COUNTY OF SAN MATEO

Inter-Departmental Correspondence

County Manager’s Office

DATE:

January 21, 2009

BOARD MEETING DATE:

January 27, 2009

SPECIAL NOTICE/HEARING:

None

VOTE REQUIRED:

Majority

TO:

Honorable Board of Supervisors

FROM:

David S. Boesch, County Manager

SUBJECT:

County Manager’s Report #1

A.

Preliminary Analysis of the 2009-10 State Budget as Proposed by the Governor

RECOMMENDATION:

Accept this report.

VISION ALIGNMENT:

Commitment: Responsive, effective and collaborative government

Goal(s): 20—Government decisions are based on careful consideration of future impact rather than temporary relief or immediate gain.

BACKGROUND:

On Wednesday, December 31, 2008, Finance Director Mike Genest released the Governor’s 2009-10 Proposed State Budget. Citing the unprecedented budget crisis, the Governor reportedly directed the Department of Finance to prepare and release the proposal early, indicating that the state could not wait for the customary January 10 deadline.

The state’s General Fund deficit through the end of the 2009-10 fiscal year is estimated at $41.6 billion, without corrective action.

The Governor’s proposal seeks to resolve the deficit by adding a number of new solutions (totaling $4.6 billion) to proposals previously released during the November Special Session, which included $4.5 billion in program reductions (49 percent of total solutions) and $4.7 billion in revenue increases (51 percent of total solutions).

The proposed revenue enhancements include temporarily increasing the Sales and Use Tax by 1.5 cents; broadening the Sales and Use Tax to certain services; increasing the excise tax on alcohol by a nickel per drink; instituting a 9.9 percent tax on oil extraction; increasing vehicle registration fees (primarily to backfill cuts to local public safety programs); and borrowing money from various special funds.

The Administration’s proposed reductions represent an approximately $93 million cut to County programs.

The Governor is also proposing to issue and sell over $4.5 billion of Revenue Anticipation Warrants (RAWs) starting in July 2009. RAWS differ from Revenue Anticipation Notes (RANs) in that they need not be paid back until the next fiscal year, so the State would have until June 30, 2011 to repay the loan.

The largest category of proposed budget solutions, however, are expenditure reductions. Overall program reductions include deep cuts to education, health and human services and corrections.

The State is on course to run out of cash in February. State Controller John Chiang announced on January 16 that it will be forced to delay payments next month in order to preserve cash flow and protect payments the State must make to fund education and repay outstanding debts. Payments that will be delayed for 30 days starting February 1 and affecting counties include SSI/SSP, CalWORKs grants, funding for county administration of social services programs and Medi-Cal, local assistance for mental health programs including EPSDT and AB 3632, and local assistance for alcohol and drug programs including drug Medi-Cal, Proposition 36, perinatal services, and drug court funding. The Controller also indicated that suspended payments could be rolled into IOUs if the State still lacks sufficient cash to pay its bills come March or April.

The deferral issue has also been proposed in the form of draft statutory language developed by the Administration and would defer seven months of state payments for a number of health and social services programs and the local gas tax subventions. Estimates are that the total amount of such deferral plan ranges from $3-$4 billion.

DISCUSSION—2009-10 State Budget as approved by the Governor

CHILD SUPPORT SERVICES—OVERALL—($3 million)

The Governor’s budget proposes the following budgetary adjustments in the area of Child Support Services.

Child Support Services—Revenue Stabilization Fund—None

The State FY 2009-10 Local Assistance Estimate to the County includes an $18.7 million increase ($6.4 State General Fund) to establish a Local Child Support Agency (LCSAs) Revenue Stabilization Fund to provide necessary funding to stabilize caseworker staffing levels in order to secure child support collections and increase General Fund revenue. It is estimated that this investment will provide a return of approximately $6.9 million to the General Fund. Funds in the Revenue Stabilization Fund will be allocated separately in a yet-to-be-determined manner. These funds are also considered to be part of the “base” for Basic Local Administrative Costs, and are therefore, on-going and not one-time.

