Governor Newsom just released his revised 2023-24 state budget (aka “The May Revision”). Since the release of his January budget proposal, monthly revenue shortfalls have continued, which have contributed to the May Revision General Fund revenue estimate shortfall of $8.4 billion (before transfers and adjustments). The additional budget shortfall at the May Revision, after transfers and adjustments, is estimated to be $9.3 billion. When combined with, and accounting for slight adjustments to the $22.5 billion Governor’s Budget shortfall, California is now facing a $31.5 billion shortfall. Further, the postponement of federal and state tax filing deadlines – allowed as a result of severe winter storms across the state – causes greater uncertainty in the state’s projected revenues.
Trigger Reductions—The May Revision does not include additional trigger reductions. However, it maintains most of the $3.9 billion in trigger reductions the Governor proposed in January.
Delayed Spending—The May Revision delays an additional $695 million across the multi-year without reducing the total amount of funding through the same period. Combined with the Governor’s Budget delays of $7.4 billion, $8.1 billion in spending delays is spread across the multi-year. Major items in this category at the May Revision include: $295 million moved into the out-years for the Foreclosure Intervention Housing Prevention Program (while maintaining $205 million in the current year and budget year).
Safety Net Reserve Withdrawal—The May Revision includes the withdrawal of $450 million from the Safety Net Reserve. This represents half of the funds available in the reserve, leaving a balance of $450 million if subsequently needed.
The Govenror noted the State is tapping into some reserve funds, but not touching the Rainy Day Fund. He also noted that there is approximately $42 billion in tax receipts still to be collected later this year. We have highlighted the mental and behavioral health items below as well as information on the MCO tax.
COMMUNITY ASSISTANCE, RECOVERY AND EMPOWERMENT (CARE) ACT
The May Revision includes $128.9 million General Fund in 2023-24, $234 million General Fund in 2024-25, $290.6 million General Fund in 2025-26, and $290.8 million General Fund in 2026-27 and annually thereafter for the Department of Health Care Services and Judicial Branch to implement the CARE Act (Chapter 319, Statutes of 2022). Of this amount, $67.3 million General Fund in 2023-24, $121 million General Fund in 2024-25, and $151.5 million in 2025-26 and annually thereafter is to support estimated county behavioral health department costs for the CARE Act. Compared to the Governor’s Budget, the annual increase is between $43 million and $54.5 million to account for refined county behavioral health department cost assumptions based on engagement with county stakeholders, and additional one-time $15 million General Fund for Los Angeles County start-up funding. For Judicial Branch and legal services funding, see the Criminal Justice and Judicial Branch Chapter.
• 2022-23 Budget Update—The May Revision reflects lower Medi-Cal expenditures of approximately $1.4 billion General Fund in 2022-23 compared to the Governor’s Budget. The decrease is due primarily to revised implementation updates to the Children and Youth Behavioral Health Initiative, the Behavioral Health Continuum Infrastructure Program, and the Behavioral Health Bridge Housing Program.
• Year-Over-Year Comparison—The May Revision projects Medi-Cal expenditures of $37.6 billion General Fund in 2023-24, an increase of $6.7 billion General Fund compared with the revised 2022-23 expenditures. A majority of the increase is attributable to a one-time repayment to the federal government related to state-only populations, assumed loss of increased federal funding consistent with the end of the federal COVID-19 public health emergency, and the implementation of Medi-Cal to undocumented individuals aged 26-49 beginning January 1, 2024 —partially offset by the MCO Tax renewal.
• 988 Suicide and Crisis Lifeline (AB 988)—The May Revision includes $15 million one-time 988 State Suicide and Behavioral Health Crisis Services Fund in 2023-24 to support eligible 988 call center behavioral health crisis services, for a total of $19 million in 2023-24 and $12.5 million in 2024-25 and ongoing.
