund with the balance is from Realignment funds. The program serves approximately 490 clients. Elimination of the program would result in a net loss (accounting for the relief from the County's share of cost) of approximately $8 million. Elimination of the Residual Program would result in a $365.8 million state General Fund savings in 2004-05 and beyond.

Health Services-Aging and Adult-IHSS Worker Wages and Benefits-($6.2 million)

The Administration proposes to reduce the level up to which the state provides a share of cost for wages and benefits to the state minimum wage for both contract and independent providers. Assuming the Residual Program is eliminated, Personal Care option wage reductions for contract providers would result in a $208,725 loss to the County ($253,000 less the County's $44,275 share of cost) or an increased cost of $82,225 to make up the loss of state funds for the wage. For independent providers, the Personal Care option wage reduction would result in the loss of $5.6 million ($6.8 million total funds less the County's $1.2 million share of cost). As with contract provider costs, the County could make up the state fund loss with an additional $2.2 million cost to the County. The state supports the cost of benefits up to $0.60 per hour. Elimination of this funding would result in an additional $435,000 loss in state funding. Statewide, this proposal would result in savings of $301.6 million ($98 million in state General Fund) in 2004-05.

Health Services-Aging and Adult-IHSS Elimination of the Employer of Record Requirement-($517,100)

The Administration proposes to eliminate the mandate for an employer of record and the state share of funding for the public authorities. In San Mateo County, the net loss of this funding would be approximately $517,100 (the $674,000 total cost, which includes $225, 725 federal funds and $291,263 state funds, less the County's $156,900 in Realignment funding). Potential administrative funding increases could offset this proposed reduction.

Health Services-Aging and Adult-IHSS Elimination of Domestic and Related Services in Shared-living Situations-Fiscal impact to be determined

The Administration proposes to eliminate funding for domestic and related services for recipients who live with family members. These services include housecleaning, meal preparation and clean-up, laundry, shopping and errands. County staff estimates that as many as 20% of the hours provided in IHSS in San Mateo County would be subject to this proposal. However, estimating the fiscal impact is difficult since some of the hours may be included in the Residual Program proposed for elimination.

Health Services-Aging and Adult Block Grant-($23,829)

The Administration proposes to convert state support for aging programs to a block grant and reduce the amount of state General Fund by 5%. Area Agencies on Aging would have increased flexibility. County staff believe that the block grant would improve administrative efficiencies of the various programs and provide more flexibility to meet local needs.

Health Services-Mental Health-Elimination of the Children's System of Care-($363,225)

The Budget proposes to eliminate the Children's System of Care program in its entirety. The Children's System of Care provides core funding for youth in the juvenile justice system and indigent case management services for youth ineligible for Medi-Cal. Elimination of the program would result in the loss of $363,225 to the County.

Health Services-Mental Health-EPSDT Reform-Fiscal impact to be determined

While the Governor's proposal maintains Early Periodic Screening Diagnosis and Treatment Program (EPSDT) funding, it proposes rate structure review and reform for a proposed savings of $40 million and increased oversight and audits for $5.7 million in savings. The state will also federal authority to narrow the definition of medical necessity. It is unclear how these actions will affect services and reimbursements in the County.

Health Services-Mental Health-AB 3632 Services-($1.5 million)

In accord with AB 3632, County mental health agencies are mandated under current law to provide mental health services identified in students' Individual Education Plans (IEP). Statewide counties have approximately $130 million in mandated costs that have not been reimbursed for the 2002-03 and a similar suspension is expected for 2003-04 for a total estimated loss of $160 million. It is assumed in the proposed budget that federal funding for these services will continue at the 2003-04 level, which is approximately 55% of the funding needed for this federally and state mandated service. Currently covered by County General Funds, the uncovered costs are approximately $1.5 million.

Health Services-Medi-Cal Managed Care-Fiscal impact to be determined

The Governor is proposing a 6% "quality improvement fee" for Medi-Cal managed care plans. This fee will be a vehicle for leveraging and receiving additional federal funding for managed care plans. While more details are needed, this mechanism could potentially permit more federal funding to flow to SMMC and other public hospitals as well. This proposal is similar to the intergovernmental transfer vehicle for managed care plans that the Davis administration attempted to craft with the federal government.

The Governor is also proposing managed care reforms, including the expansion of managed care into additional counties, review and reform of managed care reimbursement policy, and expansion of enrollment of the aged, blind and disabled population into managed care (San Mateo County is one of only five counties that includes this population in its managed care program).

Probation-Elimination of TANF Funding for Juvenile Justice-($2.08 million)

The Governor's Budget proposes elimination of funding for probation at-risk youth services. The reduction reflects the Governor's decision to terminate the program after October 2004. The Probation Department would lose $1.833 million in 2004-05 and $2.44 million in 2005-06. Additionally for the 2004-05 fiscal year and thereafter, Probation's $250,000 TANF Camps and Ranches allocation would also be eliminated. This would impact Camp Glenwood. In addition, CBO contracted treatment would also be reduced in 2004-05 and eliminated by 2005-06 for a loss of $567,306 in 2004-05 and $756,408 in 2005-06. However, COPS and juvenile justice crime prevention grant funding will be maintained at 2003-04 levels in 2004-05.

Probation-Board of Corrections-Fiscal impact to be determined

The Administration proposes shifting costs through fees for service on various Board of Corrections functions including the establishment and reevaluation of minimum standards for local juvenile hand adult detention facilities, conducting inspections of all local detention facilities and establishing training standards. The fiscal impact to the County cannot yet be determined.

Probation-Standard Training in Corrections (STC)-($175,000)

The Board of Corrections reimbursement for mandated STC training was again not included in the Governor's budget. As a result, the Probation Department will not receive approximately $175,000 in reimbursable expenses.

Probation-California Youth Authority (CYA) Cost Increases-Fiscal impact to be determined

The CYA has indicated they will increase fees for the Budget Year. Since the amount of the increase has not been determined, County staff cannot estimate the impact. While the County makes every effort to minimize the number of juveniles sent to CYA, for those that receive such a disposition, the cost of doing so will increase.

Sheriff-Booking Fees-($1.464 million)

The Budget proposes to eliminate the $38.2 million in state reimbursements to cities and special districts for fees charged by counties to cover actual administrative booking costs. In addition, the Governor has indicated support for past budget trailer bill language that would eliminate the booking fee backfill and counties' authority to charge a booking fee. The Sheriff's Office estimates booking costs in 2004-05 to be $1,463,696.

Child Support-Federal Child Support Penalties-($1 million)

The Governor's Budget maintains a 25% county share of the federal Child Support Automation Penalty for 2004-05 for a state saving of $55 million. San Mateo County's share of the penalty is approximately $1 million.

Child Support-Child Support Collections-($600,000)

The Administration also proposes to redirect the county share of child support collections to the State for a budget year savings of $39.4 million. Currently, San Mateo County keeps approximately 2.5% of all welfare recovered by the Child Support Department. The County estimates the potential loss of these funds around $600,000

Vision Alignment

Consideration of the Governor's proposed 2004-05 Budget aligns with the County's commitment to responsive, effective and collaborative government and impact Goal # 3, 5, 8, 16, 17, 9, 20 and 22.