Child Support—County Match—None

Included in the LCSA Administrative Cost is a $40 million component ($13.6 million County matching and $26.4 million Federal Financial Participation) to enable counties that chose to supplement their program with county dollars to receive the two-for-one dollar matching funds directly into their program. Since the federal government has certified California’s new child support automated system, there is no penalty for using FFP.

Child Support—LCSA Electronic Data Processing (EDP), Maintenance & Operations (M&O)—($3 million)

Funding for County EDP M&O is approximately $26 million for FY 2009-10. This is a reduction of approximately $3 million compared to FY 2008-09. Funding for LCSAs EDP M&O generally cover the cost for direct personnel and contract services to maintain and operate Child Support Enforcement locally to support the collection of child support.

Child Support—Deficit Reduction Act (DRA) Incentive Match—None

The Administration continues to backfill the loss of incentive funding caused by the passage of the federal DRA of 2005. The DRA backfill is now part of the program’s base funding and will no longer be a separate funding item.

Child Support—DRA Fees—None

A provision of DRA requires states to pay the federal government a $25 annual application fee for services to families that have never received Temporary Assistance for Needy Families (TANF) if at least $500 is collected annually on their behalf. The fee may be recovered from the custodial parent, non-custodial parent or paid directly by the state (using state funds). For FY 2009-10, the State will continue to pay the fee. However, beginning in 2010-11, DCSS proposes to institute an annual administrative service fee for never-assisted families whose collections reach $500 or more per year. The Governor’s Budget includes $116,000 ($39,000 General Fund) in 2009-10 to issue outreach notices to families to notify them of the new fee.

HEALTH—OVERALL—($9.6 million)

The Governor’s 2009-10 Budget proposes to reduce the state’s health and human services General Fund expenditures by $1.03 billion, or three percent, in 2009-10. The proposed cuts to County programs include:

Health—Medi-Cal Managed Care Rates—Unknown

The Administration proposes to reduce funding to the Medi-Cal program by imposing new regulations that would drop many families from coverage. The changes will burden clients and/or California Children’s Services (CSS) with share of cost payments for Medi-Cal. The proposal to implement month-to-month eligibility for undocumented immigrants that are eligible for emergency or limited scope benefits only is also a concern. This will result in additional staff time in assisting patients manage their Medi-Cal status and increase the possibility that CCS/County funds may need to be used to treat these children should their coverage be terminated.

Medi-Cal changes that would increase the number of uninsured in the County would increase the County share of cost for serving clients in the Maternal, Child and Adolescent Health (MCAH) programs, the Child Health and Disability Prevention (CHDP) programs. These programs are reimbursed by the State in proportion to the percentage of clients who are on Medi-Cal. Other fiscal concerns for the County’s Health System include increased Medi-Cal share of cost and scaled-back Medi-Cal benefits for newly qualified immigrants.

The Department estimates that up to 5,817 persons in San Mateo County could lose their Medi-Cal eligibility due to eligibility cutbacks proposed in the Governor's budget affecting low-income adults, immigrants and older adults and persons with disabilities. Some of these individuals may be eligible for County indigent healthcare programs, thus constitute a shift in costs. The budget also proposes elimination of certain benefits (e.g., dental, optometry, audiology and speech), which could also affect our indigent care program, but these have been previously been rejected by the Legislature.

Health—Aliens Residing in the United States under Color of Law (PRUCOL)—Unknown

California Children’s Services (CCS) has approximately ten patients that are undocumented but are on full scope Medi-Cal through a program called “Aliens Permanently Residing in the United States Under Color of Law” (PRUCOL). These patients have long-term chronic diseases and are extremely high cost. One of the proposed cuts in the Governor’s Budget is to eliminate this program and place the patients on "limited scope" benefits which in many cases will not cover a large portion of the patient’s treatment. This would result in a shift in costs back to the County. The Department has not received a final allocation from the State for this program.