• Behavioral Health Bridge Housing Program—The May Revision includes $500 million one-time Mental Health Services Fund in 2023-24 in lieu of General Fund for the Behavioral Health Bridge Housing Program, effectively eliminating the Governor’s Budget proposed delay of $250 million General Fund to 2024-25. The May Revision shifts $817 million General Fund from 2022-23 to the next three fiscal years to reflect updated programmatic timelines. The May Revision maintains the $1.5 billion augmentation for the Behavioral Health Bridge Housing Program.
• CalHOPE—The May Revision maintains funding to temporarily extend support for the CalHOPE program. In lieu of General Fund, the May Revision includes $50.5 million one-time Mental Health Services Fund in 2023-24. • Medi-Cal Drug Rebate Fund—The May Revision includes $222 million in General Fund savings in 2023-24 by bringing the reserve in the Medi-Cal Drug Rebate Fund to $0.
A reserve of roughly $200 million has typically been maintained in the fund to account for variations in actual rebate amounts and to reduce volatility. Chapter 38, Statutes of 2019 (SB 78) established this fund to deposit the non-federal share of drug rebate revenues for the Medi-Cal program.
EXPANSION OF TELE-MENTAL HEALTH SERVICES
In recent years, the Department has strategically expanded the use of telehealth services to improve access to primary and specialty care and psychiatry services for incarcerated individuals. The use of telehealth services has proven successful in enhancing the Department’s ability to deliver critical medical and mental health care services to patients effectively while supporting staff recruitment and retention for clinical positions that have historically been hard to fill. Building on the success of these models, the May Revision includes $11 million General Fund and 85 positions in 2023-24 and $17.3 million and 144 positions beginning in 2024-25 to expand the use of tele-mental health within the Statewide Mental Health Program to include psychology and social work disciplines in addition to psychiatry, which the Department began implementing in 2014-15. This will equip the Department with more tools to deliver timely and quality mental health care to patients while also increasing its ability to recruit and retain clinicians during a nationwide shortage of mental health professionals.
DEPARTMENT OF STATE HOSPITALS
The Department of State Hospitals (DSH) administers the state mental health hospital system, the Forensic Conditional Release Program, the Sex Offender Commitment Program, and the evaluation and treatment of judicially and civilly committed patients. The May Revision includes $3.5 billion ($3.3 billion General Fund) in 2023-24 to support the Department. The patient population is expected to reach 9,379 by the end of 2023-24, including patients receiving competency treatment in jail-based settings and community-based settings.
• Budget Update—Compared to the Governor’s Budget, the May Revision reflects a decrease of $35.7 million General Fund in 2022-23 and $33.2 million General Fund 2023-24; these totals do not include reappropriations. Caseload and bed adjustments are relatively flat for 2022-23 and 2023-24 overall, and the waiting list for Incompetent to Stand Trial (IST) beds continues to decline to 992, with 200 of those receiving early stabilization services according to the most recent data.
• COVID-19 Impacts—The May Revision reduces COVID-19 response expenditures by $19.7 million in 2022-23 (from $83.1 million to $63.4 million) and $9.2 million in 2023-24 (from $51.2 million to $42.1 million) based on updated COVID-19 practices in accordance with Centers for Disease Control and Department of Public Health guidance.
• Patient-Operated Expenses and Equipment—The May Revision includes $26.6 million General Fund, an increase of $6.1 million General Fund in 2023-24 compared to the Governor’s Budget, for patient-driven support costs.
• COVID-19 Workers’ Compensation Funds—The May Revision reflects a decrease of $8 million General Fund in 2022-23 for unspent workers’ compensation funding previously authorized for COVID-19 related claims.
1991 AND 2011 REALIGNMENT
Realignment shifted administrative and fiscal responsibility to counties for a variety of programs, along with a dedicated source of funding. 1991 Realignment provides funding for social and health programs while 2011 Realignment provides funding for local public safety programs. Additionally, both 1991 and 2011 Realignment provide funding for mental health and child welfare programs. The programs for 1991 and 2011 Realignment are funded through two sources: state sales tax and vehicle license fees. These fund sources are projected to increase by 3.1 percent from 2021-22 to 2022-23 and by 0.1 percent from 2022-23 to 2023-24.
