A major proposal from Gov. Gavin Newsom to overhaul the state’s behavioral and mental health system is likely to take nearly $720 million away from services provided by county governments annually, according to a new analysis from the Legislative Analyst’s Office.

Although that money would be reallocated within the system, in part to house homeless individuals with severe mental illness and addiction disorders, the report authors note that Newsom and key legislators supporting the proposal have neither provided a complete justification for the changes nor have they published an analysis on how the changes may “negatively impact current services.”

“Consequently, as the Legislature considers the proposal, we recommend asking the administration certain questions to assess whether the proposal is warranted,” the report states.

Newsom wants the Legislature to put his proposal before voters next year in tandem with a $4.68 billion bond measure to add psychiatric treatment beds. It would change how the state allocates money under the Mental Health Services Act, which levies a 1% tax on income above $1 million to fund behavioral health services.

“What’s more upsetting is watching people continue to suffer on the streets with ineffective interventions and inability to access much needed treatment.”
— Brandon Richards, Gov. Newsom’s Deputy Communications Director

Homelessness has become one of the most high-profile challenges plaguing California, increasing 32% in the past four years. Newsom, who promised to reduce homelessness, announced his intent during his State of the State tour to divert nearly one-third of the state’s Mental Health Services Act money to help address homelessness.

Since that time, local behavioral health providers and county officials have criticized the proposal because of its potential to cut services and pit mental health programs against homeless services. The state has spent more than $20 billion on housing and homelessness since 2018.

Supporters, meanwhile, say reprioritizing how the money is spent is long overdue in light of the growing needs of the state’s homeless population as well as the addition of new funding sources for mental health programs.

In a statement, Newsom’s Deputy Communications Director Brandon Richards said “upsetting the status quo” was necessary in light of California’s changing health care needs.

Mental health needs among California homeless

A recent study from UC San Francisco found that two-thirds of homeless individuals experience mental health conditions, although income loss is the driving force behind the state’s homelessness crisis.

“What’s more upsetting is watching people continue to suffer on the streets with ineffective interventions and inability to access much needed treatment,” Richards said. “A California behavioral health system of care that is more focused, more transparent, and more accountable for results is what all Californians deserve and what this historic reform aims to achieve.”

Roughly one-third of the county mental health infrastructure in the state is supported by the Mental Health Services Act, which was approved by voters in 2004 as a ballot initiative. Substantial changes to the act, like the ones Newsom proposed, require voter approval. Last year the tax generated about $3.8 billion.

Critics of Newsom’s proposal say the new analysis bolsters their argument that the changes will result in significant cuts to current programs, particularly those that support children.

Newsom’s office has so far “danced around” how much money would be cut, said Adrienne Shilton, a lobbyist for the California Alliance of Children and Family Services, which represents behavioral health providers in every county. The report is the first to quantify how the proposal would impact programs statewide.

“We’re seeing in real dollars what the impact would be,” Shilton said.

The analysis estimates spending on current programs would be reduced from $1.34 billion to $621 million under the plan.

Housing money in Gavin Newsom’s plan

The report identified a number of key changes and unanswered questions for the Legislature to consider in Newsom’s plan:

• Reduced flexibility: Counties would have less flexibility to determine how money is spent. Based on current expenditures, counties would be required to increase spending on housing by $493 million and on “full-service partnerships” by $121 million. “Full-service partnerships” include intensive wraparound services like case management, housing and employment support as well as clinical care.
• Program cuts likely: In order to meet spending targets and caps, counties would likely need to reduce spending on current programs including “outpatient services, crisis response, prevention services, and outreach.”
• Less independent oversight: The proposed restructuring moves much of the program implementation and oversight authority to the Department of Health Care Services. The change “significantly limits” the independent oversight of the current Mental Health Services Oversight and Accountability Commission.

Sacramento Mayor Darrell Steinberg, who helped author the original law and who has been a key supporter of the changes, said the law was always meant to prioritize “the plight of people living with serious mental illness on our streets.”

“It’s appropriate, in fact, it’s necessary to set priority status,” Steinberg said.

Steinberg and Newsom’s office also contend that the state has invested heavily in the mental health safety net in other ways, including changes to the Medi-Cal system and a $4.4 billion one-time infusion into the Children and Youth Behavioral Health Initiative.

“It’s no longer a funding source that stands alone,” Steinberg said. “(Now), the opportunity is to weave all these pieces together so that everyone has access to care, and nobody is left out or left behind.”

Still, advocates say it is premature to assume those investments have had a positive impact and that many have not yet been implemented. In an opposition letter, Lishaun Francis, senior director for behavioral health at Children Now said the state “has yet to demonstrate that it has delivered” on its promises and that the proposal deprioritizes children and youth.

“The opportunity is to weave all these pieces together so that everyone has access to care, and nobody is left out or left behind.”
— Darrell Steinberg, Mayor of Sacramento

Advocates also say those funding sources, particularly Medi-Cal, won’t reimburse for the non-clinical programs like classroom interventions and family resource centers that have historically been supported by the Mental Health Services Act. Medi-Cal is the state’s health insurance program for extremely low-income Californians.

“Families need flexibility,” said Christine Stoner-Mertz, chief executive officer of the California Alliance of Child and Family Services. “We need community-designed practices, and we haven’t been successful in doing that with just Medi-Cal.”

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Supported by the California Health Care Foundation (CHCF), which works to ensure that people have access to the care they need, when they need it, at a price they can afford. Visit www.chcf.org to learn more.

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