Health—Citizen’s Property Tax Deferral Program—Unknown

The Governor’s proposed budget includes a reduction in property tax assistance for seniors and blind or disabled Californians through the Citizen’s Property Tax Deferral Program beginning February 1, 2009. This reduction in assistance will have a negative impact on many of the clients of AAS and other San Mateo County residents.

Health—Behavioral Health and Recovery Services (BHRS)—($2.52 million)

The Administration proposes to eliminate State funding for Mental Health Managed Care (specialty mental health services for Medi-Cal beneficiaries). These funds are used to match Federal Financial Participation (FFP) for the Medi-Cal program. It also proposes to backfill the reduction with redirected Mental Health Services Act funds. This proposal would require voter approval because it conflicts with the Mental Health Services Act’s prohibition against supplantation. The reduction in State General Fund for Mental Health Managed Care would be $2.52 million for BHRS.

Health—State General Fund for Alcohol and Drug Services

The Governor proposes to increase the alcohol excise tax 5 cents per drink. This would create revenue to backfill the elimination of State General Fund for existing alcohol and drug treatment services, including those administered by the Department of Corrections and Rehabilitation. The funds would be deposited in a Drug and Alcohol Prevention and Treatment Fund for this purpose. BHRS receives

$2.8 million in State General Fund for alcohol and drug programs that would be subject to this “swap,” including Prop 36/OTP and match for Drug Medi-Cal. BHRS has been working with the County Manager’s Office and the Board of Supervisors Legislative Sub-committee on an analysis and proposal for our legislative delegation in favor of a higher increase in the alcohol excise tax.

Health—Family Health Services, California Children Services—Unknown

California Children’s Services (CSS) is a statewide program managed by the California Department of Health Care Services (DHCS). CSS specializes in medical care, case management, physical/occupational therapy and financial assistance for children with certain health care needs. The State has implemented capped allocations for both CCS Administration and the Medical Therapy Unit (MTU) program for the current fiscal year. On the Administration side of the program there is an overall reduction in treatment funds due to that amount being directly tied to the San Mateo CCS allocation, whereas in the past there was no limit. The new funding mechanism could result in managing the programs based on fiscal constraints rather than client needs and even longer wait times for services. The Department has not received a final allocation from the State for this program.

Health—First 5 Funding—($1 million)

Family Health currently receives $1 million funding from First 5. The Governor proposes to divert $275 million from the statewide California Children and Families Commission (Proposition 10/First 5 Funding) and local First 5 Commissions in 2009-10. The diversion would mean the elimination of the California Children and Families Commission and take 50 percent of the local commissions’ revenues approximately $4 million. This proposal would be subject to voter approval. This could impact the amount of funding available for Family Health Services, which would negatively affect the Pre-to-Three and Black Infant Health Programs.

Health—Realignment Sales Tax and Vehicle License Fee (VLF)—($1.12 million)

The State reduced the base amounts for both Sales Tax and VLF effective FY 2007-2008 to reflect actual collections. The Health Department believes that the realignment base is not supposed to be decreased and that the State should fill in the “gap” from other sources. However, it is unknown if and when that might occur. Overall, there has been a decline in State remittances in both Sales Tax and Vehicle License Fee (VLF) for FY 2008-09, which may continue through budget year 2009-10. The base has been reduced by $1,126,159 and collections continue to be down.

Health—In-Home Supportive Services (IHSS)—($5.1 million)

The Governor’s budget includes a proposal to reduce the State’s participation in Independent Provider (IP) wages to the state minimum wage, or $8.00 beginning in May 1, 2009 through June 30, 2010.

The Administration’s budget proposal eliminates domestic and related services for clients with a functional index score below 4. AAS estimates that 92 clients would lose meal preparation and clean-up assistance (272 hours monthly), 578 clients would lose meal preparation and clean-up related assistance (6,320) hours monthly), and 372 clients would lose shopping and errand related assistance (870 hours monthly). The elimination of 89,550 IHSS hours annually would result in a reduction in the County share of cost by $213,795 at $11.50 per hour and $160,975 at $8.00 per hour.