HOUSING AND HOMELESSNESS – SIGNIFICANT ADJUSTMENT
• The May Revision includes $500 million one-time Mental Health Services Fund in 2023-24 in lieu of General Fund for the Behavioral Health Bridge Housing Program, effectively eliminating the Governor’s Budget proposed delay of $250 million General Fund to 2024-25. With this proposal, the May Revision maintains the $1.5 billion funded in the 2022 Budget Act for the Behavioral Health Bridge Housing Program. (See the Health and Human Services Chapter for additional information.)
HEALTH CARE SERVICES FOR INCARCERATED INDIVIDUALS
The May Revision continues the state’s commitment to delivery of health care services to incarcerated individuals. The Budget includes $3.9 billion General Fund in 2023-24 for health care programs, which provide incarcerated individuals with access to medical, mental health, and dental care services that are consistent with the standards and scope of care appropriate within a custodial environment.
CRIMINAL JUSTICE INVESTMENTS FOR SAFER COMMUNITIES
Proposition 47 Savings—The May Revision includes an additional $11.9 million General Fund in savings for Proposition 47, for a total savings of $112.9 million in 2023-24. Proposition 47 invests savings from reduced prison utilization in prevention and support community programs and funds are allocated according to the formula specified in the voter-approved measure, which requires 65 percent be allocated for grants to public agencies to support various recidivism reduction programs (such as mental health and substance use treatment services), 25 percent for grants to support truancy and dropout prevention programs, and 10 percent for grants for victims’ services.
DEPARTMENT OF HEALTH CARE ACCESS AND INFORMATION
Advancing Older Adult Behavioral Health—The May Revision includes $20 million General Fund in 2023-24, $20 million General Fund in 2024-25, and $10 million General Fund in 2025-26 at the California Department of Aging to support the continuation of the Older Adult Friendship Line—a targeted media campaign for older adults, and competitive grants to local jurisdictions to build organizational capacity to identify and address older adult behavioral health and substance use disorder needs.
Public Health Workforce Investments Restoration—The May Revision restores funding of $49.8 million General Fund over four years for various public health workforce training and development programs.
DEPARTMENT OF HEALTH CARE SERVICES
The Medi-Cal budget includes $135.4 billion ($30.9 billion General Fund) in 2022-23 and $151.2 billion ($37.6 billion General Fund) in 2023-24. Medi-Cal is projected to cover approximately 15.3 million Californians in 2022-23 and 14.2 million in 2023-24—more than one-third of the state’s population.
MANAGED CARE ORGANIZATION TAX AND MEDI-CAL PROVIDER RATE INCREASES
The May Revision proposes the renewal of the Managed Care Organization (MCO) Tax effective April 1, 2023, through December 31, 2026, resulting in $19.4 billion in funding to help maintain the Medi-Cal program and support increased investments while minimizing the need for reductions to the program. The Administration proposes to use the MCO Tax revenue as follows:
• A total of $8.3 billion over the proposed MCO Tax period in net General Fund offset to support the Medi-Cal program and achieve a balanced budget. The May Revision includes $3.4 billion in net General Fund offset on a cash basis in 2023-24, which reflects an additional $2.5 billion compared to the Governor’s Budget resulting from the acceleration of the tax.
• Of the remaining $11.1 billion, the Administration proposes to support Medi-Cal investments that improve access, quality, and equity in the Medi-Cal program over an 8- to10-year period. Effective January 1, 2024, the May Revision proposes approximately $237 million ($98 million General Fund) in 2023-24 and roughly $580 million ($240 million General Fund) annually thereafter to increase rates to at least 87.5 percent of Medicare rates for primary care, obstetric care (including doulas), and non-specialty mental health services. This is inclusive of the Governor’s Budget proposal to increase these rates as a condition of federal approval of the Designated State Health Program. The May Revision sets aside the remaining $10.3 billion, including $922.7 million in 2023-24 for future consideration.
The Administration will assess which payment reforms will deliver the greatest benefit to improve access and quality to the Medi-Cal program and develop a proposal for the 2024-25 Governor’s Budget.