The State currently pays the difference between the Medi-Cal Share of Cost (SOC) and the IHSS SOC for a client. The IHSS SOC is based on the allowable rate for the Supplemental Security Income/State Supplementary Program (SSI/SSP) and is currently $907 per individual per month. The Medi-Cal SOC has remained at $600 per individual per month since 1989. There are an estimated 108 currently receiving IHSS that have both the Medi-Cal and IHSS SOC, and who currently pay the lesser amount per month. The Governor’s proposed budget eliminates the State’s payment in the difference in the SOC. This proposal will shift the additional SOC to the clients. As a result, the clients may not be able to afford to participate in the IHSS program.

Health—Supplemental Security Income/State Supplementary Payment (SSI/SSP)

The Governor’s proposed budget includes suspending the June 2010 state SSI/SSP Cost of Living Adjustment (COLA). In addition, it proposes to reduce SSP grant to the federally required minimum based on the 1983 payment standards, effective May 1, 2009. This proposal would reduce the grant to aged/disabled individuals from $870 per month to $830 per month and to aged/disabled couples from $1,524 per month to $1,407 per month. These proposals will create hardship on clients served by AAS as well as other parts of the Health System, as many of our clients rely on SSI/SSP to live.

HUMAN SERVICES—OVERALL—($81 million)

The Governor proposes a number of significant reductions and eligibility changes in Medi-Cal and SSI/SSP programs, as well as sharp reductions in the CalWORKs and several reductions in services to legal immigrants.

Human Services—Cash Flow Issue—($50-$75 million)

By far the most important action that will affect both this fiscal year and next fiscal year is the State Controller’s decision to delay payments beginning next month to all Social Services, Medi-Cal and other programs that HSA currently administers. It is unclear whether or not the cash received from the federal government as a pass through will be held as well. The amount of payments withheld from February to September alone would be $50-75 million.

Human Services—Cost of Doing Business—($1.1 million)

In total our County has lost approximately $10 million over the last 8 fiscal years due to the lack of adjustments for increasing costs from the California Department of Social Services. Our costs continue to rise yet we are funded based on FY 2000-2001 levels.

For the first time this current fiscal year, our Medi-Cal allocation did not receive an increase for CODB. In 08/09 the effect on HSA resulted in a net reduction of $900,000 to our allocation. For FY 09-10 we anticipate the shortfall to be $1.1 million.

Human Services—Cash Assistance Program for Immigrants (CAPI)—($1.15 million)

The budget proposes for the elimination of the CAPI Program to all counties. This 100% state funded program would over time increase our General Assistance (GA) population as clients seek aid by other means. Our General Assistance Program is 100% Net County Cost. Our current average CAPI caseload for HSA is 267. Assuming all clients are eligible for GA their grant payment would be $359 per month. The cost to our county would potentially be $1,150,236 annually.

Human Services—Realignment—($900,00)

Although the Governors’ budget estimated about a 5% reduction, in this fiscal year current trends are tracking at approximately 8%. The loss is projected to be $900,000.

Human Services—SSI/SSP—Unknown

The Federal Cost of Living Adjustment for clients receiving SSI / SSP payments was implemented January 1, 2009, increasing the SSI portion of grants by 5.8 percent. The Budget proposed to suspend the COLA for 2010 meaning clients would receive their same level as 2009.

Human Services—Medi-Cal Eligibility Determination—($1.1 million)

There are various proposals to decrease funding to Medi-Cal and impose new regulations, which would drop many families from coverage. The Department’s allocation for FY 2008-09 is $23,063,070. For FY 2009-10, the Department anticipates a net loss of approximately $1.1 million.

Human Services—Child Welfare Services—None

CWS for FY 09-10 remains fully funded and is not subject to reductions based on our initial analysis.

Human Services—Food Stamp Administration—($400,00)

Our allocation for FY 08-09 is $3,334,963. There is an increase of 12% due to increased caseload across the state. Our prorata share of the increase would be $400,000.

Human Services—CalWORKs—Assistance Payments—Unknown

The Governor proposes to modify the CalWORKs Safety Net Program by imposing a 60-month time limit on assistance for certain child-only cases, implementing a six-month self sufficiency review requirement to engage families who are not participating in work requirements, and reducing monthly assistance payments by 10 percent. The Governor also proposes to give maximum safety net benefits to working families who are fully participating in federal work requirements.

The elimination of safety net benefits for timed out families would affect over 120 families in San Mateo County. These families would then need to turn to General Assistance, which will increase Net County Cost by at least $500,000.

The proposed 10 percent cut in monthly assistance payments effective May 1, 2009 will result in a $46.3 million savings in the current fiscal year and $301.3 million in FY 2009-10. The proposal would reduce the maximum monthly grant for a family of three from $723 to $651. CalWORKs funding is 97.5 percent Federal/State and 2.5 percent County Cost. HAS currently has over 2,000 active CalWORKs cases. The proposed 60-month time limit on child only cases would affect a portion of the 1,000 County child only cases. Other numerous families would be discontinued if the State imposes a face-to-face self-sufficiency review every six months if the family did not meet all criteria for the program.

Human Services—Transitional Housing Plus (THP+)—None

THP+ remains fully funded for next fiscal year. Our current allocation is $2,497,925.

PUBLIC WORKS—OVERALL—($345,000)

The Governor’s recently released proposal does not effect transportation funding for local streets and roads. However, the following issues could impact the Department’s budget:

Public Works—Gas Tax—($70,000)

These funds are an excise tax on each gallon of gasoline sold, and are the primary revenue source for the County’s road program. The Governor’s proposal does not change the formula for distribution, nor does it recommend any borrowing of these funds. Last year, the State borrowed six months of the allocations in order to manage its cash flow problem. The funds were repaid in full at the end of the six months, but with no interest. Future borrowing is again a threat and funds have been on the decline in the past few years due to reduced gasoline consumption. The State is projecting a decrease of 1.4 percent in 2008-09 and 1.6 percent in 2009-10. As a result, the County’s funds are declining by approximately $70,000 per year.

Public Works—Proposition 42 (Transportation Funding)—($275,000)

These funds are the sales tax on gasoline. The Governor’s proposal does not change the formula for allocation of these funds to cities and counties, nor does it recommend any borrowing of these funds. For the past three years out of four years, the State has diverted these funds to the General Fund to balance the budget. Future borrowing is a continuing threat. Taxable sales are projected by the State to decline by 4.5 percent in 2008 and 7 percent in 2009. Therefore, funding will likely decline $225,000 - $500,000 over the next two years. The losses, however, could potentially be offset by the Governor’s proposal to implement a temporary increase in the sales tax of 1.5 percent.

Public Works—Proposition1B (Transportation Bond)—None

The funds represent the allocation to cities and counties from the Transportation Bond approved by the voters in 2007. The County received $8,724,150 in FY 2007-08 and is eligible to receive $1,129,776 in FY 2008-09. Although the Governor’s proposal includes the release of these funds as part of his economic stimulus program, it appears that the earliest the funds will be available is late 2009. This could be problematic because the current requirements are for the funds to be expended by December 31, 2009. If the deadline for expenditures is extended through the summer/fall of 2010, the delay in the receipt of these funds will not have a significant negative impact on the County.

PROBATION—OVERALL—($1.32 million)

The Governor’s proposed 2009-10 budget features many recommended budget changes in the justice area that have been contained in previous proposals over the last several months. The Governor continues to propose the creation of a Local Safety and Protection Account into which Vehicle License Fee (VLF) will be directed to support on an ongoing basis several public safety initiatives. (The VLF redirection would be replaced by a $12 increase in vehicle registration fees). The proposed cuts to the Probation include:

Probation—Juvenile Assessment and Referral Center—($107,876)

The Juvenile Assessment and Referral Center is designed to serve young people with emotional and behavioral issues or other special needs, as well as juveniles in the justice system. Proposed state cuts will result in minimal reductions to services as cuts will be made to other programs deemed not as critical, if necessary.

Probation—Preventing Repeat Offender Program—($208,294)

The Prevent Repeat Offender Program (PROP) was developed out of research that indicated if a child entered the Juvenile Justice System at an early age and fell under certain other criteria, they were more likely to re-offend. The proposed state budget cuts will result in the probable reduction to substance abuse counseling contracts and Probation Department staffing at both the North and South County Programs. Fewer offenders will receive counseling and intensive supervision and case load management. Caseloads would be reassigned to field supervision, which will result in less direct supervision from assigned probation officers.

Probation—Family Preservation Program—($62,898)

The Family Preservation Program seeks to offer an intensive, therapeutically oriented probation supervision approach for minors and families where significant family, emotional and/or mental health issues are present. The proposed state cuts will result in the reduction of Probation staff and the reassignment of caseloads to field supervision, which will mean less direct supervision from an assigned probation officer.

Probation—Court and Community Schools (County Office of Education)—($6,574)

A possible reduction to the Court and Community Schools Program could result in a loss of up to $6, 574 in funding for at-risk youth participating in the program. Twenty percent fewer youth would receive counseling assistance.

Probation—Literacy/Numeracy Program (County Office of Education)—($48,585)

A proposed reduction of $48,585 in Literacy/Numeracy instruction will result in the reduction of at least one part-time teacher. This will result in 300 fewer youth receiving instructional assistance.

Probation—Juvenile Justice Crime Prevention Act (JJCPA) Evaluator—($12,915) and Day-Evening-Weekend Program (DEW) (Probation/YMCA of SF)—($77,378)

The Governor proposes a combined $90,293 reduction to the JJCPA Evaluator and Day-Evening-Weekend (DEW) Program. The impact of the cut to the Evaluator will be minimal, as evaluation data would still be provided. The proposed cut to the DEW is more substantial, as it translates into the elimination of either an evening or weekend program for moderate- to high-risk youth.

Probation—Juvenile Probation and Camps Funding (TANF)—($300,123)

The Administration’s proposed cuts to the TANF program side of Probation are estimated at $300,000. These include a $127,504 to the Youth Services Center (YSC) Juvenile Hall Programming, such as Anger Management and Life Skills Training Classes. A $74,101 cut to the Risk Prevention Program (officers on campus). This loss of revenue will force the majority of participants to opt out of the program and increase school districts and police departments share of cost. A $14,230 cut in the Parenting Program. The Probation Department would need to make cuts in other program areas to preserve this program, as it is the only parent assistance program of its type in the County. A $7,218 cut in funding for the TANF Administrative Coordinator position. This position is required by Comprehensive Youth Services Act (CYSA) TANF legislation. A $77,070 cut to Community Based Organizations (provider contracts). Four providers were recently chosen in a round of awards. Awardees would each need to scale back services to schools and reducing program interventions that are alternatives to detention.

Probation—Juvenile Probation and Camps Funding—$500,00

The proposed cut represents 100 percent of the funding for the program. No change is allowable due to state mandated 1:15 supervisor to youth ratio and the department anticipates that it would either need to absorb the shortfall in other divisions or seek General Fund relief to offset the loss. The possible re-allocation of the Youthful Offender Block Grant funding to offset some or all of the anticipated shortfall is under consideration.

FISCAL IMPACT:

Unknown, but potentially very significant.

B.

Announcement of NACO 2009 Achievement Awards Applications

The National Association of Counties is accepting applications for its 2009 Achievement Awards. The awards are a means to receive national recognition for the work the County is already doing. The Youth Commission received a first a first-place award last year from NACO.

There are 21 award categories from Information Technology to Personnel Management, Volunteers to Criminal Justice and Public Safety. For more information, please visit their website at www.naco.org.